January 07, 2004

Why Oh Why Can't We Have a Better Senior Democratic Senator from New York?

The New Republic's talented Noam Scheiber bangs his head against the wall, killing millions of brain cells, as he contemplates an anti-free trade op-ed by Chuck Schumer and by Paul Craig ("slaves were happy! really! really happy!") Roberts:

&c: ...the fact that we could one day find ourselves in a situation where our comparative advantage lies in a low-value good like T-shirts rather than a high-value good like software isn't exactly comforting. Still, as long as we enjoy a comparative advantage in enough high-value goods--which will be the case as long as our workforce remains incredibly well-educated and high-skilled relative to India's and China's, which should be our top policy priority and which, even if it wasn't, is going to be the case for decades (when was the last time you checked the literacy rate of India?)--then all the doom and gloom you hear from people like Schumer and Roberts is way overstated. There are real globalization-related issues we need to address--most importantly, the dislocation caused when whole industries cease to be efficient, and the speed with which we allow that to happen. But the theoretical foundation of the case for free trade isn't one of them...

Posted by DeLong at January 7, 2004 04:16 PM | TrackBack

Comments

More fluffy arguments on behalf for free-trade. I remain sceptical, as I don't see my reservations addressed.

"Still, as long as we enjoy a comparative advantage in enough high-value goods--which will be the case as long as our workforce remains incredibly well-educated and high-skilled relative to India's and China's, which should be our top policy priority and which, even if it wasn't, is going to be the case for decades (when was the last time you checked the literacy rate of India?)--then all the doom and gloom you hear from people like Schumer and Roberts is way overstated. "

I have read that India produces on the order of 200,000 computer science grads a year. We produce I think 20-30K, and the numbers are dropping fast, because there are no jobs and students don't go into a field with no jobs. That re-instates some doom & gloom in my opinion.

And wrt this point:
"At its most basic level, comparative advantage is about opportunity cost: The country with the lowest opportunity cost of producing a good (i.e., the cost of producing that good in terms of other goods) should specialize in production of that good."

How do you divvy up 'opportunity cost' in skilled white collar work between labor cost and training cost?


In India my understanding is that technical universities are low-cost or free, this is a social policy, a political choice. In a free-trade market economy world, that would be equivalent to an agricultural subsidy, wouldn't it? Why is it allowed?

I would like to know where the white collar skilled jobs that will replace the ones being out-sourced will come from, and how workers will be trained for these jobs.

My view is there are no such jobs on the horizon,
not in the numbers required, and without some DATA, I will assert it is faith-based to believe otherwise.

Posted by: camille roy on January 7, 2004 05:12 PM

____

More fluffy arguments on behalf for free-trade. I remain sceptical, as I don't see my reservations addressed.

"Still, as long as we enjoy a comparative advantage in enough high-value goods--which will be the case as long as our workforce remains incredibly well-educated and high-skilled relative to India's and China's, which should be our top policy priority and which, even if it wasn't, is going to be the case for decades (when was the last time you checked the literacy rate of India?)--then all the doom and gloom you hear from people like Schumer and Roberts is way overstated. "

I have read that India produces on the order of 200,000 computer science grads a year. We produce I think 20-30K, and the numbers are dropping fast, because there are no jobs and students don't go into a field with no jobs. That re-instates some doom & gloom in my opinion.

And wrt this point:
"At its most basic level, comparative advantage is about opportunity cost: The country with the lowest opportunity cost of producing a good (i.e., the cost of producing that good in terms of other goods) should specialize in production of that good."

How do you divvy up 'opportunity cost' in skilled white collar work between labor cost and training cost?


In India my understanding is that technical universities are low-cost or free, this is a social policy, a political choice. In a free-trade market economy world, that would be equivalent to an agricultural subsidy, wouldn't it? Why is it allowed?

I would like to know where the white collar skilled jobs that will replace the ones being out-sourced will come from, and how workers will be trained for these jobs.

My view is there are no such jobs on the horizon,
not in the numbers required, and without some DATA, I will assert it is faith-based to believe otherwise.

Posted by: camille roy on January 7, 2004 05:17 PM

____

More fluffy arguments on behalf for free-trade. I remain sceptical, as I don't see my reservations addressed.

"Still, as long as we enjoy a comparative advantage in enough high-value goods--which will be the case as long as our workforce remains incredibly well-educated and high-skilled relative to India's and China's, which should be our top policy priority and which, even if it wasn't, is going to be the case for decades (when was the last time you checked the literacy rate of India?)--then all the doom and gloom you hear from people like Schumer and Roberts is way overstated. "

I have read that India produces on the order of 200,000 computer science grads a year. We produce I think 20-30K, and the numbers are dropping fast, because there are no jobs and students don't go into a field with no jobs. That re-instates some doom & gloom in my opinion.

And wrt this point:
"At its most basic level, comparative advantage is about opportunity cost: The country with the lowest opportunity cost of producing a good (i.e., the cost of producing that good in terms of other goods) should specialize in production of that good."

How do you divvy up 'opportunity cost' in skilled white collar work between labor cost and training cost?


In India my understanding is that technical universities are low-cost or free, this is a social policy, a political choice. In a free-trade market economy world, that would be equivalent to an agricultural subsidy, wouldn't it? Why is it allowed?

I would like to know where the white collar skilled jobs that will replace the ones being out-sourced will come from, and how workers will be trained for these jobs.

My view is there are no such jobs on the horizon,
not in the numbers required, and without some DATA, I will assert it is faith-based to believe otherwise.

Posted by: camille roy on January 7, 2004 05:22 PM

____

I think Camille's comparison of low cost education and agricultural subsidy is pretty specious. By that argument any form of public expenditure is a form of subsidy. US has a much better judicial & law enforcement system than the one in India. In part this is because US has invested a lot in that system. Surely, US enjoys a comparative economic advantage because of this. Is that a form of subsidy too? It would be cool though, if government officials start taking this argument seriously. I can picture some official complaining how it is unfair that Bangladesh increased spending on primary education for example.

Expenditure in education, surely counts as investment rather than subsidy. Even if you remove government subsidies (VAST majority of CS grads in India are from private colleges, which charge market rates in India), the cost of higher education in India would go up, but I think not by much. US has declining CS grads, because people believe that they can get more lucrative jobs (I dont know, MBAs, lawyers etc). In India people are going for CS because they are leaving less lucrative jobs (working in farms, clerical work etc).

Posted by: Dinesh Gaitonde on January 7, 2004 05:41 PM

____

OK Brad fix your website please.

True in the long run people should want free trade but where is the short term redistribution to gete the dislocated to the long run in the first place.

Also, the literacy rate in India or China is not exactly relevant. If there is just one literate well educated specialist to take every high-end job from every one overpaid American then the fact that there are five other illiterate workers is no consolation. Yes free trade, but yes equity too!

Posted by: Michael Carroll on January 7, 2004 05:42 PM

____

So many people think that all america has to do, is sell lots of stuff abroad, but not buy anything from foreigners.

Posted by: big al on January 7, 2004 05:49 PM

____

200,000 IT grads! Could someone please confirm this number?

Posted by: dilbert dogbert on January 7, 2004 06:15 PM

____

Job transfer to Asia is not trade. It is pollution - the value is derived from no other source than the injury to the workers in US.

Posted by: Leopold on January 7, 2004 06:22 PM

____

Actually, standard neoclassical trade theory (HO theory) says there might be a problem for workers in a rich country like the US trading with a very poor like China. True, the the total size of the economic pie in the US should grow, but it is at least possible that the average wage rate of workers in the US will go down, unless wages are subsidized by a tax on the (now higher) return to capital. In fact the theory predicts it. Don't believe me? Ask Bhagwati (sp?, or Samuelson, or Krugman, or any other qualified trade theorist. I'll wager a good bottle of wine with anyone who honestly wants to dispute this point. Luke Lea

Posted by: Luke Lea on January 7, 2004 06:49 PM

____

Actually, standard neoclassical trade theory (HO theory) says there might be a problem for workers in a rich country like the US trading with a very poor like China. True, the the total size of the economic pie in the US should grow, but it is at least possible that the average wage rate of workers in the US will go down, unless wages are subsidized by a tax on the (now higher) return to capital. In fact the theory predicts it. Don't believe me? Ask Bhagwati (sp?, or Samuelson, or Krugman, or any other qualified trade theorist. I'll wager a good bottle of wine with anyone who honestly wants to dispute this point. Luke Lea

Posted by: Luke Lea on January 7, 2004 06:50 PM

____

"OK Brad fix your website please."

I think if Brad fixed the duplicate comment problem, I would miss them. They're part of the blog's identity.

Posted by: David Weman on January 7, 2004 06:55 PM

____

Recently I'm reading a great deal about outsourcing white-collar jobs to countries with cheap labor. Perhaps, the fact that I work for an Indian software company doing work that only a few years ago would have definitely been done state side, is keeping the issue fresh in my mind. I read about dentists in Deli working for an American insurance company, looking at the X-rays of American patients and deciding whether they should get coverage. It costs a boat-load to become a dentist or a computer programmer, at a good private school we are talking about over $100k. Most of the programmers I work with have master's degrees like myself. Also like me, they still owe a ton of money in loans to pay for their educations.

What's going on now is fundamentally different from the readjustment costs of technological change. The skills in question are still very much in demand. Itís also different from the loss of low skilled manufacturing jobs. In the later case the cost of learning an equivalent trade in both time and money is low. For a dentist or a programmer to learn a new skill with similar complexity could take over six years and another $100k.

This makes getting an advanced degree a gamble. Which is problematic for so many reasons. You study hard pay your dues with years of school and suddenly you canít earn a living in your chosen profession. That is corrosive to a society. People need to believe if they work hard they will be rewarded. Not just as famous athletes, as something they are a bit more likely to achieve without physical abnormalities.

I am not saying we need to outlaw off shoring. In fact I donít think that would be a very good idea at all. But with the cost of education at an all-time high, doing the right thing canít be a gamble. Hopefully my concerns are exaggerated.

For me the whole thing hinges upon weather the loss of these jobs represents a new phenomenon, with consequences that we haven't forseen, or if it is just the typical trade related costs. My guess is this a new thing. Its not just coding they are sending to india, its basic research. They are not expanding the market, just moving it, and making it slightly more profitable.

If the market is expanded as a result of basic research the jobs will still remain offshore.

In the end this is just an increase the trend of the middle classes being destroyed in this country. Things are getting cheaper, so don't worry about being poor, is the best economists can tell us. I kind of agree with them, why be concerned with relative wealth?

On the other hand it just goes to the unfortuante consequences of an unregulated market. It would certainly be more effiecient to have everyone on a tropical island just make bannas, tough luck if some of them get bored. I am rambling at this point....

Posted by: Mathew on January 7, 2004 07:01 PM

____

Recently I'm reading a great deal about outsourcing white-collar jobs to countries with cheap labor. Perhaps, the fact that I work for an Indian software company doing work that only a few years ago would have definitely been done state side, is keeping the issue fresh in my mind. I read about dentists in Deli working for an American insurance company, looking at the X-rays of American patients and deciding whether they should get coverage. It costs a boat-load to become a dentist or a computer programmer, at a good private school we are talking about over $100k. Most of the programmers I work with have master's degrees like myself. Also like me, they still owe a ton of money in loans to pay for their educations.

What's going on now is fundamentally different from the readjustment costs of technological change. The skills in question are still very much in demand. Itís also different from the loss of low skilled manufacturing jobs. In the later case the cost of learning an equivalent trade in both time and money is low. For a dentist or a programmer to learn a new skill with similar complexity could take over six years and another $100k.

This makes getting an advanced degree a gamble. Which is problematic for so many reasons. You study hard pay your dues with years of school and suddenly you canít earn a living in your chosen profession. That is corrosive to a society. People need to believe if they work hard they will be rewarded. Not just as famous athletes, as something they are a bit more likely to achieve without physical abnormalities.

I am not saying we need to outlaw off shoring. In fact I donít think that would be a very good idea at all. But with the cost of education at an all-time high, doing the right thing canít be a gamble. Hopefully my concerns are exaggerated.

For me the whole thing hinges upon weather the loss of these jobs represents a new phenomenon, with consequences that we haven't forseen, or if it is just the typical trade related costs. My guess is this a new thing. Its not just coding they are sending to india, its basic research. They are not expanding the market, just moving it, and making it slightly more profitable.

If the market is expanded as a result of basic research the jobs will still remain offshore.

In the end this is just an increase the trend of the middle classes being destroyed in this country. Things are getting cheaper, so don't worry about being poor, is the best economists can tell us. I kind of agree with them, why be concerned with relative wealth?

On the other hand it just goes to the unfortuante consequences of an unregulated market. It would certainly be more effiecient to have everyone on a tropical island just make bannas, tough luck if some of them get bored. I am rambling at this point....

Posted by: Mathew on January 7, 2004 07:04 PM

____

Dinesh (and Mathew): In a country like the US where students (or their families) have to pay a significant portion of their education cost directly out of their pocket (or take a loan), I would think people tend to look more at the "ROI" of their education. The factors I can suspect are:

(1) direct cost of studying
(2) opportunity cost (have to give up/not start income-generating work)
(3) expected return in delta salary, increased job quality/satisfaction (?)
(4) job prestige (for those above financial concerns)
(5) intellectual and time effort/prerequisites to get the degree

I even read an article in a (US) business magazine a long while ago where they compared cost vs. return of Bachelor, Master, and PhD degrees. I think one of the conclusions was that a Bachelor gives a substantial return, with returns diminishing for Master and PhD degrees.

The opportunity cost effect is not to be underestimated, as an M.S. probably takes 2 (?) more years than a B.S., and a PhD even more, in which time you could gather highly valued job experience, and yes, you get older!

Companies are also usually (except maybe in these times, when recruiting habits get somewhat out of whack as I'm hearing) reluctant to hire "overqualified" people, which may actually shut a PhD out of certain positions.

Also don't forget that your/your family's financial situation may quite severely restrict what majors and degrees you have to consider at all.

That's not to say money is or should be the only or most important consideration in career choice, but often it is an exclusion criterion.

Posted by: cm on January 7, 2004 07:53 PM

____

"Why Oh Why Can't We Have a Better Senior Democratic Senator from New York?"

Brad. Don't say that. I don't know what the hell Schumer is talking about in the Op-Ed or why he would team up with a supply-side crank like Paul Craig Roberts. Recessions are scary, and they make people without economic knowledge (which includes Schumer) say crazy things in a noble but misguided attempt to understand them. However, Schumer's a good Senator and a good man -- and almost all of the Democrats (as well as Republicans) in the Senate and politics for that matter have no understanding of trade theory whatsoever. I used to work for Schumer, and this Op-Ed does not reflect his views or opinions. I assure you that the Op-Ed was (co-)written by someone in Schumer's office instead of Schumer himself.

Posted by: Bobby on January 7, 2004 08:04 PM

____

CM,

My point was about ROI and that people look to it to make education choices. The problem is that one can't assess the value of a skill in the future. So we gamble. This gamble is very big if your education is expensive and time consuming. THese people all made good bets, all the skills these people learned are still useful. Do you see the problem. Everyone just lost a big bet, a bet that was a supposed to be a sure thing. For low skilled workers this is less of a problem, finding employment in another feild with equally low skill doesn't really effect their output. As a society we lose when people bet wrong. That is why we encourage certain training, over others.

I don't see anyting in your post refuting this.

BTW, MBA's are on the chopping block as well, many a wallstreet firm is having thier analysis, typically done by recent biz school grads, done in india.

Posted by: Mathew on January 7, 2004 08:29 PM

____

First - thanks for the link which was itself a good piece and linked to two other good pieces (Stiglitz and Krugman). But what has happened to Paul Craig Roberts? I thought he was a free market type. Yea often his free lunch supply side spin was quite silly, but now this conservative is writing incredibly bad arguments for trade protection?

Posted by: Harold McClure on January 7, 2004 08:44 PM

____

Fluffy arguments on behalf of free-trade are the best kind! Why would anyone want to deal with slimy, mucous-membraned arguments for free trade, or scaly, spiny arguments for free trade?

Hmmm... is factor mobility really ALWAYS a substitute for goods mobility? I seem to remember reading in Ronald W. Jones' "Globalization and the Theory of Input Trade" that it could also be a complement. I left that book in St. Louis, alas, but is that possible (note: I never actually read the book. I just looked it for a while)?

Suppose that there are two factors (L and K), two goods (A and Z), and two countries (Ankh and Morpork). Further, suppose A and Z are perfect complements.

A requires xK and Z requires xL, where x starts at 1, and decreases by 10% with each new product (increasing returns, and such). So A1 costs 1K, A2 costs 0.9K, A3 costs 0.81K, etc.

Say Ankh has 3L and 5K, and Morpork has 5L and 3K.

First, there's the no-trade solution, of each country producing 3 of each good. We get 6 of each good, total, and no trade and no factor transfers.

Now, we allow free trade, but no factor mobility. Production jumps to 6 A in Ankh and 6 Z in Morpork, in addition to the 3 A in Morpork and the 3 Z in Ankh. Now, we have a total of 9 of each good. International trade will increase from zero to 6.

Try factor mobility, but no free trade. Efficiency is at odds with equity in this case (so long as we are talking about equality between nations, not people). The most efficient thing would be for either Ankh or Morpork to get all factors of production. If we settle for something that provides more modest benefits to all: Ankh transfers 1K to Morpork, and Morpork 1L to Ankh. Now, there is a total of 4 A and 4 Z produced on either side, no internation trade, a total of two transferred factors. If we go for efficiency all the way, one of them ends up with 8 L and 8 K, one of them with nothing, and a total production of 14 of each good, no trade, and a total of 8 transferred factors.

Now, let's allow free trade AND factor mobility. Because of increasing returns, all L goes to Morpork, and all K goes to Ankh. Now Ankh has 8 K, and Morpork 8 L. Ankh can produce a total of 14 (so close to 22!) A, and Morpork can produce 14 Z. We now have 14 of each good, and trade increases to 14, and a total of 6 factors are transferred.

So... anyway, my point is that maybe factor mobility could be a complement to trade? Or something like that? I don't know, but I think I read it somewhere. Or maybe I dreamed it.

Also, increasing returns are sometimes used to claim traditional free-trade theory wrong, but I'd think that increasing returns would actually USUALLY make trade more beneficial, not less.

Posted by: Julian Elson on January 7, 2004 08:45 PM

____

Erm... that "so close to 22" thing is confusing. I think I accidentally left it in when I had different numbers or something.

Posted by: Julian Elson on January 7, 2004 09:58 PM

____

Mathew: I did not mean to refute anything you said. I was responding primarily to Dinesh's post, and put your name on it as you wrote about something related. Perhaps not the best judgement on my side.

Posted by: cm on January 7, 2004 11:23 PM

____

There seems to be two issues here: Loss of jobs and matters of education. Overall, it is the changing structure of economy.

Outsourcing is not the only way to lose jobs. You can lose jobs to competition. Remember Japanese auto sector competition in 1970s. Detroit was not outsourcing jobs, Detroit was eliminating jobs wholesale, through plant shutdowns. We also know what the Japanese did in electronics, cameras, etc.

But this job loss thing is not as important as the matter of education. I mean America did survive waves of job losses. I'm sure there are people here who know how Pittsbourgh (spell? state?), for example, survived the loss of steel industry (and coal too?).

Naturally, one must look for ways to alleviate the pain and suffering involved in loss of jobs and subsequent adjustment.


As to educaiton: Productivity is increasing and with it the education level must increase. That means spending in education must increase. That also means education sector must expand. There is no way to respond to increase in productivity without taking these directions in education -- well perhaps immigration could be a substitute but there is a limit to that, as you know. And it would be silly to have a situation in which all high skill jobs are performed by immigrants while low skill jobs are performed by natives, just to avoid increased spending in education! A better alternative would be to send the natives over to other countries for education so that you don't increase spending in education !! Hurf!! :D

And not responding to productivity increase?

U gotta bi kiddinnnn, babe!!!!

(Hint: You lose far more jobs on a more permanent basis by failing to respond to productivity than responding.)


(I think I got the neo-cons cornered now! Me is glad!)

Posted by: Bulent Sayin on January 7, 2004 11:40 PM

____

Is Scheiber's comment on literacy rates in India tongue in cheek? India may have a youth literacy rate of only 73 percent or so, but China has one of almost 98 percent.

Posted by: trevelyan on January 8, 2004 12:01 AM

____

On fixing the website: is it impossible to set up Movable Type so that it acknowledges a posting with an unambiguous message to the poster reporting success or failure?

Posted by: James on January 8, 2004 12:17 AM

____

Literacy rate ain't too important any longer. It is the average years of education that counts. And in that, number of years of compulsary educaiton and rate of enrollment in education beyond compulsary educaiton figure more than any thing else.

Posted by: bulent on January 8, 2004 12:36 AM

____

I hope this is not a stupid question: How does a better senior Democratic senator from NY figure in all this?

Posted by: bulent on January 8, 2004 12:45 AM

____

But of course the slaves were happy!! really!!

They didn't pay income taxes. Income taxes are much worse than chattel slavery. I read it in the WSJ.

Posted by: julia on January 8, 2004 01:46 AM

____

Yes, yes, ah mean they didn't even have to go to school!

Posted by: bulent on January 8, 2004 03:00 AM

____

Camille is on to something like my first quibble with Scheiber in noting the disparity in the rates at which each country hands out computer science degrees. What do I care that Indiaís literacy rate is lower than that of the US? That is bad for Indianís who donít get to read great books, want ads and silly graffiti, but it has just about nothing to do with whether oneís job is in jeopardy to an Indian worker. If their literacy rate is half of ours, there are still twice as many of them who read than of us, so the literacy rate isnít going to save anybodyís job, unless it is an itinerant reading teacher. That doesnít mean the rest of his argument is wrong, but it certainly makes me suspicious. Either he doesnít think stuff through before he publishes it, or he intentionally stacks up arguments that sound good, but donít really matter.

Oh, yes. There is Michael C, making the same point, and trevelyan a good one too.

The disagreement over whether education is a subsidy is nice to think about, but which ever side you come down on, the US educates vastly more foreign students, with at least some part of that education subsidized, than does India. Many of those students then stay and provide benefits to the US. Others donít. The case with India recently has been that these mobile workers come to the US for education and jobs, then go back when the jobs are moved to India. Very tough (from where I sit) to see a national trade advantage to this pattern, though certainly, those mobile Indian workers see it as to their advantage as individuals to do what they are doing. US programmers competing with them, more expensive and less mobile, are on the run.

Bobby,

Your defense of Schumer doesnít help him much, in my eyes, anyway. Writing an OpEd piece as a way to help yourself understand an issue, making economic policy (as Senators do) when you donít understand economics (did I understand you right), signing your name to notions you donít support written by somebody who works for you (who works for whom? and doesnít this contradict the idea that Schumer said somethig noble but crazy, if he in fact didnít actually say what he signed?) is not what I want from my Senior Senator.

Is there going to be a primary challenge? Oops, I forgot. Heís in the Senate Ė job for life.

Oh, my. Apparently, I don't like either side of the argument, Schumer's or Scheiber's.

Posted by: K Harris on January 8, 2004 06:01 AM

____

India's literacy rate is 60%, I think, with men at roughly 70% and women at 45-50%. China's literacy rate is 86%, with men at 90-95% and women at around 78-80%.

Posted by: Brooklyn Sword Style on January 8, 2004 06:37 AM

____

India's literacy rate is 60%, I think, with men at roughly 70% and women at 45-50%. China's literacy rate is 86%, with men at 90-95% and women at around 78-80%.

Posted by: Brooklyn Sword Style on January 8, 2004 06:40 AM

____

In response to one of Bulent's points:

As a native Pittsburgher, I would hesitate to hold my hometown as an example of successful economic transition. Much of the adjustment following the run of steel mill shutdowns in the 1970's and 80's came in the form of relocation or retirement. While there has been growth in service sector jobs, many young professionals like myself have had to leave the area to find reasonable employment opportunities. The resulting aging population base has placed a great strain on local goverments; the City of Pittsburgh was recently declared financially distressed by the state government. Of course, other local factors (high tax rates, anti-business climate) have created difficulties, but I think it illustrates some general problems of transition for the regions "left behind".

Posted by: Jason on January 8, 2004 07:12 AM

____

Free trade is in general a good thing. If we want a comparative advantage in things that give us good incomes, then we ought to be educating the hell out of ourselves. IT jobs going to India is just the product cycle we have always known continuing as before. If we want the FUN jobs and the HIGH PAYING jobs then we need to build our human capital. History shows that this is the key. Please, please, someone tell the government this. Oh wait! I forgot! Its the Republicans in charge! They dont care about education or about whether I have a good job. OK so go vote for the Democrats.

Posted by: steve kyle on January 8, 2004 07:36 AM

____

steve k,

You are obviously a fan of John "I don't care what kind of chips we make, potato or micro" Sununu.

Posted by: K Harris on January 8, 2004 07:44 AM

____

"...we ought to be educating the hell out of ourselves..."

That's the general idea.
:)

---

Jason:

Economic transition is never easy or a simple matter. It causes less pain and suffering and it can even yield great gains, where the communities act in a proactive manner. A steel country I heard about did that: Luxembourg.

I was really referring to America's ability to renew itself and its economy. And in that ability, playing an important role is an American tradition that finds its place in at least one song:

"Hit the road, Jack..."

:)

as you have done.

And, after all that happened, would you rather that Pittsbourgh remained a steel town all these years and forever?

Posted by: Bulent on January 8, 2004 08:05 AM

____

I watched an eccectric 90 minutes of CSPAN last night featuring P.C. Roberts, C. Schumer, Tom Donohue of the US Chamber of Commerce and Lael Brainerd of Brookings. The show featured lots of really bad ideas, poorly expressed, but my favorite moment was when Roberts, at his most spectral, said without equivocation that the US would be a third world country in twenty years. Somehow David Ricardo was to blame. The audience emitted a short, choked laugh and politely allowed him to continue.

Posted by: consigliere on January 8, 2004 08:28 AM

____

Luke Lea...True HO and Stolper-Samuelson do predict that wages will tend to converge whenever a high-skill country trades with a low-skill country. But since you cited Paul Krugman as one of those economists who would agree, I think it only fair to point out that Krugman examined the empirical evidence for Stolper-Samuelson and did not find any. For example, Krugman's paper "Trade, Jobs and Wages" (NBER #4478, September 1993) argues that job losses in manufacturing are due to domestic issues and not greater globalization of trade. Stopler-Samuelson predicts that "if growing international trade is the main force driving increased wage inequality, then we should see the ratio of skilled to unskilled employment decining in all industries, and a substantial shift in the mix of employment toward skill-intensive industries." But Krugman claims that the empirical evidence does not bear out this prediction.

Posted by: mr rdes on January 8, 2004 09:04 AM

____

Luke Lea...True HO and Stolper-Samuelson do predict that wages will tend to converge whenever a high-skill country trades with a low-skill country. But since you cited Paul Krugman as one of those economists who would agree, I think it only fair to point out that Krugman examined the empirical evidence for Stolper-Samuelson and did not find any. For example, Krugman's paper "Trade, Jobs and Wages" (NBER #4478, September 1993) argues that job losses in manufacturing are due to domestic issues and not greater globalization of trade. Stopler-Samuelson predicts that "if growing international trade is the main force driving increased wage inequality, then we should see the ratio of skilled to unskilled employment decining in all industries, and a substantial shift in the mix of employment toward skill-intensive industries." But Krugman claims that the empirical evidence does not bear out this prediction.

Posted by: mr rdes on January 8, 2004 09:05 AM

____

Luke Lea...True HO and Stolper-Samuelson do predict that wages will tend to converge whenever a high-skill country trades with a low-skill country. But since you cited Paul Krugman as one of those economists who would agree, I think it only fair to point out that Krugman examined the empirical evidence for Stolper-Samuelson and did not find any. For example, Krugman's paper "Trade, Jobs and Wages" (NBER #4478, September 1993) argues that job losses in manufacturing are due to domestic issues and not greater globalization of trade. Stopler-Samuelson predicts that "if growing international trade is the main force driving increased wage inequality, then we should see the ratio of skilled to unskilled employment decining in all industries, and a substantial shift in the mix of employment toward skill-intensive industries." But Krugman claims that the empirical evidence does not bear out this prediction.

Posted by: mr rdes on January 8, 2004 09:05 AM

____

I saw a press conference yesterday on C-SPAN, well, more than half of it, with Schumer and Roberts.

Roberts, um, repeated argument was that Ricardo's theories, and the theory of comparative advantage, were undermined by the ability to quickly relocate factories themselves.

He called it "absolute" (rather than comparative) advantage.

Economists are just dreadful at calculating the cost of peace of mind, aren't they? It's enough to make one want to become an unlicensed heating, ventilation and air conditioning repair technician.

Posted by: JSN on January 8, 2004 09:32 AM

____

The primary engine is the shift from occupations that use energy to those that use less. The dislocation to Asia is, basically, driven by the same forces. They too need to generate GDP for less oil, and they too are going to invest in grabbing the highest GDP/BTU ratio they can get.

Posted by: Stirling Newberry on January 8, 2004 09:34 AM

____

What I wonder is, Why does India produce so many computer science degrees when its economy will not absorb them? Why does it not produce people educated to do things that will expand its economy?

Posted by: Masaccio on January 8, 2004 09:48 AM

____

I saw the same CSPAN panel (Brookings Institute, I believe). For me the low point came when the insufferable Tom Donahue make his final proclamation: "We might have to start thinking about nation states the way we used to think about individual (US) states." At that point, I felt like reaching into the TV, ripping that US flag pin from his lapel, and stuffing it down his throat.

Posted by: The Real Inspector Hound on January 8, 2004 10:03 AM

____

India may have a lower literacy rate than the U.S.A., but doesn't the fact that India has three times our population give it an advantage in terms of the quantity of American jobs that can be shipped over there?

As for the ability of American jobs/economy to regenerate themselves, one explanation for the 90s boom I've read argued that in the 1990s, when a lot of middle-management people were trimmed from corporate payrolls, that put a lot of high-skill, high-experience people out on the job market, many of whom were eventually able to put their entrepreneurial skills to work and create the companies that created the 1990s job boom.

Now, however, what seems to be happening is that the people who are losing their jobs are high-skill, low-experience people (i.e., recent college graduates with comp. sci./engineering skills). Their jobs are going to India, and the people who get those jobs are going to get experience which will enable them to survive the next global recession by putting their own entrepreneurial skills to work. Bully for India, but not such a wonderful deal for Americans with high-skill, low-experience people... and a disincentive for Americans to pursue high-skill careers because of the uncertainty of the return on the investment.

Why are corporations outsourcing so many jobs? Why would the people with the power to thwart these trends allow the "hollowing out" of the American economy? My own conspiracy theory is that this reflects a lot of unexpressed paranoia about the Social Security system and its long term viability. Not only are people trying to maximize their profits, no matter the damage to American values; they are trying to create a structural blockage in the economy which will essentially make them immune from being compelled to pay for the expansion of the welfare state in order to fund pension demands. Baby boomers are terrified about having to depend on Social Security, leading to the compulsion to make "one last score" that fed the Internet hysteria of the 1990s.

Posted by: Patience on January 8, 2004 10:13 AM

____

Masaccio,

I'm really red-faced, because I can't remember who made the argument. Maybe Bhagwati. It is an anti-brain-drain argument that may answer your question. Brain-drain arguments require that nobody in the sending economy notices the success of people who get "drained" to the receiving economy. On the pretty palatable assumption that Mumbai highschool kids who hear stories about how well their uncle is doing at IBM decide they want a swimming pool and a Mercedes, too, so they sign up for all the math and computer courses they can find. So hiring talent away from any economy where there is the capacity to create lots of talent (India's university math programs are pretty good, I hear) can lead to more, rather than less, talent in the sending country. So that would be why India would create more computer science degrees than it can use. Interesting thing is, now that India has lots of computer science graduates, it makes sense for firms that need them to look for them in India. The problem of too many computer science grads is solving itself.

Posted by: K Harris on January 8, 2004 10:22 AM

____

K Harris

"Interesting thing is, now that India has lots of computer science graduates, it makes sense for firms that need them to look for them in India. The problem of too many computer science grads is solving itself."

Please continue. K Harris has cleverly taken an issue I was not worried about and made me worry. We have fiscal policy that is not geared to generating ample job creation, at a time when there are rapidly increasing global pools of skilled workers.

....

Booby is right. Charles Schumer is a superb Senator, who yet managed to write a silly letter to the NYTimes.

Posted by: anne on January 8, 2004 10:59 AM

____

Dinesh argues that spending onn education is an investment rather than a subsidy.

I believe that it is both. I would be curious to hear the thoughts of a real economist, but it seems to me that our 100 year plus history of state funded agricultural colleges is very much a subsidy of agriculture.

Posted by: Rich Gibson on January 8, 2004 11:21 AM

____

Hayyah! I just read the Krugman paper somebody mentioned upstairs:


http://www.nber.org/papers/w4478.pdf


Therein that paper Paul Krugman says the problems of American economy are domestic problems; but he doesn't say what they are.

I am wondering when he would come out saying something like "our problem is that we just don't know how to handle the accumulation of productivity growth and technology since the New Deal, plus continued productivity growth."


------
And what's the last but surest resort to gain time when you don't know how to handle a major, critical, era-making domestic problem, conclusion and resolution of which could (in fact, surely would) bring about vast changes in national politics and social order?

That's obvious and pretty well known: You find a way and declare war on somebody.

(Paul Krugman had better "think quickly" before Georg-e Bush-e (French TV prononciation) tells general Chanchez (spell? he still commanding?) to move the troops in Iraq just a little bit to northwest -- or northeast -- or both? But then maybe Iraq is enough of a war for now -- dunno, I ain't following on that.)


Posted by: Bulent Sayin on January 8, 2004 11:25 AM

____

Camille,

I may be missing something but I believe this statement shows that you do not understand the concept of opportunity costs:

"How do you divvy up 'opportunity cost' in skilled white collar work between labor cost and training cost?"

It is no reason for shame. As Mathew points out most people do not understand most of these concepts. Sadly they are probably more important for intelligent voting than half of what we teach in grade school. This website is a good place to start remedying that problem: http://www.oswego.edu/~economic/newbooks.htm

"opportunity cost: The highest valued alternative foregone in the pursuit of an activity. This is a hallmark of anything dealing with economics--and life for that matter--because any action that you take prevents you from doing something else. The ultimate source of opportunity cost is the pervasive problem of scarcity (unlimited wants and needs, but limited resources). Whenever limited resources are used to satisfy one want or need, there are an unlimited number of other wants and needs that remain unsatisfied. Herein lies the essence of opportunity cost. Doing one thing prevents doing another." http://www.amosweb.com/cgi-bin/gls.pl

Opportunity costs thus equal the difference in relative returns on the potential "investments" a person or entity can make. Those investments include time, money, whatever is limited. An education is a factor of production. All factors have opportunity costs.

You are correct that taxpayer supported education is a type of subsidy.

___


Dinesh Gaitonde, any policy that shifts resources is an "effective" subsidy. This includes laws, investments, etc. Thus the U.S. subsidizes its pharmaceutical industry via stringent IPR laws and its sugar industry through tariffs.

____


Mathew, although the misallocation of resources and personal impacts are real, investment is always a gamble. Assuming that a particular education investment was a sure thing shows that the perceived risk was very, very low. In this case it is potentially a sign of short term market irrationality. If true, I wonder if the perceived risk will be too high now and therefore overshoot in opposite direction as prospective students look instead to other fields?

____


Luke, while trade theory predicts arbitraging of costs, I believe current and capital accounts should balance long before wages become equal.

Wages paid in the U.S. ultimately depend upon the supply and demand for particular workers and the productivity of those workers. Widget demand combined with productivity determines how big the pie is (i.e., how much it is possible to pay sustainably) while labor supply and demand determines how big a slice particular workers will get (with a notable exception for executive pay). Productive investments in education, technology, infrastructure (anything that increases productivity without hurting widget demand) should be much more important in determining wages than trade.

Labor costs per widget are also very much related to productivity. Since productivity per widget includes many factors of production, even fully arbitraged costs should not mean equal wages. Some fixed cost disparities should remain. I believe our empirical studies (per mr rdes post on Krugman) bear all of this out. It is fortunate since I doubt our political system is capable of handling a large downward fall of labor rates.

Posted by: Stan on January 8, 2004 12:41 PM

____

"Luke, while trade theory predicts arbitraging of costs, I believe current and capital accounts should balance long before wages become equal."

I meant exchange rates would intervene.


Posted by: Stan on January 8, 2004 02:03 PM

____

Brain drain -- in Taiwan there are a lot of binational families, with part of the family in the US and part in Taiwan. In some cases the parents come to the US once their kids are successful here, but some kids work awhile in the US and then return to Taiwan and start business there. (There's a whole industry teaching Chinese-American kids to read Chinese). Talent from Taiwan is productive in the US, but money from the US also isinvested in Taiwan.

It's quite a different story, but many Mexican villages are primarily dependent on remittances from the US. It's just a form of cross-border migrant labor, formally somewhat like a village of fisherman families or merchant marine families.

This starts to sound like various trading families with family branches in (say) Istanbul, Venice, and Marseilles, or in Hamburg, London, and Paris. That kind of cosmopolitanism was rare and suspect in the Middle Ages, but it's quite prevalent now.

Posted by: Zizka on January 8, 2004 02:41 PM

____

K Harris: that is a really good explanation of the first order effects. When we think it through, we might think that the educated worker who essentially brings in dollars for his labor, will spend it in India, thus boosting the Indian economy, and creating new roles for themselves or their colleagues.

And, I suppose it is easier to train people to do technical work than it is to teach them to be entrepreneurial in some technical field with the strong tech people they have, because there is no local market for tech.

But what about the notion that doctors and dentists trained under Indian rules, who are not available to treat Indian people because they are so busy taking care of rich Americans? Relying on second order good effects seems like a bad plan to me.

Posted by: Masaccio on January 8, 2004 03:37 PM

____

Julian Elson:

Sorry this is so far down the list. Very illuminating example on free trade. I assume you are using the totally arbitrary, floating point assessment of dollar value.

It's just that there is this weird thing that keeps going through my head, reminding me of Lutheran confirmation class, and that often repeated question from the old Lutheran Catechism "What does this mean?"

Posted by: northernLights on January 8, 2004 09:39 PM

____

Post a comment
















__