December 27, 2003

Making Losers

The Angry Bear writes that protection of American sugar manufacturers has devastated American candy-cane manufacturers. The preservation of the profits of the sugar barons of Louisiana and Florida has come at the price of the jobs of confectionary makers in greater Chicago.

Of course, those who argue for protection have rarely thought through the full equilibrium consequences.

Posted by DeLong at December 27, 2003 03:40 PM | TrackBack

Comments

The candy cane manufacturers move overseas because the sugar is expensive in US. The software manufacturers move (work) overseas because US engineers are expensive. Conclusion: there is no difference between US enigneer and 200 pound of sugar! Bonus question: if sugar was cheap in US, what excuse would candy cane manufactturers use for moving overseas?

Posted by: Leopold on December 27, 2003 04:00 PM

____

Sugar price protections are about politics in Florida and campaign contributions, not protectionism.

Posted by: Dave Johnson on December 27, 2003 04:04 PM

____

The candy cane manufacturers move overseas because the sugar is expensive in US. The software manufacturers move (work) overseas because US engineers are expensive. Conclusion: there is no difference between US enigneer and 200 pound of sugar! Bonus question: if sugar was cheap in US, what excuse would candy cane manufactturers use for moving overseas?

Posted by: Leopold on December 27, 2003 04:06 PM

____

The short answer is "it depends", for example is the net good of supporting a large number of farmers in the Midwest (sugar beets, corn syrup) and the south outweighed by the loss of jobs in the candy industry (of course you first need to show that they are moving to Mexico because of the cost of sugar, not the cost of labor).

There is no magic incantation, unrestricted international trade good, trade restrictions bad.

Posted by: Josh Halpern on December 27, 2003 05:06 PM

____

Candy canes are in danger of ending up like buggy whips -- extinct, except as stock examples in economists' homilies.

Posted by: Zizka on December 27, 2003 07:47 PM

____

I have a kineticist's question for Brad DeLong who states: "Of course, those who argue for protection have rarely thought through the full equilibrium consequences."

When is equilibirium ever reached in economies, especially ones that are rapidly changing? This is a serious question, because if you are using equilibrium models to describe a non-equilibrium situation you will always get the seriously wrong answer.

Posted by: Josh Halpern on December 27, 2003 08:36 PM

____

Josh,

Unfortunately the economic orthodoxy today is that job outsourcing is exactly like trade. So it is not that real professionals (for example, Krugman or DeLong) would want people to loose jobs to outsourcing - it is simply that they do not understand what is the issue. Did not you read Ricardo? Do you want India to continue to be a desperately poor country? It will take someone like Akerloff to say: "No, it is not like trade. It is like pollution. Someone has to pay for it and right now the cost is misallocated." Than of course everything will become clear and no reputable economist will support job transfer without compensation. I just hope all poor outsourced bastards will have enough to survive until than.

Posted by: Leopold on December 27, 2003 09:18 PM

____

Leopold,

Do you mean to imply that it's impossible to be a reputable economist and a supporter of freedom in labor markets simultaneously?

Posted by: Kyle Markley on December 27, 2003 09:25 PM

____

No more than it is to be a reputable economist and support freedom in the market in human flesh. I've heard it tastes good, by the way.

Posted by: Leopold on December 27, 2003 09:31 PM

____

If you're going to do protectionism, there is, actually, a way to do it right - and that requires fairly blanket tarrifs. Of course, with all the agreements currently in place, that's not possible without starting a huge and deadly trade war. That was probably part of the idea of putting those agreements in place - to tie the hands of future governments. Whether you think that's a good thing depends on whether you think tariffs are almost always bad (ie. if your an orthodox economist.)

Posted by: Ian Welsh on December 27, 2003 11:55 PM

____

What about tariffs on consumer goods - goods not used as inputs in the production of other goods?

Posted by: rps on December 28, 2003 05:55 AM

____

Leopold,

Please don't answer with an analogy. A "market for human flesh" presupposes things that a market for labor does not. They're not analogous. I asked you a serious question and would appreciate a serious reply.

Posted by: Kyle Markley on December 28, 2003 08:52 AM

____

Leopold, the remark about the consequences of free trade and outsourcing "Someone has to pay for it and right now the cost is misallocated" gets to the issue I was raising about it being a mistake to treat most economic issues as equilibria.

In such situations as we now confront with outcountrysourcing, there is no certainty that the benefits equilibrium economics promises may ever arrive, but we are very sure about the costs, and as Mexico has shown, there is surely no certainty that developmental benefits will accrue to the less developed trade "partner".

Parenthetically, let me add that IMHO, the most interesting economic development of the last decade is how North America is becoming a single labor market. People from Canada, the US, the Carribean, Mexico and Central Amercian are going back and forth, if not freely, then increasingly.


Posted by: Josh Halpern on December 28, 2003 09:30 AM

____

i've recently found that it's not too easy for Americans to get English-teaching jobs in the EU, though. English-speakers from the EU are favored. Damn. I ended up in the wrong free-market zone.

Posted by: Zizka on December 28, 2003 09:48 AM

____

Zizka,

The United States has over 150 profitable buggy whip manufacturers, though this may say more about American sexual customs than about the trade in tack for equestrian use.

Here in Canada we have factories making candy by the truckload, candy optimized for reconversion to granulated sugar as soon as it gets across the border.

Posted by: David Lloyd-Jones on December 28, 2003 02:34 PM

____

To Kyle:

OK, I will answer it seriously. There is no 100% free markets. Any market you can think about is not 100% free. Stock market is heavily regulated by SEC, exchanges and Elliott Spitzer. EBay was considered a very free market until people started offering their virginity, kidneys etc. At that point EBay company (regulated, thank you very much) stepped in and stopped all that nonsense. In fact the closest you can come to the free market is your downtown farmers' market. And you know why? Because it is too small to be worth regulating.

Job market in particular is regulated heavily. And you'd better be thankfull, otherwise when you come unconscious for ER your doctor may have the degree from barbers' university.

So yes, I think no reputable economist can support 100% free job markets. That really was your question because I never said job markets should have no freedom at all - I said that you must be responsible for the consequences of your actions (including job transfer).

Posted by: Leopold on December 28, 2003 10:50 PM

____

Leopold,

It's hard to stay on-topic with you. Please don't try so hard to imagine what I'm thinking -- it doesn't work.

This is the sort of labor market freedom I'm actually thinking about in this instance:

My employment is "at-will", meaning that either myself or my employer can terminate the relationship at any time for any reason or for no reason.

I've agreed to that, and I'm happy with it. So is my employer. I don't believe my employer has any responsibility at all to "compensate" me in the event of a "job transfer".

Is "at-will" employment something that you believe no reputable economist ought to support? Do you believe it should be outlawed?

Or would you allow people like myself who believe the flexibility ("I can quit whenever I want!") outweighs the risk ("I might get fired!") to enter into such a voluntary arrangement with our employers?

It seems to me that reputable economists should be very supportive, in general, of uncoerced contracts.

Posted by: Kyle Markley on December 29, 2003 12:12 AM

____

To Kyle:

Your first question was: Should the labor markets be 100% free. I've explained why they should not. Now you are asking if the damages are assumed in (covered by) at-will employment. That means we are making progress - if we are discussing whether the damages are covered, you must agree that they exist. Congratulations.

On the substance of your question (is it all covered in at-will employment): I cannot say with 100% certainity. I am _almost_ sure they are not, based on the thought experiments, like for example: how much less would someone get for a tenure than the free employment?

Now, you can say we should not use thought experiments in the discussion. Well, let me remind you that one of the most important issues affecting billions of people (NAIRU) came from Milton Friedman's thought experiment on the helicopters dumping money. So you have to either demand absolute backing by the numbers, in which case almost all economic theory goes bye-bye (what about those stupid assumptions Ricardo made for his competitive advantage, anyway?) or accept that the thought experiments have _some_ validity in discussing the point. I agree that the thought experiments need to have a real-world justification before they become policy suggestions. We are a long way from that anyway.

Posted by: Leopold on December 29, 2003 12:46 AM

____

To Kyle,

Oh yes, sorry, on the question on whether you should be able to assume the risk of the job transfer: in my opinoin, yes. If you assume the risk of job transfer (and CTS, and any other health problem that might develop in the future) and disclaim any compensation for that, well, it is your funeral.
You also mentioned you are happy about it - your company's lawyer will be happy to have that in writing - just in case you'll get disabled and feel differently about it in the future.
Unfortunately the society disagrees and will not let you die under the bridge if you made a bad choice. It will try to use some silly things like Unemployment, HIPAA, Welfare and the rest to try to return you into the workforce. Funny, how it is to live among humans rather than the wild animals, yes?

Posted by: Leopold on December 29, 2003 01:34 AM

____

"The short answer is "it depends", for example is the net good of supporting a large number of farmers in the Midwest (sugar beets, corn syrup)..."

The "net good" of supporting a large number of mooching farmers? (Actually, my understanding is that something like 90% of the total subsidies go to something like 10 percent of the farmers...so I'm not sure we're even talking about a "large number" of mooching farmers.)

Posted by: Mark Bahner on December 29, 2003 04:06 PM

____

"The short answer is "it depends", for example is the net good of supporting a large number of farmers in the Midwest (sugar beets, corn syrup)..."

The "net good" of supporting a large number of mooching farmers? (Actually, my understanding is that something like 90% of the total subsidies go to something like 10 percent of the farmers...so I'm not sure we're even talking about a "large number" of mooching farmers.)

Posted by: Mark Bahner on December 29, 2003 04:11 PM

____

"In such situations as we now confront with outcountrysourcing, there is no certainty that the benefits equilibrium economics promises may ever arrive,..."

NAFTA was signed in 1992. The 8-9 years after it was signed form a large portion of the longest continuous expansion of the the U.S. economy in the history of the U.S. economy. Of course, correlation isn't causation. Still...

"Parenthetically, let me add that IMHO, the most interesting economic development of the last decade is how North America is becoming a single labor market. People from Canada, the US, the Carribean, Mexico and Central Amercian are going back and forth, if not freely, then increasingly."

Yes...and the last decade saw the longest continuous expansion of the U.S. economy in history. Not to mention fairly low unemployment through most of that period. Of course, the freedom of labor movement may have had nothing to do with those fortunate outcomes. Still...


Posted by: Mark Bahner on December 29, 2003 04:27 PM

____

"i've recently found that it's not too easy for Americans to get English-teaching jobs in the EU, though."

Of course it's difficult, in the same way though not to the same extent that an Afrikaans speaking South African would be poorly qualified to teach Dutch. This isn't mere UK-centrism, though, but a reflection on US willingness to use English loosely. Europeans learning English will need to use it as a far more precise tool than many USAians are used to.

Posted by: P.M.Lawrence on December 29, 2003 05:04 PM

____

Leopold,

Your agreement that I should be permitted to bear the risk of job transfer personally, instead of shifting it to my employer or society at large, is a significant moderation of your earlier position that no reputable economist [should] support job transfer without compensation. Thank you. Legislated rigidity in labor markets is, after all, a real problem in Europe.

I hope you can agree that _forbidding_ individuals from accepting the risk of job transfer personally, through legislation, creates problems of its own. And that a reputable economist should consider those problems before recommending such legislation.

My original question just asked about "freedom in labor markets", which I admit was vague -- but I don't think that vagueness justified your segue about people selling kidneys on eBay.

When you talk about "damages" being "covered" in at-will employment, I honestly don't know what you mean. You're using the terms in a way I'm not familiar with.

I'm quite favorable to the use of thought experiments in economic reasoning. I'm an Austrian. No, I don't know why I hang out around here, either.

As for health risks, I do have health insurance, though I'm quite unhappy with the structure of the insurance industry. In any case the rest of this stuff is getting quite far off-topic.

Posted by: Kyle Markley on December 29, 2003 08:57 PM

____

Kyle writes: Your agreement that I should be permitted to bear the risk of job transfer personally, instead of shifting it to my employer or society at large, is a significant moderation of your earlier position that no reputable economist [should] support job transfer without compensation.

My position did not change. If you make free and informed decision not to be compensated when someone hits your car, I say more power to you. If you say people should not be compensated for having their cars damaged, I say no reputable economist will support you.

Posted by: Leopold on December 29, 2003 09:59 PM

____

"If you make free and informed decision not to be compensated when someone hits your car, I say more power to you."

Who is hitting whose car? A more appropriate analogy involving cars would be...

If you take a job as a Domino's Pizza delivery person, and your car is in such bad shape that it takes you, on average, 15 minutes more to deliver a pizza than another delivery person, Domino's isn't "hitting your car" when they find someone else who has a better car, and can therefore deliver pizzas more quickly.

And Domino's isn't "hitting your car" if they find someone who will work for less money than you will, with equal or better pizza delivery times.

To claim that "no reputable economist" supports freedom of contracts such that Domino's Pizza can hire the best people they can find for the least money those people are willing to accept is simply wrong. There are plenty of reputable economists who support such arrangements.

Posted by: Mark Bahner on December 30, 2003 09:38 AM

____

Leopold,

By the same token, if you say that people should be compensated for job transfer, I say no reputable economist should support you. In the job transfer case as well as the auto damage case, I say economists should consistently support the freedom of individuals to decide what amount of insurance (broadly-defined) they desire, _which may be zero_, and to allow the market rather than politicians to create the solutions.

Posted by: Kyle Markley on December 31, 2003 01:05 PM

____

Post a comment
















__