February 11, 2004

Why Oh Why Can't We Have a Better Press Corps? (Special Free Trade Edition)*

I'm sorry. I can't let this pass. You ask any of the recent Chairs of the Council of Economic Advisers--Mankiw, Hubbard, Baily, Yellen, Stiglitz, Tyson, Boskin, Feldstein, Weidenbau, Schultze, Greenspan--of either party, and they will say that politicians who link trade and jobs and reporters who enable them do America no good service at all. Increasing trade does not create or destroy jobs in aggregate. The level of employment in the United States is determined by how good a job the Federal Reserve does in offsetting shocks to domestic demand, in setting monetary policy to hit the sweet spot where there is neither high unemployment nor rising inflation (with a secondary assist or hobbling by fiscal policy).

What trade does is to shift jobs, shift the composition of American employment: people in import-competing industries lose jobs, while people in export industries (or, with the capital inflow, construction and investment goods industries) gain jobs. Economists have lots of good reasons for believing that the jobs gained are better jobs than the jobs lost, and that there are more and bigger winners from expanded international trade than there are losers.

But does thePost note that Greg Mankiw is simply saying what every previous CEA chair no matter what their politics would say? Does the Post point to any industries that have benefitted indirectly from expanded imports, either because the expanded imports have increased the purchasing power of their foreign customers or because they have let them produce their products more cheaply or because the inflow of capital from abroad has allowed them to finance investment or construction? No.

Why not? Why not give Greg a couple of full paragraphs to translate down from econo-language and explain himself in jobs-language? To talk about job-shift, and to point out all the reasons that it isn't job-loss? To point to workers and industries who are benefitting from expanded trade and capital flows?

Why not? I wish I knew.

(Now, it is certainly a powerful criticism of the Bush administration--a criticism I will make every hour--that it really doesn't care about making life easier for those who lose their jobs either because of trade or other shocks. The salience of helping structural adjustment and assisting worker retraining is minimal, compared to the Bush administration's deep concern for CEOs who are oppressed by SEC overreach and the $500,000+ a year crowd who suffer under the burden of high marginal tax rates. But that's not what's being talked about here.)

Bush, Adviser Assailed for Stance on 'Offshoring' Jobs (washingtonpost.com): Democrats from Capitol Hill to the presidential campaign trail lit into President Bush's chief economist yesterday for his laudatory statements on the movement of U.S. jobs abroad, seizing on the comments to paint Bush as out of touch with struggling workers. "They've delivered a double blow to America's workers, 3 million jobs destroyed on their watch, and now they want to export more of our jobs overseas," said John F. Kerry, the Massachusetts senator and front-runner for the Democratic presidential nomination. "What in the world are they thinking?"

Rep. Donald Manzullo (R-Ill.) called for the resignation of N. Gregory Mankiw, the chairman of the White House Council of Economic Advisers and a prominent Harvard University economist. Manzullo said industrial state Republicans are furious. "I know the president cannot believe what this man has said," Manzullo said. "He ought to walk away, and return to his ivy-covered office at Harvard." As Mankiw released the annual Economic Report of the President, he said Monday that the "offshoring" of U.S. service jobs is only "the latest manifestation of the gains from trade that economists have talked about" for centuries. "Outsourcing is just a new way of doing international trade," Mankiw told reporters. "More things are tradable than were tradable in the past and that's a good thing."

The report itself, under Bush's signature, offered similarly encouraging words, asserting that "when a good or service is produced more cheaply abroad, it makes more sense to import it than make or provide it domestically." It also said growing competition with China has not been an important factor in U.S. manufacturing job losses. The White House tried to take the political sting out of the issue yesterday, emphasizing the funding Bush has sought for job re-training, community colleges and "personal re-employment accounts," which laid-off workers could use any way they see fit to find a new job.


*Note that this is also a "Why Oh Why Are We Ruled by These Idiots?" post. John F. Kerry should know better. If he becomes president--and if he wishes to have a strong American economy--he will need to build support for expanding trade. Anything that he says now that makes that future task harder is not in America's interest, or even in his interest if he wants a second term.

Posted by DeLong at February 11, 2004 09:29 AM | TrackBack | | Other weblogs commenting on this post
Comments

Can someone (Brad, anyone?) point me in the direction of research that provide empirical support for the view that international trade shifts jobs, and that the new jobs are better than the old jobs. I would like to believe it, but I'm not sure I do. I'm willing to be educated though.

Posted by: boban on February 11, 2004 09:43 AM

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http://www.epinet.org/content.cfm/webfeatures_snapshots

The highly educated are the latest victims of the weak recovery

The weak recovery has led to dramatic increases in long-term unemployment—workers searching for jobs who remain unemployed for 27 or more weeks. Increasingly, it is the most highly educated Americans who are victims of the rise in long-term unemployment.

The figure below shows the percentage increases in long-term unemployment from 2000 to 2003 among people of different education levels. Overall unemployment also increased over the same period, rising from 5.7 million in 2000 to 8.8 million in 2003. The annual level of long-term unemployment was 649,119 in 2000; by 2003, this number had risen to 1.9 million.

See Figure -

Both the increase in overall unemployment and the increase in the number of long-term unemployed have differed by education level. Total unemployment has increased 40%, 74%, and 95%, respectively, for workers with a high school degree or less, some college education, and a bachelor's degree or more. But long-term unemployment has increased at much greater rates—156%, 259%, and 299% for each educational group, respectively.

In all recessions, the least educated have suffered disproportionately. However, the current recession and weak recovery are unique in the extent to which workers with substantial education are also economic victims.

Posted by: anne on February 11, 2004 09:48 AM

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Ditto to that last request. It seems that the majority of new jobs here lately are of the low-paid, low-value-added variety. Do we have some assurance that if we export all of our, say, well-paid computer programming jobs overseas there will be a corresponding increase in equally well-paid jobs of another type somewhere else? Or are the benefits of increased trade only certain in the aggregate?

Posted by: David Yaseen on February 11, 2004 09:54 AM

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"Economists have lots of good reasons for believing that the jobs gained are better jobs than the jobs lost, and that there are more and bigger winners from expanded international trade than there are losers."

Yes, yes, yes. But, the losers can be many and the losers may need assistance to recover. What if the assistance is not apparent? What then? Who will help Mexican farm families whose crops are of no value when American corporate farm imports are fostered? Why can economists not consider the displaced steel worker or textile worker or farm worker in America and abroad?

Posted by: anne on February 11, 2004 09:55 AM

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Yes, but doesn't trade have a potential downward effect on wages?

Didn't work by Richard Freeman and others show that some of the slowdown in wage growth in the last 30 years can be attributed to increased trade?

I'm not arguing that "protectionism" can solve this problem without doing more harm than good, but sometimes it would be nice if economists would admit that trade expansion has a downside, especially in an economy that has had relatively high unemployment for the most of the last 20 to 30 years.

And then it would be nice to have a serious proposal on what to do about it (above and beyond the typical calls for "retraining").

Posted by: Tom Geraghty on February 11, 2004 09:56 AM

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Why Oh Why Can't We Have Better Economists (special free trade edition)

It is easy to explain how in a full employment economy trade benefits workers. It is much dicier to prove that in a world where an imbalance between aggregate supply and demand is both caused by and causes weak labor demand and exacerbates income inequality. In a world where rich people seek exploitable labor and unexploited consumers trade can be a bad game all around.

Posted by: Dave Richardson on February 11, 2004 09:57 AM

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US umemployment rate last month, 5.7%
Flint Michigan unemployment rate last month, 8.6%

"I know how it works in reality, but how does it work in theory?"

msw

Posted by: msw on February 11, 2004 09:59 AM

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http://www.epinet.org/content.cfm/webfeatures_viewpoints_nafta_legacy_at10

"Average real wages in Mexican manufacturing are actually lower than they were ten years ago. Two and a half million farmers and their families have been driven out of their local markets and off their land by heavily subsidized US and Canadian agribusiness. For most Mexicans, half of whom live in poverty, basic food has gotten even more expensive: Today the Mexican minimum wage buys less than half the tortillas it bought in 1994."

Posted by: anne on February 11, 2004 09:59 AM

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I'm also eager to be educated about this. It seems to me that downward pressure on the salaries of (for example) software engineers and technical support representatives in Boston and Silicon Valley cannot have the kinds of benefits that some economists suggest. The cost of living in these areas may drop in response to lower salaries, but this response will probably lag the job market and cause serious discomfort or dislocation.

Perhaps in the aggregate there is some kind of advantage, but who wins in this scenario? Is it just an article of faith, or is there objective proof that "better" jobs come into existence? I suspect that the only sure thing is growth in jobs which cannot be exported for practical reasons, and that these forces may account in part for the expansion in low-paying service jobs, which are by nature not easily exported.

Will we all wind up stocking shelves at Wal-Mart, at least until the robots take over?

Posted by: lansdowne on February 11, 2004 10:06 AM

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Unfortunately, the data I can see doesn't suggest that better jobs are being created. Data from the EPI shows that the jobs being gained pay significantly less than the jobs being lost (that article was several months ago, and their search engine seems to be broken today so I can't find the link) At any rate, the fact that wage growth is dead in the water suggests that new jobs are at best, no better than the ones lost. and the previous post that shows that high wage earners are suffering large losses in this recession argues the same.
http://www.epinet.org/content.cfm/issuebriefs_ib196
And a study from Challenger and Gray showed that significant numbers of jobs were lost due to offshoring
http://msnbc.msn.com/id/4146397/

I think that economists are facing a situation that their model dosn't adequately cover. I certainly don't favor taking job opportunities away from developing countries. However, we do them no favor if we destroy the middle class that buys the goods that they would produce.

Posted by: steve on February 11, 2004 10:16 AM

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According to Lori Kletzer (a Ph.D. in economics
from Berkeley) the future looks dim for
trade-displaced workers.

"Trade-displaced workers earn less when they
find a new job than they did from their old job.
In addition one-quarter experience earnings losses in excess of 30 percent, she says."

Source: San Jose Business Journal
October 24, 2001

Posted by: bhaim on February 11, 2004 10:17 AM

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I too would like to know why it is SO obvious to most economists that free trade has been, is, and will continue to be good for US workers (good for which workers, good in which way?).

To a physicist, the world economy appears to be a very complex, highly non-linear system. I know how hard it is for physicists to really understand the behavior of systems that are much simpler than the economy - even when they KNOW the equations that govern or when they can DO real experiments. Often, in complex non-linear systems, one observes strange and unexpected behavior.

Now economists don't know the right equations (if they even exist), and they can't do real controlled experiments, and they are dealing with systems that are much much more complex. How can they be so SURE? I know the standard comparative advantage argument, but I hope that this by itself is not the foundation of their belief (it makes too many unrealistic assumptions). Don't get me wrong. I'm not bashing economists. I' just very very skeptical that they know as much as they think they do (not because they're stupid, but because the systems are just too difficult for anyone to understand with condfidence).

I'd very much like to see the evidence - not just some theoretical model which relies on a bunch of false assumptions. Like the other posters above, I would be very interested to see a reference for the best and most convincing case for the advantages of free trade to US workers.

Posted by: Jeffrey Miller on February 11, 2004 10:21 AM

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"Why not give Greg a couple of full paragraphs to translate down from econo-language and explain himself in jobs-language? To talk about job-shift, and to point out all the reasons that it isn't job-loss? To point to workers and industries who are benefitting from expanded trade and capital flows?"

OK--First, will he take it if offered? Second, is such translation in his linguistic reportory? I don't know the guy, so I can't say; but I know plenty of economists for which it isn't, and for the worst reason: that they dismiss anyone who has problems with their pronouncements as "idiots"--or, worse, as losers. I think of the colleague in our Economics Department whose response to an expressed trade concern was, in effect, that he grew up in in a working-class town and got out; why can't others?. The problem here isn't simply the hard-heartedness about structural unemployment; it's the failure to consider that job losses rend the social fabric as well. Job losses and job gains may indeed cancel each other out across a huge economy like that of the US; but they tend to distribute those losses unevenly across the landscapes in which people actually live. People depend on jobs not simply to pay the bills, but to underwrite a way of life that's frequently rooted in place--in family and community. Economists--operating as they do in a footloose national and even international labor market, and identifying themselves in relation to colleagues linked across cyberspace, do not, in my experience, quite understand that--or, like my colleague, are downright contemptuous of it.

This is not an argument against freer trade; the arguments in favor of freeing trade are overwhelmingly compelling. But it's not just the Bush Administration that acts oblivious to problems of structural dislocation. I think it's a larger failure with YOUR discipline, Brad.

Posted by: David on February 11, 2004 10:23 AM

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I am one of those software engineers who lost his job and took 7 months to find a new job paying 40% less than my previous job.

But at the same time based on my understanding, the theory of comparative advantage does clearly demonstrate the benefits of trade. Carefully work through all the costs and benefits and you will find that the benefits from outsourcing jobs exceeds the costs to software engineers.

Gavin

Posted by: gavin on February 11, 2004 10:26 AM

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I've been drilled in comparative advantage, too, and I'm inclined to accept the theory. But there are problems.

(1) Even on the terms of the standard account, the costs of trade are often concentrated, while the benefits are diffuse. Is it always better to suffer the concentrated costs rather than adopting limited, targeted, protections? I would think that depends on many things, such as: the relative size of the costs and benefits; how easy it is to recover from the costs; how likely it is that "targeted" protections would expand to cover lots of things.

I expect economists like to hold to a simple line on this question because they expect that protections actually can't easily be limited. It's better to oppose them all.

The problem is that this slogan is vulnerable in present conditions, where people without skills continue to go without wage increases, and in many cases go without jobs.

For sure, trade is only a small part of their woes; there's the familiar litany of causes, from the decline of the union movement, to shifts in production methods, to newfound assertiveness on the part of management.

So, what do you tell people who face these conditions? Is it: sorry, trade's not your problem. Can't say what we'll do to help you, of course. Just don't vote for politicians who promise to protect your jobs, ok?

Frankly, I think that a forty-five year old steelworker would have to be irrational to accept this line. What should he say? Oh, yes, you're right. I see now that trade benefits the country as a whole. Of course, the people who enjoy those benefits aren't going to share them with me, to help me get past my loss. And, I'll also lose a chunk of my personal identity and self-worth, which was tied up in being a good provider for my family. But by all means, don't let me hold you back! Heck, don't worry about me at all.

I suppose Brad would say our slogan has to be something like: full employment and an enhanced TAA will help protect wages and employment; we need clear and compelling anecdotes about how trade (especially outsourcing) creates jobs; and we need to make community colleges and state colleges affordable again, so the young can retrain.

Do these programs work? Are there others? What's the best we can do here?

Posted by: TedL on February 11, 2004 10:26 AM

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Boban, it might be interesting for you to go to the unofficial Paul Krugman Archive -http://www.pkarchive.org - , click on and check out articles like "the Myth of Competitiveness", "Does Third World Growth Hurt First World Prosperity?" or "Ricardo's Difficult Idea". Good stuff, though theoretical rather than empirical.

Posted by: Motoko Kusanagi on February 11, 2004 10:28 AM

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I think it is completely clear, both theoretically and empirically, that trade shifts jobs and that given proper economic policy, it cannot really destroy them.

However, I am unable to see an obvious theoretical argument as to why the jobs that are shifted to should be better than the ones lost. It seems to me like the comparative advantage of a particular country relative to another (or the rest of the world aggregated) might be in sectors with relatively high or low wages, and that the newly created jobs might therefore be better or worse than those that departed.

Suppose a developing country ("A") has an inefficient, protected financial system, but can produce sugar efficiently. Now "A" enters a free trade agreement with the US. Since the jobs the US will lose are among the worst in the country, the US will shift to relatively better jobs. But "A" is shifting to relatively worse jobs (more sugar jobs; fewer financial). Both countries should be better off, and the total wages of the people in "A" are probably going to be higher, but it is unclear that the new jobs in the third-world country are "better" than the ones that were lost.

Posted by: Matt Wilbert on February 11, 2004 10:29 AM

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First kudos on addressing this topic.

Second, it is particularly outrageous that Mankiw would talk about this after they made a joke out of the personal reemployment accounts, that was funded at about $6 a displaced worker instead of the intended $3000.

I posted on that here:

http://econ4dean.typepad.com/econ4dean/2004/02/hey_david_brook.html

I think the trade and better jobs arguments rests on simply looking at long-term historical change. , not onver any short period.

Posted by: lerxst on February 11, 2004 10:42 AM

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Thanks for the advice Mokoto.

I don't know a lot about international trade (at least in comparison to Paul Krugman) but I do have a fairly deep understanding of general equilibrium theory, and I am familiar with the theoretical international trade literature.

However, I'm not sure there is any empirical research to support the claim that trade shifts workers in the US into better jobs.

And I'm not sure the best way to defend free trade is to make unsubstantiated claims about what it does and does not do.

Posted by: boban on February 11, 2004 10:43 AM

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Brad -- I think I know what you were trying to say, but couldn't trade have an aggregate impact on employment if it changed the stucture of the economy (as opposed to just modifying demand)?

For example, if the economy shifted from relatively high-turnover sectors where workers spend a lot of time frictionally unemployed to a sector with low turnover and stable employment, the non-cyclical rate of unemployment could go down due to trade.

Or, if trade increased demand in sectors without much unemployment, while reducing demand sectors with a lot of unemployment, and wages are fairly inflexible in the high-unemployment sector, not many jobs could be created in the low-unemployment sector (because there aren't many qualified workers to take them), but a lot could be lost in high-unemployment sector, and wages won't adjust.

Couldn't trade effectively "create" or "destroy" net jobs then, even if not through the demand-shifts they seem to talk the most about?

Posted by: Julian Elson on February 11, 2004 10:45 AM

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"Economists have lots of good reasons for believing that the jobs gained are better jobs than the jobs lost, and that there are more and bigger winners from expanded international trade than there are losers."

I too would like to be educated as to what these reasons would be, especially looking at the last three years.

Posted by: Tim H. on February 11, 2004 10:49 AM

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It seems to me that free trade is a giant income redistribution scheme from the rich countries to the poor countries. For some reason, that I am not intelligent enough to comprehend, our government supports this. I think that this has it's roots in the "everywhere is better than America" baby boomer types in charge right now.

Posted by: Hi on February 11, 2004 10:58 AM

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As an economists that believes in the "LONG-RUN"
benefits of trade and comparative advantage it
does not mean that the short run costs can not out-weigh the long run benefits for some time,
and that we are in one of those times now.

Part of it was listening to Greenspan talk about over the long run these things work and we see it
in rising real wages. But in this cycle we are not seeing rising real wages. Total real wage & salary income in the US is still below where it was at the economic bottom two years ago.

This is evidence that something different is going on in this cycle; and many are blaming it on outsourcing. But maybe outsourcing is the symptom not the cause. Maybe the real underlying cause is the need to borrow so much abroad to finance the federal deficit.

It is interesting that in this cycle that productivity and profits are good, but not completely out of line with historic norms.
Rather it is vey weak overall economic demand and job growth and real wages that are outside the historic norm. If the economy were growing rapidly and creating many jobs outsourcing would not be a big issue because those being hurt by outsourcing could get other good jobs. but
outsourcing is an issue because those being hurt by it can not find other good jobs.

the problem is really the weakness of the economy
and job market not outsourcing. that in turn raises the question, is a major part of the weak economy due to the poor fiscal program of this admin that gives too little short run stimulous and too much long run structural cuts in revenue?

Posted by: spencer on February 11, 2004 11:04 AM

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Sorry for the second post, but I would also like to say that I resent our country being turned into the consumer market of the world. The effects of this, bad education, weight, and resentment of America by other countries are being felt. I want a strong society that produces and consumes in equal amounts. I feel no need to help others out of poverty by continually buying, buying, buying. This is a giant ponzi scheme that is bound to have BAD consequences. I don't understand economics, but I do have some common sense. It seems to be that we are suffering the consequences of knowing the price of everything but the value of nothing.

Posted by: Hi on February 11, 2004 11:04 AM

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I'm with Jeff Miller here - my formal training is in engineering, and I am viewing the economy as does a physicist. The engineering and physics undergraduate pedagogy is chock full of useful devices such as massless beams, frictionless planes, and incompressible flows. These simplifying assumptions are useful to grasp the essence of a phenomena, then lead you badly astray after a point.

There is also the time-value of the functions. Merely saying that at t=0 all is well, and at t = infinity things are even better due to Ricardo is to miss all points between the two - and a lot can and does happen.

Posted by: Bruce Cleaver on February 11, 2004 11:13 AM

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As long as the disgruntled former libertarians turn out in droves against Bush now that it is *their* jobs being lost, I have no complaints. So what if we end up with some additional protectionism? It can't be as bad as what Bush is currently doing. It's not as if Bush is a free trader anyway.

Posted by: Rich Puchalsky on February 11, 2004 11:17 AM

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Well to me "job-shift" sounds like a bad joke.

I think there is a serious problem with the comparative advantage model, given the intersection of the internet, which enables highly skilled white collar work to go offshore and fierce price competition. This combination of circumstances has never existed before. What these circumstances promote is a shifting offshore of EVERYTHING that can move, from legal work to software to xray reading, even real estate appraisals.

Before you say we'll have better (or even same quality) jobs to replace the ones that go offshore, ask yourself -- why would those new jobs not go offshore? Many silicon valley venture capital firms are now requiring that companies they fund have offshore plans in place. Even start-ups are using offshore labor!! So much for new jobs.

The price differential for labor between the U.S. and the educated third world is SO large and the job market in India is flooded with grads EVERY year, their wages are not going up anywhere near ours for the foreseeable future. No, the wages in our exposed job markets will drop by I estimate one half to two thirds, when jobs are available at all. It's already happened in some software markets, & this is just the beginning.

Note that the comparative advantage here is ONLY PRICE. Not productivity, not quality, which reports from the front lines of offshoring (reality based not faith based intelligence) indicate most often go down substantially. Those declines are not enough to mitigate for such a substantial advantage in cheap labor.

I think free trade economists are fiddling while Rome burns. It's not helpful. At some point within the next few years, to take software as an example, such a large portion of our software ecology will be overseas that our national competitiveness in this area will be seriously compromised. We'll be told it doesn't matter because Intel and HP and IBM will have R&D labs in Bangalore, and they are 'American' companies. But it does matter.Countries have gone to war over much less.

I think there is a window of opportunity if Kerry wins in November to penalize offshoring with the tax system, or some such thing. This window will close, it will probably be closed during the next four years.

Posted by: camille roy on February 11, 2004 11:26 AM

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Intellectual property rights and private capital must be protected everywhere in the world. Labor rights must be kept from infecting world markets and then eliminated from the homeland. Got it. Thanks.

Posted by: CMike on February 11, 2004 11:32 AM

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Is this going to become the Mankiw analog to Larry Summers' "Africa is underpolluted"? Hey, it's Greg "Let's Send More Jobs Overseas" Mankiw.

Posted by: Hmmmm on February 11, 2004 11:42 AM

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To those wishing for empirical evidence that trade doesn't destroy jobs, but rather simply shifts them: there are literally dozens of such studies, but some recent examples include papers by Frankel and Romer (1999), "Does trade cause growth?"; Irwin and Tervio (2002), "Does trade raise income?"; and Noguer and Siscart (2003) "Trade raises income". If you want specific citations (i.e. journal names and page numbers) I will be happy to send them to you -- just email me.

The counterpart to your request for evidence would be my request for someone to provide evidence that the current loss of jobs in many sectors is actually due to international trade, rather than the sad state of the economy. I know of no such evidence; indeed, I expect all of the job losses we've seen over the past few years is due to the state of the economy, and would have been lost whether we traded or not. If anyone knows of evidence to the contrary (and anecdotes do not equal convincing evidence), please let me know.

Posted by: Kash on February 11, 2004 11:42 AM

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Would previous CEA chairs have soft-pedaled mass firings as ".....foreign competition can require adjustment on the part of some individuals, businesses, and industries"? It's ludicrously tone-deaf. Adjustment!??!?!

Posted by: Jason McCullough on February 11, 2004 11:45 AM

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That said (what I just wrote above), no economist (including Brad) would ever argue that there aren't costs to trade, or losers from trade. By definition, when Brad says that trade shifts jobs, that means that some jobs are lost and others are gained. Those who lose jobs lose out from trade, and pay a heavy price. There is no doubt whatsoever about that, and responsible economists always acknowledge that (though some politicians may not).

Posted by: Kash on February 11, 2004 11:46 AM

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Here is the problem:

"The White House tried to take the political sting out of the issue yesterday, emphasizing the funding Bush has sought for job re-training, community colleges and "personal re-employment accounts," which laid-off workers could use any way they see fit to find a new job."

Everyone knows the Bush so-called program jobs program is a joke. Mankiw talks the job shift talk but the administration job shift program is a joke. Mankiw has no cover. Mankiw deserves to have his head handed to him on this issue. Not because free trade results in job loss but because they run a clown show instead of a job shift program. The Bush policy means "job loss" not "job shift". Kerry is correct for complaining that they want to "export more of our jobs overseas" because that is the net effect of the Bush policy.

Yes free trade can work, but only if those investments are made that help create better jobs than the ones that are lost.
The job shift argument could cover other CEA heads because Clinton had a credible program. Under Clinton there truly was job shift. Under Bush, there is net job loss. Mankiw is naive to use the job shift argument, because the result of Bush policy is job loss. Mankiw is stuck because he cannot make the logical argument that we need a jobs program instead of a clown show because his Bozo Boss does not support it. Because he must refrain from making an argument for a credible jobs program, he ends up sounding like a heartless fool.

Then there are the steel tariffs that rapidly increased the rate of offshoring of steel parts mfg. As we say here in the Midwest, "I used to be a steel parts manufacturer, now I am a distributor." This is why OH will be in the loss column for Bush in 04.

Where is the funding for high speed rail to connect Chicago with the rest of the Midwest and relieve congestion at O'Hare? Such a project could help domestic steel and build infrastructure. "Sorry, tax cuts for the wealthy are more important and we don't have money to fund Amtrak."

Where is the funding to build the infrastructure to switch support wind generation of electric power in the windy city? "Sorry, we need to give more subsidies to the oil and gas industry and base our army in Asia to protect their interests."

Where is the encouragement for foreigners to start up their dream company in the US? "Sorry, we have to have new restrictions on immigrants to make it look like we have a
homeland security program."

People complained about free trade under Clinton. After all, free trade requires job shift, job shift requires change, and change requires effort. However, job shift effort is nothing compared to the frustration at job loss. The only way to create support for free trade is to have a credible job shift. Free trade without a credible job shift program is a job loss program and will be received with rotten fruit.

Posted by: bakho on February 11, 2004 11:50 AM

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Ponzi scheme just about sums it up for me.

Ever since, as Cheney reportedly said to Paul O'Neill, "Reagan proved deficits don't matter", the good ol boys on Wall Street AND inside the Beltway have (with the tacit support "academics" across the land) been pawning every(American)thing that IS (equities, now real estate) AND isn't (jobs, public debt) "nailed down" to the rest of the world--to inflate their golden parachutes, their egoes, and their "bubbles"--and, by the way, to finance their delusions of imperial grandeur...

It all seemed to work well enough too--as long as it was only working class d***s and hicks out in the sticks who were doing the suffering for their economic sins. NOW though, even "educated" middle-class pr***s are "smelling the rats".

I heard Kerry got a big "Amen" from the crowd last night when he called THIS slip of the "inside" political lip...


-----------------------------
W.House Backs Adviser After Uproar Over Jobs

By Adam Entous

WASHINGTON (Reuters) - The White House on Wednesday stood by a top economic adviser who critics accused of encouraging companies to export jobs overseas, a factor in job losses during George W. Bush's presidency.

With political concern about unemployment heating up ahead of the November presidential election, White House spokesman Scott McClellan said "any job loss is regrettable."

He brushed aside suggestions that Gregory Mankiw, who chairs the White House Council of Economic Advisers, be fired for pointing out the potential economic merits of "outsourcing" jobs overseas.

"We certainly don't want to do anything that would undermine free trade," McClellan said....

http://story.news.yahoo.com/news?tmpl=story&u=/nm/20040211/pl_nm/bush_jobs_dc_4


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

...a "rare" moment of candor.....

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

Kerry's Agility


"...He [Kerry] could take a big chunk of the vets' vote: a traditionally Republican constituency.


He also might make inroads with fiscally conservative Republicans, who gasp at seeing a $521 billion budget deficit. Kerry appealed to this group when he said he has heard the voices of "parents who want to hand on to their children a better future, not the heavy burden of federal deficits and national debt...."

...Kerry played up what he called "the wreckage of the Bush economy," and he seized on a Bush Administration official's comment that outsourcing is good for the American economy. Kerry said, "In a rare moment, they actually admitted what they are doing...."

http://www.progressive.org/webex04/wx021104.html

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


All I can say is: It's about frigging time.


Posted by: Mike on February 11, 2004 11:58 AM

____

I think comparative advantage addresses a different issue than jobs. Comparative advantage argues that national wealth (GDP) will increase with free trade. I can accept that but perhaps the reality of our current free trade model is that it also concentrates the benefits of that added wealth into a few hands.

I think about country A manufacturing 10,000 cars and filling many jobs. Then country B finances 10,000 cars filling many fewer jobs. Country B is left with increased national wealth but all in the hands of the few people who did the financing. That is why we are experiencing solid GDP growth but no new jobs. The closest I've seen anyone come to examining a phenomenon like this is Kevin Phillips in "Wealth and Democracy" and it isn't a pretty picture.

I have sat through plenty of economics courses with the little triangles showing gains from trade and I think economists highly overestimate their ability to analyze the trade issue. I usually agree with Brad DeLong but his profession is lacking in this area.

Posted by: Sparks on February 11, 2004 12:23 PM

____

Kash -- Brad's claim was that the new jobs workers are being shifted into are better jobs. And he said there are "lots good of reasons" economists believe this.

I asked for empirical evidence and you respond with a list of studies, which judging from their titles, show that trade leads to growth. This is basically non-responsive, and certainly not sufficient to support the claim in question.

And I'm not sure that you are right about the jobs lost being a result only of the poor economy.

Also, Brad didn't say that "some jobs are lost and others are gained. Those who lose jobs lose out from trade, and pay a heavy price..."

What he said is that jobs are shifted, not lost, and that the new jobs are better than the old jobs.


Posted by: boban on February 11, 2004 12:26 PM

____

I would trust economists more if they hadn't made such a fool of themselves over the new economy. My husband is a CPA and stayed right away from the tech sector because he said that it was a pyramid scheme. If he is smart enough to spot that, why not Alan Greenspan? One comment about irrational stock valuations does not a strategy make.

Posted by: Hi on February 11, 2004 12:32 PM

____

... I just googled the studies you cite Kash. Reading the abstracts, each paper shows trade has a positive effect on growth. The don't say anyting about jobs being shifted rather than lost, and they don't say anything about the new jobs being better than the old ones.

So I'm still waiting for some empirical evidence of the claim that international trade shifts US workers into better jobs.

Posted by: boban on February 11, 2004 12:38 PM

____

Agreed that newspapers should honestly report the state of the art in economic thinking in their economic reporting -- not that the theory of comparative advantage is anything new.

Not agreed that when the admin's CEA leads off his testimony by effectively saying "gee, sending jobs overseas is kinda neat" that the Dems ought to lay off the fastball. Kerry's statement("They've delivered a double blow to America's workers, 3 million jobs destroyed on their watch, and now they want to export more of our jobs overseas. What in the world are they thinking?") seems pretty precisely calibrated to take the political opportunity without proposing to close our borders or any such foolish thing.

Posted by: alkali on February 11, 2004 12:39 PM

____

http://www.epinet.org/content.cfm/webfeatures_snapshots

In all recessions, the least educated have suffered disproportionately. However, the current recession and weak recovery are unique in the extent to which workers with substantial education are also economic victims.


http://www.epinet.org/content.cfm/webfeatures_snapshots_archive_01212004

Jobs shift from higher-paying to lower-paying industries

In 48 of the 50 states, jobs in higher-paying industries have given way to jobs in lower-paying industries since the recession ended in November 2001. Nationwide, industries that are gaining jobs relative to industries that are losing jobs pay 21% less annually. For the 30 states that have lost jobs since the recession purportedly ended, this is the other shoe dropping—not only have jobs been lost, but in 29 of them the losses have been concentrated in higher paying sectors. And for 19 of the 20 states that have seen some small gain in jobs since the end of the recession, the jobs gained have been disproportionately in lower-paying sectors.

Posted by: anne on February 11, 2004 12:43 PM

____

http://www.livingontheplanet.com/bl/archives/000209.html

Edward Hugh -

* The number of students being admitted for engineering studies in India will increase to 600,000 by 2004 compared with 455,000 in 2000.

* Every year, India adds about 2.3 million English-speaking graduates (15 years education). This compares with around 1.2 million graduates every year in US.

* India's population in the 15-64 age group will rise to 758 million and in the 25-59 age group to 501 million. The bulge will be in the age category of 15-24 years. This bracket will have 223 million people by 2010, up from the current 186 million.

* Even if GDP growth accelerated to 6.5% over the next few years, this stock of unemployed work force would only rise.... To overcome the problem of unemployment, GDP would have to grow in the range of 8-9%.

* The pharmaceuticals sector is emerging as a big area creating job opportunities for Indian scientists, doctors and laboratory analysts whose costs in India are about one-fifth to one-eighth of those in the US.

* Globally, about US$40 billion worth of drugs are going off patent over the next four to five years. This should throw open a big opportunity for Indian companies.

Posted by: anne on February 11, 2004 12:50 PM

____


http://www.livingontheplanet.com/bl/archives/000209.html

These excerts were from a report by Morgan Stanley's Mumbai correspondant Chetan Ahya.

Posted by: anne on February 11, 2004 12:53 PM

____

boban

>So I'm still waiting for some empirical evidence of the claim that international trade shifts US workers into better jobs.

I expect that you will be waiting a long time.

In a world where capital flows freely, and where there are huge disparities in income and wealth, I very much doubt that anyone will be able to show, or even convincingly argue, that a particular set of people (US workers) will be better off if trade is more free rather than less.

As many people have commented above, all that economists might be able to show is that free trade increases the total wealth of the world, rather than the wealth or income of a particular set of people - like US workers. And even this increased wealth are likely to be chimerical, when you factor in environmental and human "externalities".


Warren Buffett had a very nice article in Fortune recently in which he argued for a market that would force imports to equal exports. His basic idea was to give exporters certificates for every dollar of goods they export and then require importers to buy a certificate for every dollar worth of good imported. Doing this would solve our trade deficit and help US workers. The link:
http://www.fortune.com/fortune/investing/articles/0,15114,525644,00.html

Posted by: Jeffrey Miller on February 11, 2004 01:04 PM

____

Lansdowne wrote, "Perhaps in the aggregate there is some kind of advantage, but who wins in this scenario?" The wealthy, of course.

Reading deLong's (and Krugman's) paeons to free trade and other learned commentary, I know this should be terribly complicated, but in fact it isn't. You can bet your bippy that if, instead of the workers, free trade were costing the capitalists their dime, there would be more barriers to free trade than fences along the Mexican border.

As was pointed out by Jeff Miller above, the mathematical infrastructure of economics sucks. Its predictive ability hovers somewhere close to zero. There are lots of reasons for it, and I by no means think that it's because some very bright people aren't in there trying, but sometimes the models (linear, in a nonlinear world) get in the way of having a dab of common sense.

Down the street from me is a Family Dollar, a little further a Big Lots, then a Dollar Discount. There is no question that many items there are cheaper--cheaper than they were 20 years ago.

But there are other things I notice about these stores:

First, the shelves are frequently half-stocked or unstocked. As I was growing up, we were always treated to pictures of stores in the Soviet Union that looked just like these. The shame of communism!

Second, it is rare to find an employee who isn't surly, and damned rare to find one who is helpful. Another Soviet failing.

Third, they must be serving the unemployed because an employed person wouldn't have time enough to stand in the lines waiting to pay for the merchandise. Am I in Moscow circa 1970?

Twenty years ago you might have found such stores in the heart of an urban ghetto. Now you find them everywhere.

I believe that what most of us mean when we speak of economics is quite different from the rather restrictive (simplifying) meaning of the economists. I recall reading a study from a few years back that found that workers in some European country or another would rather have more free time than more money. This is economic behavior, but it is not the kind of behavior that economists seem to understand.

Posted by: Handy Fuse on February 11, 2004 01:19 PM

____

Boban: You make a reasonable point; the evidence is that trade causes higher per capita income, not specifically better jobs. However, the reason I directed you to those articles is that I think it's reasonable to assume that if a country's per capita income is increasing, its workforce must be in better-paying jobs. I'm honestly not sure how one would measure "better jobs" without looking at whether the total income produced by those jobs went up or down. I don't see how per capita national income can keep rising if people aren't getting better-paying jobs.

Regarding this from your comment:
>"Also, Brad didn't say that 'some jobs are lost
>and others are gained. Those who lose jobs lose
>out from trade, and pay a heavy price...' What
>he said is that jobs are shifted, not lost, and
>that the new jobs are better than the old jobs."

"Job shifting" is a term that means exactly what I described. Some jobs disappear, new jobs are created, and the net result is that the job mix in the economy has shifted as a result of trade. But as I said, all responsible economists (yes, including Brad) would agree that job shifting involves some people losing their jobs and suffering as a result.

Posted by: Kash on February 11, 2004 01:30 PM

____

"Job shifting" involves a *lot* of people losing their jobs and suffering as a result.

Posted by: Brad DeLong on February 11, 2004 01:42 PM

____

"I recall reading a study from a few years back that found that workers in some European country or another would rather have more free time than more money. This is economic behavior, but it is not the kind of behavior that economists seem to understand."

Yeah, those dumb economists have never thought about the tradeoff between income and leisure. And the possibility of a backward-bending labor supply curve has never occurred to them. You should win a Nobel Prize for mentioning such things here for the first time. Maybe I can share your prize for giving original names to such concepts.

Posted by: Daniel Lam on February 11, 2004 02:06 PM

____

Um, Brad, 10.27% real unemployment- not counting the hordes from Mexico standing outside of the Home Depot looking for a day wage. Nasty little number when added to our real inflation rate of 5%. Misery index of 15! Not much further to where it was when we fired Carter...Volcker is coming....or we are going....

Posted by: Allen M on February 11, 2004 02:07 PM

____

Handy Fuse-
You should take an intro course to economics sometime. You will almost certainly have part of a lecture about workers consuming leisure and different countries having different rates of consumption of this 'good', etc. Secondly, I'm not sure you driving down to the Dollar General is a very good measure of the performance of the US economy. I mean I prefer rigourous, analytical arguments with supporting data - but hey maybe thats just me.

Posted by: drew on February 11, 2004 02:24 PM

____

Brad DeLong is a heretic who now has few friends within today’s Democrat Party leadership. He prefers ignoring the harsh fact that the Bill Clinton of 1992 wouldn’t stand a chance of being his party’s nominee in 2004. DeLong may have contempt for President Bush---but his so-called allies consider our Berkeley professor to be “Bush Lite.”

I hope that the existentially challenged Professor DeLong stays away from razor blades. He will, no doubt, be sorely tempted to use them on his own wrists in the upcoming months. Oh well, life sucks and then you die.

Posted by: David Thomson on February 11, 2004 02:24 PM

____

I know that there's probably a pretty good answer to this question but why is it that so many people think they understand the economy better than the people who actually study it? I have friends who study geophysics and I certainly don't try to 'reeducate' him or tell him my alternate theory of why we have earthquakes. If I'm taking a math class I don't try to show my professor why the theorems he/she is presenting are wrong. I just don't really get people who don't spend any time studying something but who are ready to renounce a whole field of study because they magically stumbled upon the answer. It makes zero sense to me.

Posted by: drew on February 11, 2004 02:30 PM

____

"Job shifting" involves a *lot* of people losing their jobs and suffering as a result.

Posted by: Brad DeLong on February 11, 2004 01:42 PM


Translation: When "we" can't afford luxuries and fancy institutions like Berkley anymore, I'll get a job at Citibank (or Beijing pyrotechnic).

Until then, the trade deficit, down-sizing", "out-sourcing" and "job shifting" is YOUR problem. Sucker.

Posted by: Mike on February 11, 2004 02:37 PM

____

Hey, you're back, David! And I can still recognize your posts on the first sentence!

Posted by: Barry on February 11, 2004 02:37 PM

____

Drew,

I wonder why they let people without poli-sci degrees vote.

Posted by: CMike on February 11, 2004 02:42 PM

____

Ricardo promised good outcomes from free trade IF the key factors of production were not mobile.

Most have become mobile, thanks to globalization and technology. Easy movement of finance & skills, radically lower cost of communication (aka transport of services), lower transit times for people and products, etc.

Time for a re-think of how this well-proven theory applies to today's situation. Not repeated singing of the "Ricardo chorus" -- at which I suspect he would be appalled.

Posted by: Larry on February 11, 2004 02:44 PM

____

Brad, Mike was harsh, but the problem remains - in a bad economy, only rare and lucky people will 'job shift' sideways, or up. For almost all, it's down.

After, of course, a period of unemployment, which can easily drain years of savings, and add thousands of dollars of high-interest credit card debt.

Posted by: Barry on February 11, 2004 02:48 PM

____

Drew wrote,
"You should take an intro course to economics sometime. You will almost certainly have part of a lecture about workers consuming leisure and different countries having different rates of consumption of this 'good', etc."

I'm not sure that leisure is something that is "consumed." It's more like my natural state when I'm not scratching for consumables--sort of like breathing. Or is that just me?

"Secondly, I'm not sure you driving down to the Dollar General is a very good measure of the performance of the US economy. I mean I prefer rigourous, analytical arguments with supporting data - but hey maybe thats just me."

It seems to me that driving down to the Dollar General is about as good a measure of the performance of the US economy, as most of us would think of it, as the aggregate GDP. I mean, most of us don't care how much money's in the bank; we do care how much of it is ours.

Posted by: Handy Fuse on February 11, 2004 02:53 PM

____

Got it Kash. But I'm not sure I still agree (which I once did) that rising GDP can be taken as evidence that people are shifting into higher paying jobs.

Certainly this isn't happening at present. US GDP is growing at a very high rate and jobs are being lost (and not just downgraded) at the same time.

And while I know you don't want anecdotal evidence, I look around me and see entreprenuers outsourcing jobs to places like Sri Lanka. I'd like to be able to balance this perception with data to the contrary, but I don't think any such data exists.

I guess it's a whole other topic why economists have "lots of good reasons" but not one iota of empirical evidence for a very basic claim.

Posted by: boban on February 11, 2004 02:55 PM

____

Kash,
Your per capita income explanation is lacking because it does not address income distribution. I think the commonly used per capita income anecdote is two factory workers sitting at a bar. Suddenly Bill Gates walks in and one of them declares, "Hey, on average, we're all rich!"

The issue needs to be addressed from an income distribution point of view or it is not relevant to our current economic/job problems.

Posted by: Sparks on February 11, 2004 02:56 PM

____

"I wonder why they let people without poli-sci degrees vote."

Voting is not political science; it's the exercise of a civil right. But when it comes to the scientific study of voting behavior, I would pay less attention to the pontifications of someone who is not a political scientist than to someone who is, other things being equal.

You don't need to be an economist to produce and consume, to buy and sell, to invest and save. But you do need to have some understanding of economics for you to produce something that is not entirely nonsensical when pontificating on the working of the system.

Posted by: Daniel Lam on February 11, 2004 02:58 PM

____

“Translation: When "we" can't afford luxuries and fancy institutions like Berkley anymore, I'll get a job at Citibank (or Beijing pyrotechnic).

Until then, the trade deficit, down-sizing", "out-sourcing" and "job shifting" is YOUR problem. Sucker. “

Oh wowie, is Brad “Bush Lite” DeLong now a low life reactionary who has sold out to the monied interests? Where is Paul Krugman when you truly need him? Professor DeLong is obviously not a member in good standing in today’s Democrat Party. Damn it, what is a Bush basher to do? Is there any justice in this cruel world?

Posted by: David Thomson on February 11, 2004 03:01 PM

____

Kash,

I'm honestly not sure how one would measure "better jobs" without looking at whether the total income produced by those jobs went up or down. I don't see how per capita national income can keep rising if people aren't getting better-paying jobs.

The per capita income of the folks in a bar increases dramatically the moment that Bill Gates walks in, but that doesn't do much *in actual terms* for the rest of the people in the bar. The problem with a per capita formulation is that it disguises wealth concentration: a few people getting spectacularly rich and everyone else staying the same or even losing a bit looks the same, on a per capita measure, as everyone doing a little (or even more than a little) better.

Which is what Boban was saying as well.

Posted by: Ruth Hoffmann on February 11, 2004 03:14 PM

____

Ack! That first paragraph was supposed to be italicized: it's a quote from Kash. Sorry.

Posted by: Ruth Hoffmann on February 11, 2004 03:15 PM

____

Kash says: "if a country's per capita income is increasing, its workforce must be in better-paying jobs. I'm honestly not sure how one would measure "better jobs" without looking at whether the total income produced by those jobs went up or down."

This is the problem with averages. The homeless man and Bill Gates in a room have a terrifically high per capita income. You have to look at the distribution. Anne has posted relevent information about wages for jobs lost and jobs created. Kevin Phillips has written a book documenting the distribution problems we have in this country. I don't believe a single number -- total income -- captures the situation of whether the job flow is beneficial to the country practicing free trade.

Furthermore, when jobs being displaced require a person having years of education and experience to go back to square one and enter an entirely new career, the impact on that individual is much greater than if an low skilled worker takes a different low skilled job in a different industry. In addition, what motivation does the situation give to young persons entering the labor market and making a choice whether to invest in education? Why should they if their investment (time and money) can be wiped out at the whim of a large corporation's decision to outsource?

Posted by: cafl on February 11, 2004 03:16 PM

____

Three Bill Gates references! I *knew* I should have used Brunei as an example instead! :)

Posted by: Ruth Hoffmann on February 11, 2004 03:19 PM

____

"Oh wowie, is Brad “Bush Lite” DeLong now a low life reactionary..."

Oh wowie, dave.

Brad quotes Greenspan at length above this thread.

You sound like you speak Greenspanish, I know they're BOTH concerned about the BUDGET deficit and I know that Greenspan, as usual, isn't particularly worried about unemployment. But did EITHER of those esteemed gentlemen even mention this:

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

China-US Trade Surplus at $58.61 Billion

Sun Feb 8, 8:37 PM ET

BEIJING (Reuters) - China's trade surplus with the United States rose to $58.61 billion last year from $42.7 billion in 2002, the People's Daily Overseas Edition said on Monday, citing customs figures.

The United States says its trade deficit with China is much larger -- hitting $103 billion in 2002 and likely to top $120 billion last year....

http://story.news.yahoo.com/news?tmpl=story&u=/nm/20040209/bs_nm/trade_china_usa_dc_1

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

I didn't think so.

I hope I'm not stealing a line from '2001: A Space Oddysey' when I note:

Somebody's lying, Dave.

Who?

Posted by: Mike on February 11, 2004 03:21 PM

____

In the long run we are all dead. The question remains: what does it mean to be a citizen of the United States. It appears that for the harden right, and the core most cynical supporters of Bush, it means "I've got mine so kiss my ass." Also, it means I've got so much that no matter what happens I am insulated from the harsh realities of the market system. The world is a hard hard place, then you get old and die, don't let the door hit on the ass on the way out. Free trade means, in the long run, job shift, just like the economist said. But, if you read throughout this blog, you learn that our host, and Krugman to whom he cites and others of note, all recognize that markets are not kind, warm and fuzzy movers and shifters. I think we have heard time and again that Prof. Delong and others cited, also advocate public assistance: ie, education, job training, unemployment, etc. to help citizens who need assistance, those being "shifted" so that they are caught in a safety net, not dropped on the ground. I think most Americans are willing to pay some extra taxes to create a safety net. But for the super super rich who do not have all their mega-wealth concentrated in a single asset, everyone may be in need of assistance. However, most Americans are wise to the fact that politicians waste a lot of money through cronyism; the Republicans have been successful in driving this point across. As much as you we may decry the harshness of markets, but recognize that they are the best way of ordering our economic lives; we must also face up to the fact that politics is a messy messy business and without active, vigilent participation, we end up where we are today: a $521 billion projected deficit based on sham assumptions. Are we that far from becoming Argentina? This is why Bush must be called on the carpet to explain his policies, not parrot the false work of his political henchmen. But Kerry (since is apparently will get the nomination) cannot be given a free ride, either. Pandering on issues to special interests does not solve problems (it may make them wealthy (a la Bush) but the problems don't go away.

Posted by: cal on February 11, 2004 03:26 PM

____

["Job shifting" involves a *lot* of people losing their jobs and suffering as a result.

Posted by: Brad DeLong on February 11, 2004 01:42 PM
Translation: When "we" can't afford luxuries and fancy institutions like Berkley anymore, I'll get a job at Citibank (or Beijing pyrotechnic).
Until then, the trade deficit, down-sizing", "out-sourcing" and "job shifting" is YOUR problem. Sucker.]

Us economists have a problem in that when we point out what is happening or will happen we are assumed to be heartless bastards. Just because we say something will happen does not mean that it is a good thing. Would you rather remain in ignorance or know what is going on so that you can try to influence policymakers so the bad outcome does not occur.

I think Brad does care, if he didn't why would he put up with all this abuse.

Posted by: ____league on February 11, 2004 03:30 PM

____

Drew,
"why is it that so many people think they understand the economy better than the people who actually study it? I have friends who study geophysics and I certainly don't try to 'reeducate' him or tell him my alternate theory of why we have earthquakes...I just don't really get people who don't spend any time studying something but who are ready to renounce a whole field of study because they magically stumbled upon the answer."

You have a point but I think there is another side to this. Economists pronounce on fields they know nothing about. Catherine Mann for example recently produced a study which purported to show (Hah! it was just a series of projections) that offshoring the software industry would have the same long term beneficial impact as offshoring chip manufacture in the 1980's. Show the happy story of offshoring chip manufacture in the 80's and voila!! all problems related to offshoring software are solved.

Not.

This kind of statistics fiddling actually influences policy, unfortunately. Nary a mention anywhere of how frustrating, deep, and intractable differences between developing hardware and software are. Professionals have commented on this since the beginnings of the field, but none of this was mentioned or dealt with in the Mann paper. This is inappropriate and destructive. The real issues continue to be ignored.

Posted by: camille roy on February 11, 2004 03:40 PM

____

Somewhere above Anne writes:

"In 48 of the 50 states, jobs in higher-paying industries have given way to jobs in lower-paying industries since the recession ended in November 2001. Nationwide, industries that are gaining jobs relative to industries that are losing jobs pay 21% less annually. For the 30 states that have lost jobs since the recession purportedly ended, this is the other shoe dropping—not only have jobs been lost, but in 29 of them the losses have been concentrated in higher paying sectors. And for 19 of the 20 states that have seen some small gain in jobs since the end of the recession, the jobs gained have been disproportionately in lower-paying sectors."

...and this has to do with trade how? You're describing something called a business cycle, which we're pretty sure is not caused by foreigners. What do business cycles have to do with trade? Where's your model? This is addressed to everybody who seems to think that trade liberalization is some sort of shock introduced to the economy by George Bush. There have been shocks from his administration, but they've been fiscal. Not to say that business cycles in an open economy have to act the same as business cycles in a closed economy, but you have to show this and make a convincing case how.

And a word to Mike: Short, sweet, and original thoughts are virtues. If I wanted to read some crank like Henry Liu, I'd go to his website. I'd rather not get my Page-Down key stuck while trying to look for other people's intelligent comments. If you have something to say, you're undoubtedly intelligent enough to use your own words. Thanks.

Posted by: Chris on February 11, 2004 03:47 PM

____

Mike

I think you are repeating yourself.

What we are seeing right now is a situation in which the US in total is producing more. Unfortunately, a large number of people are being severely impacted, many more may be suffering smaller losses and a small, or maybe very very small group at the top are mcuh better off. If you go far enough up the income distribution you will come to people whose income has gone up 10 times or more in the past few years. Of course, these are the same people who are having their tax burden reduced by Bush.

Posted by: ____league on February 11, 2004 03:58 PM

____

There are several problems with the stories economists tell about trade:

1. If you take a model in which all factors are efficiently employed, as in the little ricardian story, you can´t really say anything about the effects on unemployment. Krugman tried to give a justification why the assumption of full employment is unproblematic: "countries have central banks, which try to stabilize employment around the NAIRU; so that it makes sense to think of the Federal Reserve and its counterparts acting in the background to hold employment constant." But the macroeconomic story and the trade theory story don´t fit together in any theoretical framework, at least not the general equilibrium model used to analyse efficiency.

2. What the ricardian story basically boils down to is that more can be produced and if markets employ all resources efficiently, people will have more in the aggregate. That means the average job became more productive. But that doesn´t make the people who are worse off any happier. A redistribution scheme may make all better, but such schemes are usually not enacted.

3. Human capital gets destroyed in the process of work-shift. So people may have better technology but less resources.

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

"Warren Buffett had a very nice article in Fortune recently in which he argued for a market that would force imports to equal exports. His basic idea was to give exporters certificates for every dollar of goods they export and then require importers to buy a certificate for every dollar worth of good imported. Doing this would solve our trade deficit and help US workers."

Actually there´s a old idea that is very similar by Abba Lerner and David Colander. When there were the huge inflation problems in the seventies, they had the idea to build a market in price-changes.

Posted by: Michael Greinecker on February 11, 2004 04:13 PM

____

Mike

Ok so you don't like to paraphrase but do you need to repeat your January 9 post twice in this thread?

Posted by: ____league on February 11, 2004 04:14 PM

____

Shorter Mike:

Same post repeated n-1 times


Shorter Camille Roy:

Economists are full of shit. Instead, you should all trust my estimate of a 2/3rds decline in real wages in open economies.


Shorter Bruce Cleaver:

My background working in engineering clearly helps me understand the short run and long run
way better than Brad DeLong - 'cause he only understands infinity.


Shorter anti-outsourcers:

No way in hell I pay more for my Hyundai, but my job is too valuable to lose to those damn Indians.

Posted by: strawman on February 11, 2004 04:30 PM

____

Well, despite his rather extravagent rhetoric, Mike's arguments are more convincing to this non-economist than all the preistly assurances I hear from other quarters.

I keep hearing these statisics about the growing gap between rich and poor in the US. And how its been growing for a long time. Is it wrong to attribute this phenomenon to free trade?

Posted by: Alden on February 11, 2004 04:52 PM

____

Drew :

"I know that there's probably a pretty good answer to this question but why is it that so many people think they understand the economy better than the people who actually study it?"

Well, it is at least remotely possible that the economists are wrong, or the theory is incomplete, or the ceterus is not paribus. Stagflation was a real puzzler in its day, for example. The history of science is full of beautiful theories destroyed (or correct theories sneered upon), and economics can be no exception.

The theory says one thing, but the eyes on the ground see another.

Posted by: Bruce Cleaver on February 11, 2004 04:53 PM

____

"Well, despite his rather extravagent rhetoric, Mike's arguments are more convincing to this non-economist than all the preistly assurances I hear from other quarters...."

Thanks Alden.

The arguments are what I like to think thinking people pay attention to.

(I do derision too. But I try to keep it to a minimum in polite, highbrow company like Brad likes to think he keeps around here ;-)

Posted by: Mike on February 11, 2004 05:16 PM

____

It's very easy to support outsourcing if you know that your own job isn't going to be on the chopping block. Note the sectors from which we see the strongest support for job decimation: politicians, economists, executives... all individuals who feel confident that their own jobs are staying right where they are.

Posted by: Firebug on February 11, 2004 06:37 PM

____

Brad claims in his post that the employment rate has nothing to do with whether or not Americans actually produce anything, but that it is rather all a function of how political hacks in Washington tinker with interest rates and the money supply. You'll forgive my skepticism on this front, especially since it contradicts what is actually happening right now. And contrary to Brad's statement, there is no reason to believe that the jobs gained are better than the ones lost. Again, if we look at what is actually happening and not what a theory says *should* be happening, we are losing high-paying jobs in IT, accounting, radiology, engineering, etc., and gaining (to the extent we are gaining any jobs at all) mostly low-paying, dead-end service sector jobs like Wal-Mart. Comparative advantage tells us that both participants in free trade are likely to have improved GDP, but says nothing about how that will be distributed. Certainly outsourcing benefits Indians and Chinese who now have higher paying jobs with subsidiaries and suppliers of American corporations, and certainly it benefits the corporate executives and major investors who can now save on labor costs, but how does it benefit the average American worker? No one has ever provided a convincing answer to this.

Posted by: Firebug on February 11, 2004 06:42 PM

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Boban, Sparks, Ruth Hoffman, cafl, and various others:

Thank you all for making the point (which I failed to make) that an increase in per capita income is not a sufficient measure of progress, because income inequality makes a difference. Even if trade causes higher income, if income inequality gets a lot worse, then it's clearly hurting some people and society may feel that it's not worth it.

That is a point that has been recognized by economists for decades. Dozens of papers have been written to try to determine if trade causes income inequality. The consensus that seems to have emerged (after *many* years of often heated debate among economists) is that international trade accounts for a small portion, probably somewhere between 0%-20%, of the increase in income inequality over the past 30 years. The bulk of the increase in income inequality is due to other factors, such as differential education and technological progress.

Given that trade has only caused a small increase in income inequality, it then becomes reasonable to use per capita income as an indicator of job quality.

So, to sum up: Trade has been empirically shown to cause higher per capita income, and only a small increase in income inequality. That is why many (most?) economists feel that we are justified in questioning people who assert that trade causes job quality to deteriorate. The bulk of the evidence simply does not support such assertions.

Posted by: Kash on February 11, 2004 06:48 PM

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Let's take one specific example of how an average American can be a loser in the outsourcing game. Suppose we have an American programmer who graduated from MIT with a master's degree in CS in 1995 with $100k in student loan debt. He is fortunate enough to land a job with a major American corporation immediately upon graduation, and is offered a generous starting salary of $50k a year. So far, so good. He enjoys programming and does his job well, and is soon promoted within the company. By 2001, he's making $85k a year as a senior programmer. He needs it, too, since by this time he's 30 years old and has a wife and a newborn son. He's been pretty diligent about paying off his student loan debt but still owes about $25k on that. Then, he gets laid off by the corporation, which is outsourcing all its IT operations to India.

But all is well since this is the parallel universe where the wise and benevolent Brad DeLong is President of the United States. And so Brad realizes that although free trade and outsourcing are sacrosanct and must not be touched, we should still try to cushion the blow. So our intrepid adventurer is sent back to school to train in the up-and-coming field of nanotechnology. (Never mind the fact that there's no reason this won't be outsourced, too, or that no real-world President and Congress will engage in any such cushioning programs.) The government is generous enough to pay for the entire cost of his four-year education in this new field. Of course, he still has to support his wife and son, and pay the mortgage and bills. So he has to draw equity out of their house and draw down his 401(k) to stay afloat during this period. And, of course, his original MIT student loan continues to accrue interest. But, lo and behold, there is a light at the end of the tunnel! He is indeed an intelligent man, and he graduates at the top of his class and gets a job offer in the nanotechnology field. Since this is of course a higher value-add field, as Professor-President DeLong would no doubt tell him, the starting pay is a bit higher. He starts at the princely sum of $65k a year, compared to the $50k he started in in the IT field.

Still, our young worker is not quite happy. He doesn't enjoy nanotech research anywhere near as much as he liked programmming. And even though he is making more than he originally did in the IT field, his experience is all wiped out, and he is making $20k a year less than he was before he was laid off. And he doesn't know how long this job will last either before it, too, is shipped overseas. Also, he is now $35k in debt due to accrued interest on his student loans, he has no equity in his home (it was all drawn down to sustain his family during his re-education), and his 401(k) is wiped out. He wonders if he'll ever be able to retire.

He's thinking maybe it would have been better if he had become a plumber or electrician instead. After all, you can't do that remotely from India - for now, at least. Or maybe he should have become an economist instead, so that he could sit in an ivory tower and tell people how great it was that their birthright was being sold overseas for a mess of pottage.

-- The End --

Posted by: Firebug on February 11, 2004 06:59 PM

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I'd like to make a general point about the field of economics here. Economists do not generally believe things just for ideological kicks. We mericlessly demand hard evidence of one another for everything that we say. The process of economic inquiry is ruthless and hyper-competitive -- so no economist who asserts something without convincing proof will survive for more than a moment. Likewise, no theory will be maintained by the vast majority of economists if it doesn't have lots of rigorous, tested, verified empirical evidence to support it. As a discipline, we demand proof. CONSTANTLY. So please don't suppose that economists are just coming up with nice theories that have no connection to the real world, because that is exactly the opposite of the truth.

Posted by: Kash on February 11, 2004 06:59 PM

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Brad?

Posted by: David Yaseen on February 11, 2004 07:51 PM

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Shorter firebug:

"If all 280 million Americans paid me a dime a year, we would all be much happier. If you think that's a bad idea you are a damn hypocrite"


Posted by: strawman on February 11, 2004 08:19 PM

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Strawman certainly lives up to his name.

FWIW, the hypothetical situation I described at length in the above post is not my situation, in whole or in part. (I'm only 24, not 30, and have no debt except a home mortgage.) And I was not asking for handouts. I was criticizing the facile and intellectually lazy assumption that "we will all be better off with outsourcing". Well, a great many of us won't be better off, and it is about time that economists began to admit that and understand that protectionism might be a quite rational response.

Posted by: Firebug on February 11, 2004 08:28 PM

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(tangent)

Strawman, I don't think you are doing the "Shorter" schtick right. Maybe time to go hit Busybusybusy.com for inspiration. You've got the short part, and the mockery part, but you need to work on the comment somehow relating to hte original post. For instance Bruce Cleaver was mostly about mathematical models and is not really summarized by your "short and long way.. infinity" summary. Likewise the comment about Firebug doesn't seem even close to the mark. In fact, what are you targeting.. the call for social safety net? I'm totally missing it, and as you might have noticed, the "shorter" style is all about making clearly understood jabs.

best of luck on your excursion into comedy

Posted by: vsa on February 11, 2004 08:34 PM

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Would the people who are anti-outsourcing also be against the Industrial Revolution? After all, it displaced massive amounts of workers, forced families that had been living in one place forever, doing the family trade for generations, to relocate and completely change their way of life. It's the same thing now, just a different mechanism.

Oursourcing is like a machine that can do something more efficiently than you're doing it now. If I have 100 employees making widgets, and I can replace them with 10 managers supervising overseas widget production at half the cost, that's the SAME THING as if I had a big machine that can make widgets at half the cost and only requires 10 people operating it.

If you're against outsourcing, you're against that machine too, or you're being silly. And it's shortsighted to be against either one.

People thought more efficient machines were going to change their lives for the worse, and in the short term, many of them were right. But I'm terribly glad they didn't stop seeking more efficient methods back in 1800 or 1850 or 1900 or even 1950, because we live a lot better now than they did then.

Posted by: Mark Nau on February 11, 2004 08:44 PM

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Thanks for the unsolicited advice vsa, but I don't have to live up to your exacting standards of wit and intelligence - I leave that to BusyBusyBusy.

But before you make too many accusations about others you may want to actually read some of Bruce's posts, particularly gems like

"Merely saying that at t=0 all is well, and at t = infinity things are even better due to Ricardo is to miss all points between the two - and a lot can and does happen."

before you try to whitewash that nonsense as being mostly a discussion "about mathematical models"

And as for firebug who's

"criticizing the facile and intellectually lazy assumption that "we will all be better off with outsourcing"

shortly after Prof. DeLong said

"Job shifting" involves a *lot* of people losing their jobs and suffering as a result"

Now that my friend is a strawman. Burn baby burn!

Let's hear it once and for all folks. Do we only ban outsourcing IT jobs or is any kind of outsourcing bad? Do we ban all trade too? Or can we trade with white people who get paid a lot and not dark people who get paid a little? Help us draw these lines with all the moral clarity you posess. Help save the world from the tyranny of jobs of poor people and cheaper prices for all. History will never be able to repay you.

Posted by: strawman on February 11, 2004 09:15 PM

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To follow up on what Kash said, the big change in inequality is something that lots of economists are working through empirically right now. Lots of nice-sounding theories about this have bitten the dust when confronted with the data. For one thing, trade appears not to have had very much of an effect on income distribution as Kash mentioned. Even immigration, which is just trade in people, has had very little effect. Immigrants don't earn that much less than native citizens, though there is a bit more inequality in their earnings. And there just aren't enough of them to make that much of a difference. The magnitudes involved are just too small to have that big of an effect on unskilled wages.

Anyway, think about back when unemployment really was high; think back to 1990 or 1982 in particular coming out of a truly nasty recession. It took monetary policy shifts to cause that kind of unemployment; current accounts as a percent of GDP were much smaller back then, about -1.3% in 1980 vs. -4.3% now. I guess people hear the word "deficit" (trade deficit, budget deficit, whatever) and just freak out.

I suspect that there've been some changes in the returns to human capital (education, experience, and the like) and some demographic changes (an increase in college education especially) that are driving this higher inequality. Lots of other economists believe the same thing, since that's where the micro data have been pointing us. Look, it would have been all nice to say, "It's all because of immigrants" or "it's all because of trade" and go home. Those are nice stories that make sense. But they don't fit the data.

I'll have some more results in my research sometime next week, in all likelihood. I'll give you all some credit; you managed to set me on an empirical project. Whether or not it goes anywhere remains to be seen, but I thank you all in advance.

To Bruce Cleaver: You write, "Well, it is at least remotely possible that the economists are wrong, or the theory is incomplete, or the ceterus is not paribus. Stagflation was a real puzzler in its day, for example. The history of science is full of beautiful theories destroyed (or correct theories sneered upon), and economics can be no exception."

Since when was stagflation a puzzler? Milton Friedman saw it coming, and so did Bob Lucas. Even the folks at the Fed knew that they were in an expectations trap but they were afraid to do anything about it. Yeah, we've been wrong about lots of things; the Keynesians had this particular problem and the RBC folks had others later on. Nobody's perfect, and being wrong is a learning experience. I think that you're expecting too much, that the professional and public consensus always be correct. If you think that ceteris isn't paribus, that's an opportunity for better research. What do you think we do around all day, sit around and drink espresso? Nobels and Clark medals aren't given for parroting a party line. They're given to people who find new ways of looking at old problems.

A final word to Mike. You're obviously a bright guy who devoutly believes some strange things. I find that explaining my own views is a learning process in itself, in that it forces me to examine how things hang together and look up stuff that may contradict them. It also forces me to change my mind when my explanation fails. We're not lawyers here; we can change our minds. I guarantee, your views are much more interesting to your readers than clippings from other sites. I'm sure that others will agree.

There've probably been another ten posts since I started on this. It never ends!

Posted by: Chris on February 11, 2004 09:43 PM

____

"The process of economic inquiry is ruthless and hyper-competitive -- so no economist who asserts something without convincing proof will survive for more than a moment. "

Unless, that is, he or she can get a job at the Bush Council of Economic Advisors ;-)

Without getting into the intellectual argument (I've nothing particularly original to add) I want to note that Reuters recently told it's financial reporting staff in the US and UK that it was going to hire 5 Indian reporters in Bangalore to do "basic" coverage of company statements.

As a former journalist, I have long maintained that the near universal consensus among business journalists in favor of free trade would not be nearly so universal if reporting jobs could be shipped off shore.

It appears the industry is now going to put that theory to the test.

Posted by: Billmon on February 11, 2004 09:54 PM

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Strawman: Congratulations on continuing to live up to your nom de guerre.

Yes, Brad admitted - after being called on the carpet about it - that there would be losers in outsourcing. I haven't heard Mankiw or any of the rest of the president's merry men make a similar admission. And that still raises the obvious question: if a large and measurable portion of the population will see a decline in their well-being due to their jobs being outsourced, why on earth should those people support it?

As for trade policy, I expect U.S. politicians to make policy in the interests of the U.S. If other nations happen to benefit, that's great, but the primary objective of American policy must be the life, liberty, and pursuit of happiness of *Americans*. Even if outsourcing makes America as a whole better off (a debatable issue), how will those who lose out be made whole again? Are they supposed to immolate themselves and their families on the altars of trade? Or are we all supposed to accept a decline in our standards of living in order to raise up the Indians and Chinese? That's not going to play very well in Real America, I'm afraid. If you want a broad-based consensus in favor of free trade, then you are going to have to figure out how to cushion the blows. Anything else will not fly in a democratic republic for very long.

Posted by: Firebug on February 11, 2004 10:00 PM

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"Do we only ban outsourcing IT jobs or is any kind of outsourcing bad? Do we ban all trade too? Or can we trade with white people who get paid a lot and not dark people who get paid a little? Help us draw these lines with all the moral clarity you posess."

So you're only comfortable when the hurting crowds poor & poorly educated and easy to intimidate? Well too f**king bad. The software engineers may be outsourced laid-off and & facing a dark financial future but WE ARE NOT EASY TO SHUT UP. So eat it. And get used to it, baby. This time the laid-off hordes are educated, can write, can talk, can organize, and we will bite back.

(If Bush loses the job crisis will be the most important factor.)

Posted by: camille roy on February 11, 2004 10:21 PM

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"So you're only comfortable when the hurting crowds poor & poorly educated and easy to intimidate?"

Uh, no, that would be you, you know the one who wants your job protected and want us to pay more in order to have it ptotected but yet are pefectly happy to buy cheaper goods that cost someone else their job. Or was there a huge libertarian computer programmers' protest against the decline of manufacturing jobs in America that I missed?

Help us out camille, did you think the steel tariff was a good idea? Did it increase employment in the U.S? Were you happy that people working in steel using sectors had to lose their jobs so that some guy in a more inefficient sector could keep theirs? Explain again why this is different from IT producing and using sectors again?

Posted by: strawman on February 12, 2004 04:51 AM

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Ah yes, firebug, Prof. DeLong only admitted jobs would be lost after being "called to the carpet". A tenured economist who did not understand trade causes job disruption only to be enlightened but the brilliant blog commenter. I see it all the time, man, I see it all the time. By the way did you miss the part in his post that said

"What trade does is to shift jobs, shift the composition of American employment: people in import-competing industries lose jobs, while people in export industries (or, with the capital inflow, construction and investment goods industries) gain jobs."

when you were "calling him on the carpet"?

Posted by: strawman on February 12, 2004 04:54 AM

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I find fascinating that I’m the only remarking on the fact that Brad DeLong is now a heretic in today’s Democrat Party. This uncomfortable truth will have to be confronted sooner or later. Our Berkeley economics professor can’t forevermore hide from reality. John F. Kerry obviously will not seek him out for advice. He may, though, charge DeLong with being Bush Lite. I agree with every word DeLong wrote in this particular instance---and that might scare him to death. It will likely, at least, ruin his day.

Posted by: David Thomson on February 12, 2004 06:46 AM

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"Help us out camille, did you think the steel tariff was a good idea? Did it increase employment in the U.S? Were you happy that people working in steel using sectors had to lose their jobs so that some guy in a more inefficient sector could keep theirs? Explain again why this is different from IT producing and using sectors again?"

At least we're making some progress towards a real question. We're not there yet, so let me answer you with my own hypothetical...

Let's say our primary competitors in manufacturing were countries who used either child labor or slave labor, and the result of these violations of human rights was unfair competition and loss of American jobs.

Are there methods other than tariffs to deal with this situation? Uhh, yes. We have a political system, a system of international law, a tax system. Heard of these?

Now why is it EXACTLY that a DVD has rights across international borders and a human being does not?

Care to speak up for the governmental thugs in china who imprision union organizers? Here's your chance.

Posted by: camille roy on February 12, 2004 08:25 AM

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Camille, other people are going to have evil governments whether or not we trade with them. We haven't traded legally with Cuba in forty years, and that's done nothing to improve conditions there. We have traded with China for the past thirty, and while its institutions are still deplorable, there is real improvement. Even India's been showing real improvements since it began deregulating its economy ten years ago. Why wouldn't countries improve their institutions as they become rich? Worker and environmental protections are impractical if your population is working to fend off starvation, but as countries become richer, the people demand more and more of these things. The feedback mechanism between productivity and decent political structures is poorly understood, but there does appear to be something at work.

At least consumers in the US and China can both become richer with trade while China works out some of its institutional problems (we hope). Labor in China is cheap because it is less productive there on the margin than US labor. Think of crappy institutions and bad infrastructure in particular as causing these things. Restricting trade only to similar countries is no way to take advantage of differences among countries and people. In that case, California shouldn't trade with the rest of the US because we're such an unusual state with lots of illegal immigrants, or the south shouldn't have traded with the north in the 19th century because it had slavery.

Someone please tell me, how do you think that this stuff result in the net loss of jobs? Trade has gone from a few percent to maybe 14% of GDP in the past generation. Unemployment has if anything fallen over the same time because of more stable monetary policy. Yes, changes in patterns of trade will shift jobs around and sometimes that really stinks for the people who get bumped. We've all been over that. But even a brief look at the data over time tells you that jobs aren't being created or destroyed, merely shifted. Labor market clearing and trade just don't have much of a theoreticcal or an empirical relationship.

Mike: I'm strange? Very mature. I'm a regular mainstream economist who hasn't gone on a rant about Justice Scalia in response to a question about international trade. I'm not interested in a flamewar so I'll leave it at that.

Posted by: Chris on February 12, 2004 11:13 AM

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Kash -- I'm not sure I buy your assertions that economists "do not generally believe things just for ideological kicks" and that "no theory will be maintained by the vast majority of economists if it doesn't have lots of rigorous, tested, verified empirical evidence to support it."

I would point to this very thread as a case in point. Now it could be that Brad's claim (trade shifts jobs, and the new jobs are better) is not suppported by the vast majority of economists. But it certainly seems to be. And yet no one has provided any empirical evidence for it.

You provided indirect evidence -- trade causes growth, and trade contributes to inequality.

Then you buttressed this empirial evidence with a supposition (it ... becomes reasonable to use per capita income as an indicator of job quality ), and shifted the burden of proof to those who disagree with you (that is why ... economists feel that we are justified in questioning...).

All of that may be a fair and reasonable way to proceed. But it is inconsistent with your view that the "process of economic inquiry is ruthless and hyper-competitive -- so no economist who asserts something without convincing proof will survive for more than a moment."

It seems to me that in such a competitive environment one would be heraleded for providing direct, positive, empirical proof of the claim that trade shifts jobs, and the new jobs are better. However, rather than provide such proof, economists apparently are content to demand proof that they are wrong, and then continue on as if they are right with out ever stopping to investigate the matter further.

Posted by: decon on February 12, 2004 01:40 PM

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The problem I see here is that an administration which has acted to remove everyone but the middle class wage earner from the revenue stream is blithely trading off middle class jobs, as opposed to, say, sugar price protections.

I think this is another issue like the war. You could probably make a case for what they're doing that I would find some value in in the abstract, but you can't make a case that would convince me for a single minute that they can pull it off to the country's net advantage.

Perhaps a trade. They can offshore their work if they pay import taxes on offshored work. Even better, firms with paper offshore bases are taxed as foreign companies.

I think the working people of this country have taken a hard enough hit. Let someone else have the bracing experience of bringing us in line with economic theory this time.

When we're getting our share of what we put in, we'll talk about what we should be sacrificing.

Posted by: julia on February 12, 2004 02:08 PM

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Chris: "Someone please tell me, how do you think that this stuff result in the net loss of jobs?"

My response: Simple. If all jobs that do not require a physical presence are moved overseas, then there will be fewer and worse jobs for Americans. Although there are many exceptions, a great number of the jobs that require a physical presence are bad, poorly-paid, dead-end jobs: food service, retail service, and so forth.

Chris: "Trade has gone from a few percent to maybe 14% of GDP in the past generation."

My response: Yes, it took some time for corporations to figure out that they could cut American job-seekers out of the loop entirely. But it's not as if we didn't have warning signs, like the ghost towns of the American auto industry.

Chris: "Unemployment has if anything fallen over the same time because of more stable monetary policy."

My response: Unemployment statistics today are a bitter joke. The actual rate is easily twice the official line.

Chris: "Yes, changes in patterns of trade will shift jobs around and sometimes that really stinks for the people who get bumped. We've all been over that."

My response: Yes, we have, and your crowd has still provided no good answer to this problem. Are you always so eager to sacrifice the lives and fortunes of real people on the altar of an ideal?

Chris: "But even a brief look at the data over time tells you that jobs aren't being created or destroyed, merely shifted. Labor market clearing and trade just don't have much of a theoreticcal or an empirical relationship."

My response: Then where the hell did all the damn jobs go?

Posted by: Firebug on February 12, 2004 03:19 PM

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"It seems that the majority of new jobs here lately are of the low-paid, low-value-added variety. Do we have some assurance that if we export all of our, say, well-paid computer programming jobs overseas there will be a corresponding increase in equally well-paid jobs of another type somewhere else? Or are the benefits of increased trade only certain in the aggregate?"

Hmm. I'm a computer programmer myself, not an economist, but I think the argument would go something like this:

The reason that Indian software companies can sell software to the US is that India has a comparative advantage in software development. (Software development is labor-intensive, not capital-intensive: all you need is a fast PC and an Internet connection, and thanks to recent technological developments, both are cheap these days.)

If a software company in India sells software to the US, it gets paid in US dollars. Eventually the dollars must be used to buy US exports, e.g. machinery (a capital-intensive sector--it's not so easy to set up a factory to produce machine tools). The increased exports will be in a sector in which the US has a comparative advantage, so they should be good jobs.

In the US, the net result is that (a) US businesses can afford to invest more in IT because software is cheaper, (b) kids graduating from high school today who might have gone into computers a few years ago will become machinists instead, (c) people in the US who are programmers today will lose out -- they'll find it harder to get jobs, they'll need to take pay cuts, they'll need to change fields.

At the risk of attracting scorn and derision, let me suggest that computer programmers ought to be reasonably well-positioned to adapt. Up to this point, we've been very highly paid. We're accustomed to adapting to technological change and dealing with job insecurity. We're highly educated, which should also make it easier to adapt: in Firebug's example, I would think that an MIT-trained computer programmer would only need one or two years to retrain, as opposed to starting over as if he were a high school graduate.

Of course, it's still painful. Personally, I try to budget as though my salary were much lower than it actually is. That way, if I end up having to take a 50% pay cut, it won't hurt that much.

I also support progressive income taxes, public education, and public health care (*), all of which redistribute income and reduce the effects of income polarization.

(*) I'm posting from Canada.

Firebug: "If all jobs that do not require a physical presence are moved overseas, then there will be fewer and worse jobs for Americans. Although there are many exceptions, a great number of the jobs that require a physical presence are bad, poorly-paid, dead-end jobs: food service, retail service, and so forth."

I'd suggest that the US has a considerable comparative advantage in capital-intensive jobs. It's going to be pretty hard to shift capital-intensive jobs to India: there's not much capital available per worker. If computer programmers each needed a supercomputer to do their jobs, it wouldn't be possible to do the job in India.

If you're looking for work yourself, I'd suggest that embedded software development--software development that's closely tied to hardware development--is probably going to be harder to send overseas than applications work.

Firebug: "Then where the hell did all the damn jobs go?"

It's a fall in total demand, i.e. a recession. The Federal Reserve has lowered interest rates to boost demand, but there's a lag before demand will pick up. For an explanation, see
http://web.mit.edu/krugman/www/vulgar.html

Posted by: Russil Wvong on February 12, 2004 03:56 PM

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Exactly. That's what happens in a recession. That's why nobody likes the darned things. The point I was making is that international trade has been growing pretty steadily over the past couple of generations as a share of the economy. But until the recent recession, employment grew even more quickly, no matter how unemployment may be mismeasured. And the growth had been in nice jobs too, jobs in cushy offices where people can surf Brad's website rather than sweep floors in a grimy factory.

So for all of you who think that trade destroys jobs on the net, please show me your model. Even for those who think that it accounts for much more than 20% of the increase in inequality over the past generation, show me your results. This is an empirical question, not a philosophical one. This is not asking, "Could this happen?" This is asking, "Does this happen, and how much?" Don't just argue out of pure intuition or else you're likely to make things like adding-up mistakes. That got a lot of vulgar Keynesians in trouble.

Posted by: Chris on February 12, 2004 04:48 PM

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The current backlash against the outsourcing of services to countries such as India stinks of rank hypocrisy. The US government, it seems, fluctuates between free trade and protectionism according to the needs of the moment.
Trade is never a one-way street, and trade in services is no exception either. So I'd like to draw your attention to a recent outsourcing deal between a Bharati Televentures, and Indian telecom company, and Ericsson. The latter will manage Bharati's network over the next five years, for which it will get $300 million.
More of this could happen: Indian companies are likely to outsource high-end work to European and American companies. Isn't this a clear case of the benefits of trade?

Posted by: Niranjan Rajadhyaksha on February 16, 2004 10:29 PM

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The current backlash against the outsourcing of services to countries such as India stinks of rank hypocrisy. The US government, it seems, fluctuates between free trade and protectionism according to the needs of the moment.
Trade is never a one-way street, and trade in services is no exception either. So I'd like to draw your attention to a recent outsourcing deal between a Bharati Televentures, an Indian telecom company, and Ericsson. The latter will manage Bharati's network over the next five years, for which it will get $300 million.
More of this could happen: Indian companies are likely to outsource high-end work to European and American companies. Isn't this a clear case of the benefits of trade?

Posted by: Niranjan Rajadhyaksha on February 16, 2004 10:29 PM

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