September 13, 2003

Why Oh Why Can't We Have a Better Press Corps? Part CCCXXVIII

Today it's the New York Times that makes me want to bang my head against the wall:

As Factory Jobs Disappear, Workers Have Few Options: But in June, Mr. Greathouse, 55, lost his job at the Hoover vacuum cleaner factory here, and with so many other factories laying off people, he is at a loss about what to do.

"What does it do when you take away all these jobs from people who support families, who raise families?" he asked. "Manufacturing has been the strength of this country. If we can't make anything here anymore, what does that do? The fabric of this society is falling apart."

Mr. Greathouse has a lot of company. In three years, Ohio has lost more than 160,000 factory jobs, representing one-sixth of its total. That is but a small fraction of the 2.7 million manufacturing jobs lost nationwide in those three years, many of them because of imports. Some economists say that even with a boom all those jobs are not likely to return.

Factory unemployment has snowballed into a huge social and political issue across the Midwest, after manufacturing in the region boomed in the 1990's. President Bush gave a speech about manufacturing losses on Labor Day in Ohio, and the Democratic presidential candidates are pressing the issue....

Ask laid-off workers what is to blame for the woes, and they point to imports, low wages in China, the strong dollar, production moving overseas, President Bill Clinton for embracing the North American Free Trade Agreement and President Bush for focusing only recently on the crisis.

Would it really have been hard to look up that the United States had a $367 billion trade deficit in manufactures in 2000, that so far in 2003 the manufactures trade deficit is running at an annual rate of $452 billion, and that the increase in the annual manufactures trade deficit over the past three years has been $85 billion? Wouldn't it have been fairer to his readers to divide that $85 billion increase in the annual manufactures trade deficit by the $120,000 annual value added per worker and get a result of 700,000 manufacturing jobs displaced? Wouldn't it have been much better for Steven Greenhouse to have told his readers that "perhaps 700,000 manufacturing jobs have been lost nationwide due to expanded imports in the past three years, one quarter of the 2.7 million lost nationwide" instead of "2.7 million manufacturing jobs lost nationwide... many of them because of imports"? The second is not only vaguer, but is likely to leave readers attaching the 2.7 million number to imports, which is simply false.

And would it really have been hard to follow the money? Dollars earned by Chinese exporters aren't good for much in China, after all: they trade them to Thais or Koreans, who then use them to buy services from America and invest in the United States. To a first approximation, the level of employment in the U.S. is set by the Federal Reserve's monetary policy and the Congress and the President's fiscal policy, and international trade simply shifts jobs from one sector to another--in this case, out of import-competing manufacturing and into export-oriented services, construction, and capital-goods manufacture on the other. Wouldn't it have been fairer to have also interviewed some service-sector worker whose job is paid for by demand from abroad, and some construction worker on a project financed by a Japanese bank? And wouldn't it have been fairer to also interview some guy in China whose life has been transformed utterly in the past decade by the growth in factory jobs?

And what's even worse is the last pagragraph I quote: "imports... China... strong dollar, production moving overseas... the North American Free Trade Agreement and President Bush for focusing only recently on the crisis." Lord knows President Bush's macroeconomic policy has been a joke: we would, I think, be in significantly better shape had his fiscal policy been accompanied by fewer lies about its likely impact and had focused on boosting employment now rather than on cutting taxes for rich people in the next decade. But just as only 1/4 of the decline in manufacturing jobs is due to trade (and that is offset by jobs generated in other sectors), only 1/4 of the decline in manufacturing jobs is due to the recession and slow recovery (which better fiscal policy could have alleviated somewhat, but could not have completely offset). The big factor is that productivity in manufacturing is growing rapidly but American consumer demand for manufactures as opposed to services is not. Productivity in manufacturing outstripping demand is the big story--not "imports... China... strong dollar, production moving overseas... NAFTA."

Yet of this, not a word: not a peep.

But there is another absence in the story, an absence that is worst of all. What, after all, does a good society do when the roulette wheel of the market spins and the little ball lands on a number and lots of people--through no fault of their own--lose all their chips? The Republican answer is that you do what George W. Bush did: you pick yourself up, dust yourself off, call a few of your father's friends to get yourself appointed to various boards of directors, grab for opportunity and become the local political fixer for the Texas Rangers's money men--and that if you can't pull yourself back up via your own unaided grit, there's something wrong with you. The social-democratic answer is something called "social insurance": unemployment insurance to cushion your standard of living while you look for another job, low-cost public education so that you can gain new sets of skills, public-sector support for research and development, a steeply-progressive income tax so that public goods are paid for out of the roulette-wheel winnings of those lucky enough to be in the right place at the right time in the market economy rather than by those hard-working families without much luck. Yet of these policies (and of their erosion under the Bush Administration) not a peep: the only government policy proposals mentioned are Bush Administration tax cuts (which "help") and barriers to imports.

Does a relatively-uninformed reader know more or less about the issues after finishing this story?

Posted by DeLong at September 13, 2003 11:01 PM | TrackBack

Comments

Thanks so much.
Superb comments!

Posted by: anne on September 13, 2003 10:45 AM

Dear DeLong,

Very interesting piece. I would like to see your analysis presented more systematically. You imply that the reporter missed some obvious points, but to most of us your dissection of the trade and unemployment figures is anything but obvious.

"Would it really have been hard to look up..."? Not hard at all if you know WHAT to look up. Impossible if you don't.

Posted by: Ralph on September 13, 2003 12:01 PM

Ralph, its probably me being obtuse again, but could you tell me what specifically was not obvious?

Posted by: David on September 13, 2003 12:53 PM

"What, after all, does a good society do when the roulette wheel of the market spins and the little ball lands on...

Red China Inc!

The Transnational Corporate Fundametalists' Hot New DREAM State*...

---------------------------------

2003-01-15

China reports record Direct Foreign Investment

Government issues data on Asia’s new investment “darling,” China’s success forces new strategies for other Asian nations

BizAsia, by ds -

The Chinese government reported a record year in 2002 for foreign direct investment (FDI) as companies shifted production to the world’s most populous country in search of lower labor and production costs as well as access to the world’s largest single domestic market...

http://www.bizasia.com/investment_/f932c/china_reports_record_direct.htm

---------------------------------

U.N. Reports Foreign Investment Falls

Thu Sep 4 (2003)

By NAOMI KOPPEL, Associated Press Writer

GENEVA - Investment in foreign markets fell to $651 billion in 2002, a drop blamed on the slow global economy, the United Nations said Thursday.

More than half the world's countries saw investment decline, with the United States and Britain hit hardest, the U.N. Conference on Trade and Development said in its annual World Investment Report.

"The main factor behind the decline was slow economic growth in most parts of the world and dim prospects for recovery, at least in the short term," the study said. It also cited a drop in merger values.

Economists regard foreign direct investment as an important factor in boosting a country's growth.

China is now the largest recipient of foreign investment, UNCTAD said...

http://story.news.yahoo.com/news?tmpl=story&u=/ap/20030904/ap_on_re_eu/un_global_investment_1

---------------------------------

US trade deficit bulges in July

Thu Sep 11, 2003

WASHINGTON (AFP) - The staggering US trade gap deteriorated in July as imports hit a near three-year record, with deficits in China and the European Union each exploding by more than 10 percent.

The shortfall in all US international trade grew 0.7 percent from the previous month to 40.32 billion dollars in July, the Commerce Department report said.

In goods trade, the deficit rose 0.4 percent to 45.23 billion dollars.

In services trade, the US surplus held basically steady, expanding just 0.02 percent to 4.95 billion dollars...

...-- The US deficit with China expanded 13 percent from the previous month to 11.3 billion dollars as exports held steady but imports of Chinese toys, games and sporting goods leapt...

http://story.news.yahoo.com/news?tmpl=story&u=/afp/20030911/bs_afp/us_trade_030911142832

---------------------------------

Foreign investment in China jumps 18%

Reuters

Beijing, September 12 (2003)

Foreign direct investment (FDI) poured into China in the first eight months of 2003, jumping 18.42 per cent year-on-year as the economy steamed ahead despite worries of overheating.

Actual foreign direct investment rose to $36.67 billion, the Commerce Ministry said, while contracted foreign investment, an indicator of future trends, rose 34.33 per cent year on year to $67.53 billion.

http://www.hindustantimes.com/news/181_372608,00020008.htm

---------------------------------

*'Efficient'--Authoritarian one-party 'system'.

*'Productive'--Strictly regimented, reasonably well-educated, politically powerless, bountiful AND cheap labor force.

*'Profitable'--One Bribe is usually all it takes to get started...

Posted by: Mike on September 13, 2003 02:28 PM

Dr. DeLong,

I tend to agree with you on everything except your theory that international outsourcing does not reduce US employement. Even if you assume (which I don't) that the money comes back to the US (think about the amount of US dollars held by Asian governments to keep their currencies down), why does that mean that employment levels remain the same? Let's take a simple example and assume that it actually goes into an employment sector (another assumption that should not be made). If that new employment sector has a higher wage rate than the outsourced sector, you have not recovered your employment numbers, you have simply made the total compensation equal. Two different things.

Posted by: wol on September 13, 2003 03:31 PM

>>Even if you assume (which I don't) that the money comes back to the US (think about the amount of US dollars held by Asian governments to keep their currencies down), why does that mean that employment levels remain the same?.... If that new employment sector has a higher wage rate than the outsourced sector...<<

Yes. Those are two reasons for the weasel words, "to a first approximation". And there are other ways in which Say's Law can fail as well...

Posted by: Brad DeLong on September 13, 2003 05:19 PM

Speaking about the press corps, I read John Cassidy's review in this week's New Yorker of the two new books out by Krugman and Stiglitz. You might be made happier to note that Cassidy actually pointed out the difference between good and bad deficits, among other things. On the other hand, he paints an interesting biography of Krugman and how he has become...radicalized (not shrill!).

Posted by: Jonathan King on September 13, 2003 08:51 PM

Less.

Posted by: bakho on September 13, 2003 09:00 PM

"and international trade simply shifts jobs from one sector to another--in this case, out of import-competing manufacturing and into export-oriented services"

It seems like the article is concerned with the adjustment costs of those shifts. Those costs are and should be a political issue. This makes your critique ring hollow at least to me.

matt[a]thesindicate.org

Posted by: Mathew Halpern on September 13, 2003 10:37 PM

During the boom of the nineties we had low unemployment, growth in wages, and a liberalization of trade. Mr. Perot turned out to be wrong and NAFTA didn't turn Mexico into a manufacturing powerhouse at the expense of the US.

But every time there's a downturn in the economy people want to blame the wicked foreigners and choke down the world economy with tariffs and other trade barriers.

Posted by: Joe Willingham on September 14, 2003 01:33 AM

Come down out of the ivory tower. If "markets" do not serve the people then I say screw the markets. I am tired of the race to the bottom and that is exactly what "free markets" (as opposed to "fair markets") are generating. No thanks.

Posted by: Romberry on September 14, 2003 02:12 AM

Brad DeLong - What you said.

Matthew Halpern - I read that article to, before reading DeLong's commentary, and it struck me as well that it was heavily concerned with economic sob stories and decidedly protectionist in it's slant, but totally ignorant on basic economic fact. This impression was strongly reinforced when it unblinkingly repeated the 'news' that Bush's tax cuts were 'helping', when the fact is that they are part of the problem, not part of the cure.

Romberry - Your little rant requires the dramatic over-simplification of DeLong's rebuttal to the NYT and of the actual phenomenon at hand. The fact is that, among other things, the market _is_ serving a great many people as it stands (lousy recession aside). Both the people who are experiencing significant growth in services (as a programmer, I can attest to this) and the people that are paying 10% less for vaccuum cleaners than they were before (that's in _defiance_ of inflation). Protectionism helps some people keep their jobs, yes, but it does so by raising prices for the goods that are protected. It _takes_money_ from the pockets of consumers and gives it to the people who are making the protected good. That'd be your pocket and my pocket, hoss. DeLong's outline of _real_ progressive solutions to economic transitions due to these kind of economic shifts is 110% on target. Protectionism is the worst sort of reactionary policy. There are many greatly superior tools in the progressive's toolkit to ease these peoples' (very real and valid) distress.

Posted by: NBarnes on September 14, 2003 03:27 AM

"The social-democratic answer is something called 'social insurance': unemployment insurance to cushion your standard of living while you look for another job, low-cost public education so that you can gain new sets of skills, public-sector support for research and development, a steeply-progressive income tax so that public goods are paid for out of the roulette-wheel winnings of those lucky enough to be in the right place at the right time in the market economy rather than by those hard-working families without much luck."

What a powerful statement. With such a cushion trade trade trade. The question that remains is how to generate such a cushion for poorer countries. Perhaps the way Brazil provides for general health care. If Brazil can provide such a health care cushion, why can not Mexico or Kenya provide a more general cushion? I strongly suggest that this is viable.

Posted by: anne on September 14, 2003 07:41 AM

Let's first export the jobs of free-trade economists to China. Then we will retrain the "losers" to gain some new skills, to do some minimum-wage job hundreds of miles where they live.

The U.S. already spends a lot of money on "research and development" - this can also be a code word for "pork". On the other hand, all for a steeply-progressive income tax - just wish the Democrates would walk the walk, rather than just talking. Nonetheless, given the bubble (under a Democrat!), and the wealth skew now in the U.S., a steeply-progressive income tax is not likely to solve as many problems as it would have had it been there in the go-go Clinton 90s.

Posted by: Andrew Boucher on September 14, 2003 09:32 AM

We have exported fairly few jobs, the problem has rather been low demand. Productivity growth and too little demand is the cause of loss of a distict majority of manufacturing jobs. The loss of jobs because of trade strikes me as far more of a problem for poorer economies. The problem for America seems to be too little middle class demand.

Posted by: anne on September 14, 2003 10:20 AM

Andrew Boucher

The argument is really tentative on my side. Job loss is not a pleasing prospect. Still, I think we are neglecting the demand problem. Your points are important.

Anne

Posted by: anne on September 14, 2003 10:26 AM

"The problem for America seems to be too little middle class demand."

Huh? Demand has been amazingly resilient over the last few years, despite the economic downturn.

Posted by: Joe Willingham on September 14, 2003 12:05 PM

If you compared consumer demand through this recovery and any previous recovery from a recession since 1945, you would find a continuous short-fall of demand in this recovery. Suggest epinet or Morgan Stanley or Merrill Lynch as sources for this.

Posted by: anne on September 14, 2003 01:28 PM

even more troubling than the demand shortfall is the amount of demand that is occurring which is being financed with borrowing.

Posted by: sampo on September 14, 2003 05:53 PM

The press IS lazy...but why? Most institutions,
especially the Bush Administration, spew out tons
of presumed facts that NEVER get challenged by
even the elite press corps, i.e. NYT, WSJ, WP.

What is the explanation for this ?

Posted by: tom mullaney on September 15, 2003 06:39 AM

All this talk on jobs going overseas for one reason or another. However the question is (at least to me) is how you going to stop it? Force employers to keep jobs hear? If I was a plastics manufacturer I may seriously look at going to China for lower labor and production costs. What I hear is people wanting some kind of moral component for capitalism. Ain't gonna happen.

Posted by: Richard F. Cook on September 15, 2003 07:07 AM

Today it's Brad DeLong’s Recent Thought of the Week that makes me want to bang my head against the wall:

"… the roulette-wheel winnings of those lucky enough to be in the right place at the right time in the market economy rather than by those hard-working families without much luck."

You cannot be serious. Why do those with your political persuasion always insist that anyone who succeeds economically does so because they have a rich daddy, are white, are male, etc. Sure, there are some George Ws out there (quite a few probably) but you seem to assume that anyone who makes a good living doesn’t deserve it – they’re “lucky”. What an insult to those who have achieved (and long to achieve) the American dream.

Was it “be(ing) in the right place at the right time” that got you your comfortable job at Cal or was it perhaps hard work that allowed you to graduate summa cum laude from Harvard and then earn a PhD? Hmmm. Probably luck. You should therefore have your undeserved earnings taxed away to let’s say $25,000/yr. That should be enough to support a family of four. Many “hard-working families without much luck” survive on much less.

By the way, with regards to your original topic, what do you expect from a newspaper that printed dozens of fabricated stories from a rogue reporter - not to mention frequent, disingenuous ravings from a once highly respected economist turned political hack?

Posted by: Passepartout on September 15, 2003 04:26 PM

Today it's Brad DeLong’s Recent Thought of the Week that makes me want to bang my head against the wall:

"… the roulette-wheel winnings of those lucky enough to be in the right place at the right time in the market economy rather than by those hard-working families without much luck."

You cannot be serious. Why do those with your political persuasion always insist that anyone who succeeds economically does so because they have a rich daddy, are white, are male, etc. Sure, there are some George Ws out there (quite a few probably) but you seem to assume that anyone who makes a good living doesn’t deserve it – they’re “lucky”. What an insult to those who have achieved (and long to achieve) the American dream.

Was it “be(ing) in the right place at the right time” that got you your comfortable job at Cal or was it perhaps hard work that allowed you to graduate summa cum laude from Harvard and then earn a PhD? Hmmm. Probably luck. You should therefore have your undeserved earnings taxed away to let’s say $25,000/yr. That should be enough to support a family of four. Many “hard-working families without much luck” survive on much less.

By the way, with regards to your original topic, what do you expect from a newspaper that printed dozens of fabricated stories from a rogue reporter - not to mention frequent, disingenuous ravings from a once highly respected economist turned political hack?

Posted by: Passepartout on September 15, 2003 04:33 PM

NBarnes:
IMHO you are correct about the economics in your post. However, from the point of view of those whose jobs are impacted, the situation is: if their votes are in an important place, protectionism might be politically possible. Sensible cushioning measures such as those you suggest involve spending *visible* money and would never make it through Congress.

Passpartout:

Attribution of good things to ones own efforts and bad things to circumstances is a known heursitic bias. In fact, it is often the case that results that would be impossible without great effort also involve good fortune in one form or another.
Designing policies that take this into account without bad incentive effects is tricky. It is possible to argue that in the real world it is politically impossible (although I think otherwise, but not strongly). But I think the fortunate should realize the extent of their fortune.

Posted by: Jonathan Goldberg on September 16, 2003 06:30 AM

I like the analysis on how you get to 700,000 workers lost, but what impact do you think the deflationary impetus from cheaper imports has on manufacturing jobs in the US?

Posted by: Rich Kasmin on September 16, 2003 11:32 AM

I like the analysis on how you get to 700,000 workers lost, but what impact do you think the deflationary impetus from cheaper imports has on manufacturing jobs in the US?

Posted by: Rich Kasmin on September 16, 2003 11:34 AM

I like the analysis on how you get to 700,000 workers lost, but what impact do you think the deflationary impetus from cheaper imports has on manufacturing jobs in the US?

Posted by: rich.kasmin on September 16, 2003 11:35 AM
Post a comment