Don’t confuse free trade and trade deficits
Here’s Benjamin Cole:
As David Glasner recently noted, no plank of orthodox macroeconomics is more sacred today than that international free trade is good, and that even large and chronic trade deficits don´t matter.
But an overlooked 2012 paper from the New York Federal Reserve, entitled House Price Booms, Current Account Deficits, and Low Interest Rates, raises serious concerns about chronic trade deficits, particular given the deeply entrenched ubiquity of property zoning.
This is not true. The claim that large trade deficits do not matter is certainly not “sacred”, indeed many economists disagree. But even if it were true, this makes no sense. Trade deficits are one thing, and free trade is another. Both the US and Germany have relatively free trade, but we have a large deficit (although much of that is measurement error) and Germany has a large surplus. The cause of our current account deficit is saving/investment imbalances. If you want a smaller deficit you do not install tariffs, you install pro-saving (or anti-investment) fiscal policies. You encourage saving by lowering the tax rate on capital income, and you reduce government dissaving by making the budget deficit smaller. Yes, tariffs could reduce the budget deficit by a tiny amount, but it’s an extremely inefficient way of doing so.
If you are worried about trade deficits, the last thing you should be doing is protectionist trade policies.
The paper posits, “One of the most striking features of the period before the Great Recession is the strong positive correlation between house price appreciation and current account deficits, not only in the United States but also in other countries that have subsequently experienced the highest degree of financial turmoil.”
The short story is this: When a nation consumes more than it produces, and imports the difference, it must sell assets to finance the shortfall. Foreigners are especially keen on the perceived security of real estate, and, of course, can leverage up with the ready assistance of domestic banks. The term “commercial bank” has become a misnomer, as more than 75% of U.S. bank lending in is on property. Thus, huge trade deficits equal huge capital inflows into domestic real estate.
Property Zoning
The universal culprit in this trade-deficits-results-in-house-price-booms scenario is property zoning, a feature of modern economies deeply embraced by both the propertied and financial classes, but (consequently?) rarely a topic in macroeconomic discussions.
To mix metaphors, property zoning is the Achilles Heel of macroeconomic blind spots.
Without property zoning, nations such as Australia, Canada and the United States could produce more housing to soak up the foreign capital inflows, even after those flows are leveraged five-to-one by domestic banks. The U.S. runs about $500 billion a year in trade deficits.
But with ubiquitous zoning, house prices soar to equate supply and demand, generating inflation and reducing living standards of the domestic population.
Ben is right that lots of people complain about foreigners snapping up real estate (more so in places like Sydney, Vancouver and London, than in the US.) But he’s wrong about the economics. Housing construction during periods of house price booms like 2005 is far higher than during house prices busts like 2009-12. The irony here is that the very same protectionists who complain that foreigners don’t buy enough of our cars, thus depriving Detroit auto workers of jobs, also complain that foreigners buy too many of our houses, thus providing jobs to our construction workers.
PS. I agree that we have zoning problems in America. But trying to address microeconomic problems with macro policies is like trying to get rid of a troublesome blister on your toe by smashing it with a sledgehammer. Let’s keep free trade a “sacred” tenet of economics. It one of the few areas where economists know more than the average person. If economics abandons free trade we might as well just close up shop, as nothing else in our EC101 textbooks is as well established as free trade. I mean seriously, are we supposed to believe that free trade is now in doubt, but that we “know” that fiscal policy has a multiplier effect? Or that the minimum wage costs jobs? (To pick one examples from each ideology). The day economists abandon free trade is the day I’ll start recommending that all economic textbooks be thrown into a big bonfire. What would be the point of even teaching our students economics?
Tags:
29. January 2017 at 09:34
Scott,
Yes, free trade is good in general. That’s trivial and hardly worth pointing out, but…
1. In free trade do all parties benefit equally. Can there be an advantage to one party by negotiating a more favorable trade agreement.
2. Do econ texts look at the long term cost/benefit of the effect free trade has on human capital.
3. What are the cost/benefits of imposing sudden external changes to trade and the economy system.
29. January 2017 at 09:35
Free trade is an Ivory Tower theory protected by a bodyguard of lies. Like Hans Christian Andersen’s “The Emperor’s New Clothes” it depends on intimidating people into not believing their own eyes. It seems that you have to have a PhD in economics to see the beauty of free trade. Donald Trump is president because he stood up and said the Emperor Free Trade is naked. Enough agreed to make him president.
29. January 2017 at 09:50
Sumner in one short post solves the Triffin Paradox (Google this), upbraids the esteemed D. Glasner (and his fuddy-duddy worship of some long dead dude’s photo on his blog page), and, to boot, makes an oblique reference to Hausmann- Sturzenegger Dark Matter exports. Is there anything our host can’t do? How ’bout blog coheRENTly?
@dtoh – are those rhetorical questions? They have easy answers, namely: YES (bilateral trade > unilateral trade, but even unilateral trade increase welfare in both countries), YES (the good textbooks do) and YES/NO (moving in the USA is not that costly, just rent a van and move to California or Arizona, Texas these days).
29. January 2017 at 10:14
No, 75% of bank lending is not in real-estate lending. It is 33%
Bank credit = =$12,483.45t
Real-estate loans = $4,122.21t
https://fred.stlouisfed.org/series/REALLNNSA
https://fred.stlouisfed.org/series/TOTBKCR
And even 33% is a problem. A shorter-term loan or investment is more suitable to the character of the payment, clearing, and settlement system (e.g., commercial paper, a processing or merchandising loan which optimizes income, liquidity, and safety).
29. January 2017 at 10:22
In foreign trade, imports decrease the money supply of the importing country (e.g., U.S/Federal Reserve) while exports increase the money supply, and the potential money supply, of the exporting country (e.g., China/PBoC).
Thus, it is exactly like the disparity of income between the upper and lower income quintile rankings.
The currency market is a black market, where currencies are pegged by surplus countries laundering their FX reserves, capital controls, and “dumping” practices (Chinese “hacking” of proprietary technology nothwithstanding).
29. January 2017 at 10:44
It seems to me the important distinction here is to identify the cause of rising home prices correctly. The broad consensus has been to believe that home prices have been pushed up by predatory lending and speculation. Consumption from increased home equity is then blamed for the trade deficit. So, it is presumed that consumers are putting themselves in hock and selling their futures to foreign savers. But since zoning is the source of the high prices, they are really just claiming economic rents for owning a politically exclusive asset.
Instead of expanding urban housing, in every case the proposed solution is to lower prices by limiting access to credit. This doesn’t solve the fundamental problem because it doesn’t reduce the cash flows from inflated rents. It just increases the liquidity premium on real estate ownership.
There are two errors of causation, then. First thinking that the trade deficit (or the capital flows surplus) leads to rising home prices is backwards. And second, thinking that rising credit leads to rising values is backwards.
Rising values coming from exclusion lead to both higher debt and capital inflows (trade deficit).
This is a classic case of the problem of causation vs correlation. All the relationships can be exactly the same, but the solutions are totally different.
29. January 2017 at 11:33
dtoh, You said:
“In free trade do all parties benefit equally.”
Obviously not, nor do people benefit equally in any trade, including domestic business. Indeed in all of human history I doubt whether there has been a single trade where people benefited exactly equally, to the last billionth of a penny. Nor should they.
In actual trade deals the US tends to come out ahead, because we have the power to bully smaller countries. Trump is too dumb to know that.
You said:
“Yes, free trade is good in general. That’s trivial and hardly worth pointing out,”
Really? Check the very next comment, by JJ.
Most economists believe that trade improves human capital. As for sudden changes in policy, trade deals generally have long phase ins, so that’s not an issue.
JJ, Polls show the public doesn’t agree with Trump in trade. And do you seriously believe West Virginia coal miners voted for Trump because they favored policies that would hurt jobs in export industries like coal?
Whenever someone has an ax to grind, they tell me Trump won because of that issue. Thus I’m also told that Trump won because of over the top PCism. Well, which is it?
Ray, Read it again, I upbraided Ben Cole, not Glasner.
Kevin, There’s some truth to that, although of course many factors are behind the trade deficit.
29. January 2017 at 11:37
I haven’t formed an opinion about your argument but your analogy “is like trying to get rid of a troublesome blister on your toe by smashing it with a sledgehammer” is so vivid that I want to compliment your writing.
29. January 2017 at 12:45
The economics aside, there’s something terrifyingly unAmerican about the government telling us who we can’t and can’t do business with and where we can and can’t travel. For the party of small government and personal liberties, the Republican have truly cuckolded themselves to Trumpism.
29. January 2017 at 13:52
Our twin deficits have an insidious, if not an incestuous, relationship. Positive interest rate differentials are significantly responsible for the dollar’s exchange rate support. And an “overvalued” dollar in turn is the principal contributor to our burgeoning trade deficits (the on-going contraction of the E-$ market exacerbates the trend, as well as China dumping Treasuries, money laudering).
The viability of the U.S. and Foreign-dollar as international units of account is threatened by our protracted huge trade deficits (> than $10T since the U.S. became a debtor nation in 1985). Given the present and prospective trade deficits, this situation is not likely to continue for long. Foreigners will simply be saturated with excess dollars.
29. January 2017 at 14:14
https://en.wikipedia.org/wiki/Immiserizing_growth
29. January 2017 at 15:08
“Housing construction during periods of house price booms like 2005 is far higher than during house price busts like 2009-12.”
As someone working in housing construction from 1985 till now, I would date the house price boom from somewhere before 2000 until halfway through 2006. And the bust starting in the second half of 2006. And a very sharp bust it was, at least in residential construction.
I know this post is about trade but why is it you admit that there might be housing booms and busts but will not countenance calling that a “Bubble”?
29. January 2017 at 16:19
Jerry, The term ‘bubble’ implies markets are not efficient. If someone wants to claim that bubbles are nothing more than a rise and fall in asset prices, then I have no objection to that use of the term.
29. January 2017 at 16:47
Scott–well, good points…but still my story line holds.
A nation running large trade deficits must sell assets, and foreigners love the security of real estate.
Yet the supply of real estate is restricted through property zoning.
Banks are ready lenders on real estate.
Well, duh,, what does this lead to?
Ideally, the solution is not restrictions on international trade, but the unzoning of property.
Yet the property and financial classes are deeply wedded to property zoning
Orthodox macroeconomists need to address the issue of property zoning more.
29. January 2017 at 16:47
Scott,
1. The fact that a dumb person can’t understand a simple concept does not make the concept complicated.
2. I believe you are completely wrong about trade deals. Our trade negotiators are completely incompetent and as result we end up with very bad deals. If you look at other countries they have top graduates from their best schools working in the bureaucracies negotiating the deals.
3. As I have stated, I think one of the reasons free trade is in jeopardy is because of the dislocation caused when significant changes to trade policies are implemented relatively quickly. I don’t think your claim of long phase ins can be substantiated.
4. Re human capital…. why don’t you do a separate post on this. I’m sure human capital increases in China when you move manufacturing from the U.S. to China. I don’t think it improves human capital in the U.S., and I don’t think is adequately measured or discussed.
29. January 2017 at 17:00
Scott:
You can still teach your kids that free trade and indeed the entire range of free enterprise is good in theory. I agree, btw.
Bur reality is different, there are structural impediments, institutional imperfections, even cultural norms that intrude.
Easy example: Pollution. The price signal does not capture the cost of pollution, let alone answer if anyone has the right to pollute air other people breath.
So, do you teach, “Free enterprise trumps environmental concerns”? No, you teach there is a exception in this regard, reality is not so neat as to conform with our theories….
So it goes with global trade and huge U.S.defificts. There is a lot of good, but if the U.S. has ubiquitous property zoning and a certain tax code, and a culture not given to savings…..
29. January 2017 at 17:01
It seems like market distortions that lead to uneconomical concentrations of workers in socially important industries may b good from a tech standpoint, as the attention of more workers to the what and how of a crucial project may raise the probability of improvement.
Hausmann and Hidalgo show that countries usually add new activities similar/adjacent to the ones they’ve previously been doing. maybe distortions that lead to uneconomically large amplitudes of exposure to production r acceptable in the same way we accept distortions by taxation to pay for schools – maybe raising the likelihood that US citizens learn on the job in profit-motivated firms with hiring/firing authority and incentives to pursue best practices is less inefficient than sending them through two decades of schools determined to remain pure from business influence
29. January 2017 at 19:53
Sumner: “Jerry, The term ‘bubble’ implies markets are not efficient”
Don’t tell me Sumner still believes in Rational Expectations and the strong form of the EMH? Then how do you explain Black Monday, 2007, and a host of other market meltdowns caused by panic and herd behavior?
Sumner is still stuck in the 80s!
29. January 2017 at 23:11
In the 80s? More like the 1780’s. Scott is deranged. It obviously hasnt occured to him yet that econ theories are based on outdated axioms. Heilbroner was right when he said “todays economists spend too much time on emperical analysis, and not enough time on human nature”. In other words, GNH is far more important than GDP. Interestingly, he also said ” “If socialism failed, it was for political, more than economic, reasons; and if capitalism is to succeed it will be because it finds the political will and means to tame its economic forces.” i.e. the negative externalities and market imperfections that exists everywhere.
29. January 2017 at 23:23
Abstract
ECB
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1779.en.pdf?7edad23ab5613b9693606b94616231eb
The primary driver of commercial bank failures during the Great Recession was exposure to the real estate sector, not aggregate funding strains. The main “toxic” exposure was credit to non-household real estate borrowers, not traditional home mortgages or agency-issued MBS. Private-label MBS contributed to the failure of large banks only. Failed banks skewed their portfolios towards product categories that performed poorly on aggregate, and within each category invested in assets of lower quality than survivor banks did. They expanded more rapidly into real estate during the pre-crisis period, but rapid growth alone cannot explain differences in asset performance.
–30–
This study seems say about 50% of commercial bank assets are in real estate.
https://fred.stlouisfed.org/release/tables?rid=22&eid=5168
the above table comes up with about the same figures, about 50% of commercial bank assets in r/e as of Dec. 2016.…though I suspect many commercial and industrial loans are effectively backed by real estate….
30. January 2017 at 03:01
Trade deficits, that’s terrible! = importing capital, that’s terrible!
Well, not strictly correct if one distinguishes between trade (goods and services) and investment incomes, but close.
Apparently, Australia is about to start importing a lot less capital.
http://www.smh.com.au/business/the-economy/best-since-gough-deloitte-access-says-australias-current-account-deficit-set-to-tumble-20170129-gu0qzj.html
Well, that’s the claim. We will see.
Two centuries of importing capital, and still not ruined …
30. January 2017 at 04:08
@Ray, Scott does believe in efficient markets (and so do I, at least the weak version that tells me not to try to outtrade Goldman Sachs or Warren Buffett.)
The sudden price changes you mentioned just show that markets can change their minds.
EMH doesn’t mean that markets have perfect foresight, just that they tend to incorporate the best predictions we have at any one point in the time.
30. January 2017 at 04:12
Flow5, and exactly what’s the problem with decreasing the money supply of the importing country?
You do know that the US is not on a gold standard, and can print as much money as necessary?
(The downside to imports is that those pesky foreigners demand that we send them something real they can eat or ride etc when they present those green back to us.
Money itself is free to create. Exchanging real goods for free to print money is an excellent deal for a currency issuing nation.)
30. January 2017 at 05:31
“This study seems say about 50% of commercial bank assets are in real estate.”
———-
No your math on the H.8 release is wrong. It is 33 per cent.
And what Bankrupt u Bernanke did was turn safe-assets into impaired / distressed assets (upside down or underwater) on the bank’s & home owner’s balance sheets (by draining the money stock and tightening credit). Money flows, proxy for inflation, fell at a negative rate-of-change for 29 contiguous months (same time frame as @Jerry Brown reinforced).
On 8/9/07 BNP Paribas, halted withdrawals on 3 sub-prime mortgage funds, citing: “The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating,”
The FOMC continued to drain liquidity despite its 7 reductions in the policy FFR (which began on 9/18/07). I.e., despite Bear Sterns two hedge funds that collapsed on July 16, 2007, & immediately thereafter filed for bankruptcy protection on July 31, 2007, the FOMC maintained its “tight” money policy [i.e., credit easing, expanding and altering the composition of the assets on its balance sheet, by exchanging the loans and securities already held in SOMA, not quantitative easing -injecting new money].
And when you drop Yale Professor Irving Fisher’s pro rata share(gov’t incentivized consumption bucket) of the price-level, esp. when (gov’t policy incentivized) lending leverage is excessive, you have a recipe for disaster. That’s why AIG stopped selling CDS back in 2006.
The money supply (& DFI credit or their loans and investments), can never be managed by any attempt to control the cost of credit (i.e., thru pegging the interest rate returns on government securities; or thru “spreads”, “floors”, “ceilings”, “corridors”, “brackets”, IOeR, etc.).
I.e., the Fed’s monetary transmission mechanism, interest rates, is non sequitur. Interest is the price of loan-funds, not the price of money. The price of money (the Fed’s bailiwick), is the reciprocal of the price-level. Keynes’s liquidity preference curve (demand for money), is a false doctrine. We should have learned the falsity of that assumption in the Dec. 1941-Mar. 1951 period. That was what the Treas. – Fed. Res. Accord of Mar. 1951 was all about.
And reserve targeting worked well until William McChesney Martin Jr., abandoned the FOMC’s net free, or net borrowed, reserve targeting position approach in favor of the Federal Funds “bracket racket” beginning in c. 1965 (coinciding with the rise in chronic monetary inflation & in anticipated inflation).
30. January 2017 at 05:37
Monetary savings are defined as “funds held beyond the income period in which received”. Keynesian economists, e.g., BuB, don’t understand the savings-investment process. Funds flowing through the non-banks increases the supply of loan-funds, but not the supply of money. Thus, savings flowing thru the NBs lowers long-term interest rates.
The Golden Era in U.S. economics was where savings were expeditiously activated and matched with real-investment outlets (principally long-term residential mortgages). And back then we had FSLIC safety nets for non-bank conduits. Now we only have safety nets for the commercial bank’s customers.
That’s a perverse (even more so in other countries as Sheila Bair pointed out in her book: “Bull by the Horns” pg. 110, where Hank, Ben, and Tim “ask me to guarantee the debt of all financial institutions without limit), socio-political incentive to hoard savings (decelerate money velocity, the cessation of the circuit income and transactions Vt of funds, funds which constitute a prior cost of production).
Remunerating IBDDs destroys the savings-investment process. It destroys NB lending/investing. I.e., Bankrupt u Bernanke literally destroyed the non-banks. causing the NBs to shrink by 6.2T and the DFIs to be expanded by 3.6T (preventing both the commercial paper market, and the repurchase agreements from recovering). The 1966 S&L credit crunch is the economic paradigm.
Here is a celebrated intellectual spouting disinformation to cover his butt, just like Obama’s “legacy”. Just like in his book, pg. # 56: “The Courage to Act” (which should have printed just the opposite); he opined: “Unfortunately, beyond a quarter or two the course of the economy is extremely hard to forecast”.
But he had 2 quarters from the peak in July to the 4th qtr. implosion (which had nothing to do whatsoever with housing per his friend and colleague, Alan Blinder, as discussed in his book, pg. 18: “After the Music Stopped”).
You see FOMC schizophrenia (like the FOMC’s deliberations between the Hawks and the Doves before the economy collapsed in the 4th qtr. of 2008), is where during an economic expansion, interest rates rise, and the proportion of bank-held savings rises as a consequence, creating higher rates of inflation relative to corresponding roc’s in R-gDp, i.e., it is a policy where savings are increasingly impounded and ensconced within the confines of the payment’s system, slowing real output and producing ever higher levels of stagflation, and depressing AD, which gives the FOMC false signals.
Bernanke stole everyone’s Treasuries, vitiating Carmen Reinhart and Kenneth Rogoff’s rebalancing thesis (by remunerating IBDDs, which inverts the entire Treasury Bill market). Then he established the SFP to cover his butt.
By stealing everyone’s T-Bills, BuB contracted the international, unregulated E-$ market. I.e., BuB created the world-wide GR solely by his own incompetence.
– Michel de Nostredame
30. January 2017 at 08:07
Ben, You missed the point, read it again.
dtoh, You said;
“I believe you are completely wrong about trade deals. Our trade negotiators are completely incompetent and as result we end up with very bad deals.”
Talk to any expert on international trade deals, and they’d scoff at your claim. The consensus seems to be that the US comes out ahead.
And free trade is not in jeopardy because of the speed that trade deals are implemented. Even in a world of zero trade deals we’d still have a very similar amount of dislocation. The main difference would be that a few of the things made in Mexico would instead be made in China.
This is all a part of your earlier confusion over the effects of trade and automation. Take the coal industry, where we know for certain that 100% of the massive job loss has been due to automation, not trade. I assure you that the unemployed coal miners of West Virginia are just as pissed off as the unemployed steel workers of Ohio. Of course most of the steel workers also lost jobs to automation.
Ben, You said.
“You can still teach your kids that free trade and indeed the entire range of free enterprise is good in theory. I agree, btw.
Bur reality is different,”
Stop making these silly statements. There is nothing in the entire history of the universe that is true in theory but not in practice. If something is not true in practice then the theory is wrong. Full stop.
Again, keep rereading my post until you show some signs that you understand it, and then respond to what I actually said. Please!
What’s the point of me responding to you if you are going to ignore the points I make?
Dan, You said:
“If socialism failed, it was for political, more than economic,”
This is just idiotic.
Lorenzo, Finally a voice or reason.
30. January 2017 at 09:49
@Sumner: “Dan, You said: “If socialism failed, it was for political, more than economic,” ” – yet Dan cites Heilbroner, whose popular book of vignettes of economists you must have read; who are you citing, yourself?
BTW, the USA since the Progressives have steadily advanced in the direction of socialism. Keynes theories were an attempt to steer laisse-faire capitalism in the direction of socialism (supposedly to prevent even more harmful communism). Bernie Sanders almost won, is popular, and wants a guaranteed income for all. Dan is right professor, you’re stuck in the 1780s. But you make good copy, so blog on!
30. January 2017 at 15:15
Scott,
I’m tired of the discussion on trade vs. automation. Whenever I provide specific facts and figures, your never respond. Just radio silence or 60 year old numbers on employment in the steel industry. And yes, I have spoken to experts on trade deals…hundreds of them to say nothing of being directly involved in trade negotiations. The claim that the U.S. gets the better deal is ludicrous…unless you consider strengthening our trade partners an indirect benefit.
30. January 2017 at 22:00
Scott,
One example of the great trade deals we have negotiated
http://www.wsj.com/articles/mark-zuckerbergs-beijing-blues-1485791106
Why would you give totally free access to the U.S. market and then accept the myriad of trade and capital restrictions on U.S. companies trying to get into China to say nothing of no effective provisions to stop cheating?
31. January 2017 at 14:07
dtoh, Then you talk to different trade experts than I do.
And the job loss to automation is not ancient history, it’s still happening in the 21st century.
My view is not even controversial among experts who study the issue.
1. February 2017 at 05:04
http://www.bis.org/publ/work606.htm
“Scott Sumner, claim there are no lags to monetary policy. Prices respond instantly to changes in Fed policy.”
—————
Scott is both right and wrong. Money flows are a summation, Σ, of momentum, Δ. Thus, the economy responds immediately to monetary policy, to any injection of “complicit” reserves. But the “maximum impact” of the distributed lag effect of monetary flows on economic output, from “shocks”, or whatever (on a scatter point plot), are in units of time, mathematical constants (and have been for over a century).
And monetary policy “will affect different variables over time”. That is especially true of long-term interest rates. But interest rates are determined by the supply and demand for loan-funds (which the markets determine and are influenced by Keynesian “animal spirits”), not by the supply and demand for money (which the Fed can precisely control).
Thus, for interest rates, momentum Δ, is influenced by added factors (which are just as easily calibrated in real, computer-processing, time). Interest rates approach a limit (“a value that a function or sequence “approaches” as the input or index approaches some value”). That “value” is also about the arrow of “time” (“directionally sensitive time-frequency decompositions”).
AAA Corporates hit a century high of 15.49%. My prediction for AAA corporate yields for 1981 was 15.48%.
In 2017, the bond bubble bursts in August.
– Michel de Nostredame
1. February 2017 at 18:12
@Scott,
You said, “My view is not even controversial among experts who study the issue.”
Try using something other than an ad-hominem argument. Where there’s truth; there’s proof.
1. February 2017 at 18:40
That dreadful burden of free trade in a (relatively) small country. According to Gallup, Australians now have significantly higher median household incomes than Americans and Canadians.
http://www.gallup.com/poll/166211/worldwide-median-household-income-000.aspx
Amazing what 20+ years without a technical recession will do.
(Yes, Scott, I know you don’t like income statistics, but presumably they are equivalently bad so the relative levels still matter.)