Martin Wolf contemplates the rise of protectionism in the United States--from the Bush-Cheney steel tariff, to John Snow's "blame China for manufacturing unemployment" campaign last summer, to the current Kerry-Edwards-Hastert attacks on "outsourcing." And he bangs his head against the wall:
Posted by DeLong at February 25, 2004 12:55 PM | TrackBackSuppose the politicians did succeed in halting offshoring. Would that save the jobs of programmers or call centre operators? In all probability, no. Both are vulnerable to technology in any case. All it would do is raise costs to users and slow economic advance.
What is depressing about the debate is not just the blaming of foreigners but also its irrelevance to the challenges confronting the US. The most immediate of these is to create sustained growth in demand. Equally, the US confronts significant structural challenges. If its people are to gain from the emerging division of labour, they need high-quality education, as Alan Greenspan, chairman of the Federal Reserve, argued last Friday. In addition, a case can be made for subsidising the wages of the unskilled.
What must be avoided are policies that undermine increases in living standards, threaten the US commitment to liberal trade and, not least, attack the nascent exports of a poor and gigantic democracy that is, at last, trying to participate in the global economy. US legislators need to take a grip of themselves. Attacking cheap imports of services is no more logical than bewailing rising productivity. The US, they should remember, benefits hugely from both.
Where was Martin Wolf's excellent comments published?
Posted by: Harold McClure on February 25, 2004 01:04 PMFree trade, like free markets, free speech and free elections - is not free of cost. To have, and keep, all of the above requires committment, and it requires a constant education of the public as to their value, and a vigilant and aggressive use of the public will to spread their benefits widely.
Complaining about the rising tide of protectionism will not solve the problem. The public is like a patient - they may not know the cure, but they know where it hurts. They are looking for leadership as to how to solve that pain. Absent leadership they will take the most direct solution, even if that solution does not work.
If we are to continue on the path of trade liberalization - which is the best path, because if we do not take advantage of the openning of world trade, then we will end up buying goods from others who have - which will mean the same job losses, plus some - then we must also pay the price of liberalized trade - and that is to be constantly reallocating resources to their more efficient form, constantly investing in capital - human, physical and social - and constantly seeking to create new investment supply and consumer demand.
Looking back over the last few years, we haven't done so well on these matters. There have been interesting proposals - Howard Dean suggested a Fannie Mae for small business, Wesley Clark a series of tax credits for real entrepreneurial businesses. But these are piecemeal.
Only with a vision of how America will benefit from trade liberalization - and a committment to spreading the costs of trade liberalization - and a demonstrated ability to work with other nations in building their economies, and working with our close allies to improve and create institutions that will lead to greater growth for everyone - everywhere in the world - can we credibly make the case for trade liberalization.
A society that has built a freedom in to its structure is said to be open. We have an open society, we need to pursue a full agenda of open trade.
The core problem, in the present, is that our capital is heavily overinvested in older enterprises, and our engine of new business formation is closed. We need to change that, immediately, by changing the tax code to deincentive parking money - and instead produce real incentives for real risk.
Moving towards a balanced budget, ending excessive spending on weapons programs and the war in Iraq - while catching the displaced workers that this would create - forms the second tier of such a program.
At the same time a move to single payer health would dramatically lower the cost of creating employment, and using the yield curve to give greater incentive to short term borrowing rather than long term borrowing - complete the first year of a radically different economic program.
It isn't our job to protect jobs, it is our job to protect people, by making sure that their are jobs available. It is time to use the known mechanisms to get on with that task.
Posted by: Stirling Newberry on February 25, 2004 01:13 PMWhere was Martin Wolf's excellent comment published? This Financial Times article is sadly only for subscribers.
Fed officials have been saying that the disappointing pace of job growth is entirely due to the acceleration in productivity. In one way, that's kinda iffy. Our trade deficit has widen markedly. More to the point, though, since crafting policies to stop jobs from slipping offshore would be tricky, we should be glad that domestic productivity is rising as fast as it is. If it weren't, then the incentive to send jobs offshore would have been even greater. Of course, to some extent, productivity growth in the US is just the mathematical result of sending lower productivity jobs offshore. Fewer low productivity jobs shifts average productivity up without any other change.
By the way, Kerry has endorsed a strong dollar, in the real sense, rather than the O'Neill/Snow sense. He has said that a strong dollar is needed to assure the inflow of foreign capital, and that the US may have cause to regret the weakening of the dollar. This may simply be an effort to capitalize, should a sudden dollar drop coincide with a spike in interest rates - "As I warned on February 25..." At the same time, it suggests Kerry thinks he is reasonably safe on the jobs front, and that he is in contact with Rubin or DeLong of somebody. There is talk that Kerry thinks Rubin would make a good Fed Chairman. Rubin is probably one of the few people for whom Greenspan would feel comfortable moving aside - assuming he could be confirmed. I wonder if Republican Congressment would ban Rubin from the Hill if he were Fed Chairman?
Posted by: K Harris on February 25, 2004 01:24 PM"If its people are to gain from the emerging division of labour, they need high-quality education, as Alan Greenspan, chairman of the Federal Reserve, argued last Friday."
And then again, maybe not. CNN/Money had this article up a few days ago: Education May Not Be The Answer. (click on my name for the link)
The fun stuff:
"There are so many low-paid people who are educated that education is simply not the answer," said Robert Brusca, chief economist at Native American Securities in New York. "The answer is, you will be unemployed if this is not stopped."
"Brusca believes that, for the foreseeable future, the most reliable source of jobs for U.S. workers will be in services that cannot be moved offshore, such as health care, plumbing and automobile repair.
"Though nurses, plumbers and auto mechanics can make a great deal of money, the generally high wages of the late 1990s -- when a tech-investment bubble was accompanied by a tech-hiring bubble, some economists believe -- might simply be unattainable.
"Do you have to be reeducated? Maybe not -- maybe you just need to accept a lower wage rate," said Paul Kasriel, chief economist at Northern Trust in Chicago."
---
So according to this argument, additional training won't help, and lower wages are inevitable. Is this reasoning logical or faulty?
(FYI - Brad, I went to the Atlantic Monthly forum last night at Berkeley. It was a lot of fun and had a lot of food for thought. Thank you for taking part in the panel.)
Posted by: Theresa in Oakland on February 25, 2004 01:30 PM"Fed officials have been saying that the disappointing pace of job growth is entirely due to the acceleration in productivity. "
If that were true, we should have lost jobs during the 1990's, when productivity growth accelerated.
The problem is lack of investment supply, and consequent lack of new catagories of consumer demand.
Posted by: Stirling Newberry on February 25, 2004 01:36 PM"Fed officials have been saying that the disappointing pace of job growth is entirely due to the acceleration in productivity. "
If that were true, we should have lost jobs during the 1990's, when productivity growth accelerated.
The problem is lack of investment supply, and consequent lack of new catagories of consumer demand.
Posted by: Stirling Newberry on February 25, 2004 01:37 PMGreenspan just handed the election to the dems if they will take advantage of the situation.
All they have to do is use Greenspans comments to expose the starve the beast strategy and tar bush with the responsibility of destroying social security.
Every dem comment, speech, etc. should start with the charge, continue with the charge, and end with the charge that the Bush tax cuts are destroying social security.
You were wondering the other day why AG was doing
some of the things he did. Ag is a great political animal. He had to make this testimony in full knowledge that the Dems could run with it and destroy Bush.
"What must be avoided are policies that undermine increases in living standards"
Out of curiosity, what is the lag time on these "increases in living standards"? Free-trade has been the policy for a long time now, and we have yet to see median incomes match their 1973 level (http://www.census.gov/prod/2002pubs/p60-218.pdf)
Competition from third world workers doesn't increase living standards.
Posted by: msw on February 25, 2004 01:43 PMI see this Wolf piece and todays Wash Post Samuelson piece as one more reason why no one encourages economists to run for office. The point of Kerry and Edwards running on a platform of 'protecting your jobs' is because Bush's (most recent) rationale for tax cuts is as a "Jobs and Growth Plan." And readers here know the jobs numbers are just another failed projection. They are both Senators for goodness sake; not a place where non-dogmatic economics dominates.
As for Edwards argument to re-open NAFTA, it can be approached in the context of the 'development round' of the WTO. Principles that NAFTA was silent on are now central to the WTO negotiating agenda. Edwards as President would be contributing to NAFTA by readdressing the early 1990s language and rightfully claim there's room for improvement.
S. Newberry -- your comments are fantastic.
I agree fully with all of your points.
Posted by: spencer on February 25, 2004 01:44 PMhttp://www.nytimes.com/2004/02/24/fashion/24DRES.html
Italy Fights to Remain the Home of Luxury Fabrics
By FRANK BRUNI
COMO, Italy — For more than a century, the Mantero family has been making fine silk beside the famous lake here, and the whirl of activity at the enormous plant on Thursday afternoon reflected the expertise and reputation the Manteros have painstakingly developed.
Smocked technicians huddled over pitchers of dyes, the carefully calibrated results of constant experimentation. Long, broad sheets of silk moved along conveyor belts that paused regularly so that layer after layer of pattern could be pressed onto what would soon become Ferragamo ties and Gucci scarves.
The Mantero company produces clothing or accessories for both design houses and many more, offering a degree of craftsmanship and history of proven quality that cannot easily be found outside Italy.
"If this were just a matter of pressing a button on a machine, anybody could do it," Carlo Mantero, the company's director of innovation, said of making fine garments.
Like the Mantero company, Italy has long excelled at that enterprise, which is largely why designers like Giorgio Armani and Miuccia Prada use the runways of nearby Milan, as they are doing this week, to unveil their women's collections for fall.
But the hum at the Mantero plant and the shimmer of the Milan catwalk shows belie a more complicated and troubling reality for the making of clothing and accessories in this country. While Italy remains a world leader in producing luxury apparel and accessories, much of its textile industry has moved to Asia, Eastern Europe and northern Africa for cheaper labor and lower costs.
Alarmed at that trend, Italian clothing and accessory makers have had to rethink what they do and to promote aggressively the idea that something made in Italy cannot really be replicated anywhere else....
Posted by: anne on February 25, 2004 01:48 PMI can't but feel that Martin Wolf, right though he is, is aiming at the wrong target. The steel tariffs were annoying, but pretty insignificant in the context of global, or even US, GDP, and are now I understand on the way out. The biggest threat to global free trade is where it has been for the last thirty years - the insanity that is farm protectionism, particularly in Japan and Europe, with the US rather behind. As we all know, fully liberalising trade in agriculture would do more than anything else to end poverty in the developing world, and would deliver massive windfalls to the urban poor in Europe and the US.
Posted by: PJ on February 25, 2004 01:53 PMHow do you raise demand with falling wages
and increasing unemployment?
"Stable, prosperous, free, democratic states--like trees--grow from the ground up. But--like fish--they rot from the head down.
---
I said that.
(I forget exactly WHEN I said it for the FIRST time, but I remember where ;-)
--------------------
"...The great economic powers -- the United States, Germany, Japan -- must stop thinking in purely national terms and start thinking of the larger community of which they are a part. They must understand that the growth of income in the countries to which they sell eventually determines the growth of income in their own countries.
We have not faced the responsibilities of interdependence since the end of the earlier Keynesian period and breakdown of the Bretton Woods system in the 1970s, perhaps not since promulgation of the Marshall Plan. We have abandoned governmental power to market forces, particularly to the global capital markets and the large financial institutions that play in them. However, market forces cannot replace governments in the functions of governance -- neither within national boundaries nor in relations between nations..."
---
James K. Galbraith said that.
---
"On Global Keynesianism", [circa] Fall, 1995
http://www.jobsletter.org.nz/art/artg0002.htm
--------------------
"...The top-down globalisation is characterised by a constant drive to maximise profits for globe-spanning corporations. It forces countries to 'open up' their national economies to large corporations, reduce social services, privatise state functions, deregulate the economy, be 'efficient' and competitive, and submit everything and everyone to the rule of 'market forces'. Because markets move resources only in the direction of those with money, social inequality has reached grotesque levels.
The United Nations Development Programme reports that the richest 20 per cent of the world's people account for 86 per cent of global consumption and the poorest 80 per cent of the world's population struggle to survive on just 14 per cent of total consumption spending. This is why tens of thousands of children die needlessly every day, because resources distributed by market forces automatically bypass the poor.
But there is another kind of globalisation that centres on life values: protecting human rights and the environment. Grassroots globalisation comprises many large and growing movements: the fair trade movement, micro-enterprise lending networks, the movement for social and ecological labelling, sister cities and sister schools, citizen diplomacy, trade union solidarity across borders, worker-owned co-ops, international family farm networks, and many others...."
---
Kevin Danaher said that.
---
"Power to the people", Sunday April 29, 2001
http://observer.guardian.co.uk/global/story/0,10786,524245,00.html
--------------------
"...The world's interlinked economies no longer trade to capture a comparative advantage; they compete in exports to capture needed dollars to service dollar-denominated foreign debts and to accumulate dollar reserves to sustain the exchange value of their domestic currencies. To prevent speculative and manipulative attacks on their currencies, the world's central banks must acquire and hold dollar reserves in corresponding amounts to their currencies in circulation. The higher the market pressure to devalue a particular currency, the more dollar reserves its central bank must hold. This creates a built-in support for a strong dollar that in turn forces the world's central banks to acquire and hold more dollar reserves, making it stronger. This phenomenon is known as dollar hegemony, which is created by the geopolitically constructed peculiarity that critical commodities, most notably oil, are denominated in dollars. Everyone accepts dollars because dollars can buy oil. The recycling of petro-dollars is the price the US has extracted from oil-producing countries for US tolerance of the oil-exporting cartel since 1973.
By definition, dollar reserves must be invested in US assets..."
---
[That's T-bills to you bubba--PUBLIC debt, the only thing lately that Washington has REALLY been any good at producing. But "US assets" also includes equities and various other forms of commercial "paper", real estate & etc.: The VERY same classes of "assets" off the top of which Alan Greenspan's VERY best, VERY well-heeled friends make a VERY good living taking the "vigorish".]
---
"...There is an urgent need to restructure the global finance architecture to return to exchange rates based on purchasing-power parity, and to reorient the world trading system toward true comparative advantage...
...The starting point is for the major exporting nations each to unilaterally require that all its exports be payable only in its currency..."
---
Henry Liu said that.
---
"US dollar hegemony has got to go": April 11, 2002
http://www.atimes.com/global-econ/DD11Dj01.html
--------------------
"A rising U.S. budget deficit and trade imbalance may create such a burden of foreign debt that it could cause financial instability in the United States and the rest of the world, a report released yesterday by the International Monetary Fund says.
According to the report, the U.S. budget deficit last year reached $374 billion, a record in dollar terms, and it is expected to exceed $400 billion this year. In a few years, the report says, the United States could have a foreign debt equal to 40 percent of its total economy — "an unprecedented level of external debt for a large industrial country..."
---
UN Wire said the IMF said that, Thursday, January 8, 2004.
---
"U.S. Budget Deficit Threatens World Economy, IMF Warns"
http://www.unwire.org/UNWire/20040108/449_11858.asp
--------------------
"The U.S. trade deficit widened more than expected to a near-record $42.5 billion in December, bringing the full-year total to a record $489.4 billion, the Commerce Department said Friday.
The trade gap expanded by $4.1 billion, or 10.8%, from November's 13-month low of $38.4 billion. December's deficit was the second biggest ever, behind the $42.9 billion gap last March.
For the year, the deficit rose $71.3 billion, or 17%, from the old record of $418 billion in 2002.
The goods deficit with China swelled to a record $124 billion in 2003 from $103 billion in 2002..."
---
Jed Graham said that, Tue Feb 17,10:21 AM ET
---
"Trade Deficit Swells 17.1% To Record $489 Bil In '03"
http://story.news.yahoo.com/news?tmpl=story&u=/ibd/20040217/bs_ibd_ibd/2004217general01
"S. Newberry -- your comments are fantastic.
I agree fully with all of your points.
Posted by: spencer on February 25, 2004 01:44 PM"
Kudos to you, too spencer! Excellent comments from both of you.
One problem as I see it, being a non economist with no formal economics education, is that for the majority of americans who have never had any economics classes, concepts such as the economics benefits of free trade are not at all understood. Indeed, I was skeptical for a long time as well until I started hanging out here.
One would think that economics ought to be taught from an early age to all students, like history, mathematics and the native language. After all, in some sense it's just as important for everybody to know the basics of economics- it is what makes the world go round. Newton was wrong.
Brad,
Thanks, I will infer your opinion of www.mosler.org from your critique of Mosler's NRO article.
Silly, but you two have a lot in common, including the thrust of this article. Let me quote " In addition, a case can be made for subsidizing the wages of the unskilled. " It's comical the NRO is publishing the author of such a plan, while Democrats are actively trying to shoot him down.
Posted by: D. Barnes on February 25, 2004 02:37 PMEconomics makes little sense to people without a job. A plan to raise living standards in the thrid world by lowering standards in the first (except for the top) is doomed to fail.
Posted by: Hi on February 25, 2004 02:38 PMMy wife, the Unitarian Universalist, got her latest copy of the church magazine (UU World) the other day. There was a short, positive article on free-trade protestors in Miami (the talks on the Free Trade Area of the Americas). (Unfortunately, I can't find the article online yet.)
Ah yes, I'm glad to see the good liberals are telling desperately poor people "you don't really need that job, do you." They must sleep soundly in their comfortable beds in their warm houses at night, knowing they're doing their part in the "anti-globalization" movement.
I'm sure these people mean well. But in truth, they're helping consign literally billions of people to poverty. (Just for the record, I'm a moderate-to-liberal Catholic, and my wife finds the fuzzy-headed liberalism of many UUs annoying.)
Globalization presupposes low enough energy prices that manufacturing goods in low wage countries in order to ship them to high wage countries to market is cost effective. I've yet to see any economist create an economic model using renewable energy as a cost baseline in order to determine if globalized markets are actually sustainably cost effective compared to local manufacture and delivery to market.
We know that oil is running out. We know that after peak oil production energy prices will both show high volatility and trend upward. All these companies investing in low wage markets for manufacturing may just be exposing themselves to severe losses should energy prices rise significantly over the next decade or two.
I accept that this argument doesn't address the trend toward off-shore technical and phone bank labor, as that is dependent not on energy intensive shipping but telecommunications infrastructure. Curious to read any comments on this perspective.
--Maynard
Posted by: J. Maynard Gelinas on February 25, 2004 02:43 PMINERTIA makes the world go round, non. And "trade" (in THIS day and age) DOESN'T mean "barter".
ANYONE who CALLS himself an economist (OR a political leader) and talks up the THEORETICAL virtues of "free" trade--while at the same ignoring the REAL effects of palpably UNFREE, RIGGED in fact, global currency markets--is lower than dirt.
In MY opinion.
Posted by: Mike on February 25, 2004 02:50 PM"Fed officials have been saying that the disappointing pace of job growth is entirely due to the acceleration in productivity."
Think what we could have done with fiscal policy oriented to jobs creation. The point is to take advantage of productivity increases. Infrastructure development along with middle and low income focused tax cuts could have had more of a demand impact and job creation impact.
Posted by: anne on February 25, 2004 02:54 PMThis doesn't have anything to do with free trade, but I took exception to this statement:
"Both are vulnerable to technology in any case."
Programming is not vulnerable to technology improvements. Programming is not automatable because computers cannot program themselves. It is possible to write a program that generates another one, but that's not the same thing. Attempts to generalize this still require human input and are usually impossible to maintain.
Posted by: Luke Francl on February 25, 2004 03:04 PMRhetoric aside, headbanging aside, what types of policies can be implemented in the real world to help Americans who lose their job to workers in poor countries.
Discussion just began at http://techpolicy.typepad.com/tpp/2004/02/what_to_do_abou.html
I'd love to get your guys opinions
Adam
Short list, so far...
For the recently fired:
- A strong safety net, with unemployment and health benefits
- Strong re-education, training program so people get the latest skills
- Support for helping find new jobs (although I'm skeptical about this because of Monster.com, and that most good jobs are gotten through social networking)
Education and research
- Strong K to 12 education system
- Continue American leadership in its university and community college system
- Strong government support for both basic and applied research to keep America at the leading edge of the technology curve
Keynesian
- Create government paid jobs in slumps
Tax credits??-
Don't give tax credits to firms who outsource. OK... I'll be honest, I've heard this about a million times, but never have seen the underlying facts, can anyone enlighten me here?
Free marketeers
Take no action, allow for lower cost of goods and services in US to create wealth and let the market take its course. (we've seen that, politically, this don't fly)
Recognize that more job loss has happened due to technology, then all the Indians and Chinese put together.
I know there's got to be more then this... this list just doesn't seem to cut the mustard.
"What must be avoided are policies that undermine increases in living standards....>/i>"
Free trade as defined by the IMF, World Bank, and Wall Street seem to explicitly undermine increases in living standards.
Uncontrolled arbitrage, followed by currency crisis, then the abolition of free schooling and reductions in health care and the social safety net.
Economic disparity has increased worldwide. The poor and most of the middle class have gotten poorer.
There are proper ways to do free trade, but our current model is not one of them.
Posted by: Matthew Saroff on February 25, 2004 03:22 PMThe "point" anne is to face the economic facts of life:
http://www.levy.org/docs/stratan/stratan.html
There's no free lunch. And global currency markets AREN'T "free" either.
You can take THIS to Citibank too:
Greenspan & Co's crocodile tears for all those "poor", "emerging", "democratic" Chinese (& etc.) would dry up in a New York minute--IF those countries WEREN'T obliged to park the lion's share of their "free-trade" booty in T-Bills, Blue Chips and the like.
Of course, facing a world that would ALSO oblige our "legislators for life" in Washington to make some hard choices AND to swallow more than a little of THEIR bugetary demogogery too---
http://www.jobsletter.org.nz/art/artg0002.htm
http://observer.guardian.co.uk/global/story/0,10786,524245,00.html
http://ist-socrates.berkeley.edu/~pdscott/iraq.html
http://www.unwire.org/UNWire/20040108/449_11858.asp
http://story.news.yahoo.com/news?tmpl=story&u=/ibd/20040217/bs_ibd_ibd/2004217general01
http://www.iht.com/articles/125563.html
--Now, wouldn't THAT be a tragedy.
Maynard, your comments about oil are on the money. I had posed the question last week about how productivity relates to oil prices. I believe Brad replied that although a fall in oil prices doesn't always translate into productivity increases, a rise in price usually impacts productivity negatively. It's pretty easy to understand the US' high productivity in terms of our energy consumption, I think. For that reason, pondering the impact of oil scarcity and greater oil demand are poignantly relevant.
There was a speech that Colin Campbell gave in the year 2000 about peak oil, delivered to a university in Germany if I recall. His predictions for the near future have proven incredibly accurate, and were based mainly (entirely?) on his knowledge of oil reserves and competition for that resource.
I think the two most important things that folks need to understand is the impact of demographics (http://www.csis.org/gai/aging_index.pdf) and the concept of peak-oil (http://www.hubbertpeak.com). Things could get a lot more "interesting" as time passes.
Posted by: Mike on February 25, 2004 03:36 PMI MEANT to write:
"...Of course, facing a world LIKE that would ALSO oblige our GERRYMANDERED "legislators for life" in Washington to make some hard choices AND to swallow more than a little of THEIR bugetary DEMAGOGEUERY too---"
My apologies to all concerned.
Posted by: Mike on February 25, 2004 03:44 PM... what is the lag time on these "increases in living standards"? Free-trade has been the policy for a long time now, and we have yet to see median incomes match their 1973 level (http://www.census.gov/prod/2002pubs/p60-218.pdf)
~~~
From which, household median income in 2001 dollars:
1973 $36,278
2001 $42,228
Which makes this source an odd authority to cite for this claim.
Posted by: Jim Glass on February 25, 2004 03:49 PMAND, now that I've calmed down a little, I've decided that I SHOULD have written:
"...Of course, facing a world LIKE that would ALSO oblige our GERRYMANDERED "legislators for life" in Washington to PULL THEIR 'WELL COIFFED' DELUSIONAL LITTLE HEADS OUT OF THE SAND, TO make some hard choices AND to swallow more than a little of THEIR bugetary DEMAGOGEUERY too---"
Posted by: Mike on February 25, 2004 03:56 PMThere's an article in today's WSJ by Bob Zoellick that is a wonderful example of both the Administration's lack of commitment to trade and their slippery attitude toward numbers.
Among the other excuses for protection, he downplays the continued protection of American Sugar producers in the US-Australia trade agreement stating that sugar is only 1% of two-way trade.
This, of course, is not an argument for protection - it is the outcome of protection that has largely blocked Australian sugar from the US market to the detriment of US consumers. Why not raise the sugar tariff and reduce sugar to 0% of imports?
Posted by: Dan Ryan on February 25, 2004 04:38 PMAs you may or may not know Jim, "Median household income" isn't the WHOLE story--NOT by a long shot:
"...As real wages have declined, Americans are working longer hours to make ends meet.
Today, the average American worker is, incredibly, working a full month longer each year compared to 20 years ago.
The average American today is working longer hours than the people of any other major country on earth...."
From "Working Families in the Global Economy"
http://bernie.house.gov/economy/today.asp
Posted by: Mike on February 25, 2004 04:50 PM"From which, household median income in 2001 dollars:
1973 $36,278
2001 $42,228
"
Look at the *individual* median incomes. Household incomes rose for a reason that should be obvious. No more household increases can be expected, without a return to some _really_ traditional marriage customs...
msw
Offshoring is to Bush's inaction to counteract the recession with respect to jobs lost as 9-11 is to traffic accidents with respect to fatalities.
Humans are competitive animals. Those third world people underselling American workers just captures the imagination better than ineffective policies of our own leaders.
If you want to reduce fatalities, concentrate on highway safety. If you want votes, concentrate on the war on terror.
Economists on the left have to understand that better.
Posted by: sadbuttrue on February 25, 2004 05:31 PMThis was posted by PJ at 1:53 PM :
As we all know, fully liberalising trade in agriculture would do more than anything else to end poverty in the developing world, and would deliver massive windfalls to the urban poor in Europe and the US.
I understand the didaster that our subsidized agriculture inflicts on a lot of the world. I've seen statements that two rural Mexicans leave Mexico and enter the USA for every ton of corn they import. We are destroying Mexico's rural economy, Argentina's beef industry (from the bottom up, taking out the grain farming and the beef), and likewise around the world.
But how does our straightening this out bring benefit to our urban poor?
"free trade" is economic theory at its worst. in practice, it has only been a political tool to decrease the income of blue collar workers, up to now. there is no one, repeat no one, economic study that has demonstrated that any country over any significant period of time has increased its standard of living by permitting "inward bound" free trade.
those who believe in free trade should pool their resources, buy a country (Italy), and try it.
In the long run, we are all dead. Workers, and rightly so, are concerned about this week, next week, next month.
Second, no society can surive with a ivory tower elite. economists are academics who think it ok that lab people make 100K a year, when most people get by on 1/5th that at wal-marts.
low wage people cannot be expected to support hi-ed, hi-tech, for they know they will never, ever participate.
Posted by: John on February 25, 2004 06:40 PMMatthew Saroff writes:
"What must be avoided are policies that undermine increases in living standards....>/i>"
Free trade as defined by the IMF, World Bank, and Wall Street seem to explicitly undermine increases in living standards."
Matthew, Martin Wolf means that policies that undermine HIS increases in living standards should be avoided at all costs.
I don't know who that Wolf character is, but I will bet that his 6 or 7 figures job is not going to be outsourced any time soon.
Same is true for DeLong, who, as a goverment employee is not only protected job wise, but virtually guaranteed income growth way above inflation.
Wouldn't you like to have non-outsourcable job with wage increases in an age of falling prices for almost anything?
A plan to subsidize American wages (modeled on the earned income tax credit, but much more generous, and reaching much further up the income scale)is the ideal way to deal with falling wages.
And to finance it, a progressive consumption tax (or outgo tax) along the lines set forth by Irving Fisher a long, long time ago.
Isn't this the only theoretically sound way to address the across-the-board problems caused by freely trading with countries like China and India?
I'd love to get your thoughts on this Brad
Posted by: Luke Lea on February 25, 2004 07:26 PMTo me the simplest counter to the protectionists is the following. If U.S. companies do no outsource cheap labor and parts to India, China, Mexico and elsewhere, then they will not compete with the German, French, British, Swede, Swiss and Japanese companies who do.
Posted by: Kop on February 25, 2004 07:28 PM"Suppose the politicians did succeed in halting offshoring...All it would do is raise costs to users..."
Halting offshoring is maintaining pre-existing conditions, which doesn't raise costs it maintains existing costs. Even making the leap that a cost is increased when a reduced cost option is not exercised begs the question "Is the reduced cost really passed on to users or is there, in fact, no net cost benefit to users by offshoring?" Are there statistics on benefits to users that have been created by offshoring? Or does offshoring only increase corporate profits?
"Equally, the US confronts significant structural challenges. If its people are to gain from the emerging division of labour, they need high-quality education..."
OK, I give, what kind of high quality education are we talking about here? Many unemployed or underemployed people are eager to know that detail so they can get started on picking the appropriate curriculums. And what gain will result from that education? Gain, I assume, is a code word for jobs. I can't take the suspense any longer, what kinds of jobs will be created in the post significant-structural-challenges era?
Without meaningful details we are only listening to platitudes.
Posted by: dubblblind on February 25, 2004 08:01 PMSteve Pearlstein has a series of articles discussing the "realities of offshoring" one of them is here. http://www.washingtonpost.com/wp-dyn/articles/A38279-2004Feb12.html
One thing I didn't realize was that these economic models purporting to show the "benefits" of "free trade" pre-suppose an economy at or near full employment, which is laughable.
MIK- I agree with you 100%. When I see academic economists advocating their jobs be offshored, I'll believe they really believe in "free trade".
Posted by: SteveC on February 25, 2004 08:18 PMI have been saying that outsourcing was a matter of keeping competitive strength and that if American firms didn't exploit Indian engineering resources then European firms and if not that Indian and Chinese firms would do so before the American firms..etc etc?
Here is below link to a knowledge@wharton report that looks at the matter in some depth from engineering management point of view:
http://knowledge.wharton.upenn.edu/article/939.cfm
You gotta register I think but it is worth the trouble.
"...The core problem, in the present, is that our capital is heavily overinvested in older enterprises, and our engine of new business formation is closed. We need to change that, immediately, by changing the tax code to deincentive parking money - and instead produce real incentives for real risk...."
Exactemenet mes sentiments monsiuer!
And the primary strategy of Bush administration is to keep overinvested in older enterprises and shut down the engine of new business formation! The Bush administration is an agent of dark forces! (Trouble is I don't trust Kerry either -- only Edwards appears to be willing and able to change the directions the Bush administration has taken to...)
And look at this this one:
"...Absent leadership they will take the most direct solution, even if that solution does not work...."
This guy/person has terrific capacity for seeing the whole picture. Who is this person? There is this link but that doesn't say much on...any Stirling Newberry...
Huf! Forgot to paste the link!
Posted by: Bulent on February 25, 2004 09:06 PM"The problem is lack of investment supply and consequent lack of new categories of consumer demand." - Sterling Newbery
I'm a little confused by what this claim means. Didn't we just go through 3 rounds of tax cuts skewed toward the incomes of the very rich and toward income from capital asset ownership? So why should there thereby be a shortage of investment capital, versus other times when taxes were higher, but investment, demand and employment conditions were markedly better than now? But isn't cutting taxes across the board on investment tantamount to simply legislating an increase in the real rate of return on capital, and, while notionally increasing the supply of capital, in the absence of adequate aggregate demand, is this not really a redundant policy, since rates of return on extent capital investments,- (and thus also their valorization)- are increased just as much as new capital investment? And doesn't the increase in available private financial flows from such cuts not only raise the value of extent investment, due to their increased real profitability, but raise them as well through an increase in flows bidding up their value in the absence of more profitable lines of new real investment- (as with, e.g., the recent upsurge in the stock market)? And far from such cuts incentivizing new and more stringent allocations of capital investment, is it not effectively similar to a low-interest, "easy money" environment, in allowing for less stringent conditions with respect to optimizing allocations for real and sustainable output? Would not, in short, a policy oriented to demand-led investment stimulus through increased domestic employment growth, such as subsidies to state governments for maintenance of needed public services, public infrastructure investment and increases in educational financing,-( which would all be largely immune from demand leakage overseas, though perhaps their multipliers are not what they once would have been),- make much more sense?
If not, then is the slack demand and low employment growth in the face of productivity increases due to structural losses and imbalances? If that is the case, then the opening up of new areas of productive activity would be at issue, but such developments can not be assured or predicted in advance, and, while it may well be the case that the development of new economic sectors requires greater capital allocations than the maintenance of mature sectors, it's hard to see how that would occur in the absence of strong demand, whether domestic or foreign. And the default position for the generation of new demand/absorption of new investment seems to be soaring health-care costs.
I think it's fair to say one of the things we've experienced with neo-liberal globalization/"free trade" policies to date is the re-distribution of risks and rewards between corporations and the working population, in favor, needless to say, of the corporations and the elite professionals who maintain and modify their structures- (and, of course, as insiders, are always the first ones to get their hands on the loot.) I've pointed out before, if those who gain from free trade, mostly multinational manufacturing and finance corporations, were made, as per Hicks-Kaldor, to fully compensate the losers from the net gains, they would be correspondingly less incentivized and thus less keen to pursue those gains. And it is by no means clear that government directed or instigated social policies designed to better adapted the working population to global free trade would necessarily mesh well with changes and fluctuations in various markets, even as the machinations of multinational corporations aim to squeeze government revenues and evade government regulation. So, as far as I can make it out, what Sterling Newbery seems to be proposing is, ironically, a program of government-led free trade and globalization rather than the neo-liberal corporate-led model.
Posted by: john c. halasz on February 25, 2004 09:21 PMGood article from Friedman.
http://www.nytimes.com/2004/02/26/opinion/26FRIE.html?hp
India has a strong and emerging middle class -- middle class now is something like 300 million. Every year millions more are entering the middle class thanks to economic liberalization and free trade. And middle class have strong fascination for things American -- Coke, Pepsi, Ford, Pizza Hut, McDonalds, Seinfeld, Lord of the Rings, Nike, Levi Strauss etc etc. Many american companies already have a strong presence and it's going to grow even more.
So, outsourcing is a double win for America -- you not only get more bang for the buck due to improved efficienies but also get more business for american companies. Free trade is like the proverbial goose laying golden eggs. The question now remains is: Why should someone want to kill the goose?
Posted by: tsquared on February 25, 2004 10:19 PMRWC - ending the protection of our farmers will benefit the urban poor in particular because food is a relatively large part of their expenditures, while contributes nothing to their incomes. If they can buy cheap food from developing countries, instead of hyper-expensive American or European produce, they experience a significant increase in real income - that is to say, their cash income doesn't go up, but their costs fall, so they have more money to spend on other things.
Posted by: PJ on February 26, 2004 01:41 AM"Suppose the politicians did succeed in halting offshoring. Would that save the jobs of programmers or call centre operators? In all probability, no. Both are vulnerable to technology in any case. All it would do is raise costs to users and slow economic advance."
I may just be showing my woeful ignorance here but, how are programming jobs "vulnerable to technology"?
Have there been some sudden advances in artificial intelligence that I'm not aware of.
Haven't we been listening to 'globalizing', 'freely' trading, Washington consensors for 20 plus years now? If 'free' trade (ala Greenspan & Co) really WAS good for America AND Americans, wouldn't we eventually run a trade SURPLUS or, at least, break even? Isn't it LONG past time we compared their rhetoric to economic reality? Isn't it fair, after all these years, to CHECK the damned record? I, for one, certainly believe that it is.
Fortunately, that isn't hard to do. You can get the "free trade" scores for the past several decades easily enough right here:
Bureau of Economic Analysis: International Economic Accounts
http://www.bea.gov/bea/di1.htm
If you're at all interested in how those Washington/Wall Street good boys have been tending to the homeland economic security, you might be interested in what you'll find here too:
Bureau of Public Debt: The Public Debt Online
http://www.publicdebt.treas.gov/opd/opd.htm
If you're wondering what ELSE they haven't been telling you--what they APPARENTLY haven't even worked up the courage to tell one another--and what all of this means to YOU, to your children AND to your childern's children, you MIGHT want stimulate a few neurons here:
Interim Report: Notes on the U.S. Trade and Balance of Payments Deficits
http://www.levy.org/docs/stratan/stratan.html
Posted by: Mike on February 26, 2004 02:32 AM
Ah! Tom Friedman, free trade, fairy tales AND the people who believe them:
"...Free trade is like the proverbial goose laying golden eggs..."
(Save your pity for somebody else. All you can do is LOVE people like that ;-)
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"U.S. Budget Deficit Threatens World Economy, IMF Warns
Thursday, January 8, 2004
A rising U.S. budget deficit and trade imbalance may create such a burden of foreign debt that it could cause financial instability in the United States and the rest of the world, a report released yesterday by the International Monetary Fund says.
According to the report, the U.S. budget deficit last year reached $374 billion, a record in dollar terms, and it is expected to exceed $400 billion this year. In a few years, the report says, the United States could have a foreign debt equal to 40 percent of its total economy — "an unprecedented level of external debt for a large industrial country."
The U.S. situation would affect the rest of the world because global interest rates would go up, slowing global investment and economic growth (Becker/Andrews, New York Times, Jan. 8).
The Wall Street Journal reports that the higher the interest rates, the less the population is likely to spend on such goods as houses and cars, resulting in a weak cash flow and weakened economic growth (Greg Ip, Wall Street Journal, Jan. 8).
According to the Times, White House officials have dismissed the IMF report, saying that U.S. President George W. Bush expects to reduce the budget deficit by half over the next five years.
Some economists, however, said they agree with the IMF's concerns.
"The IMF is right," said the director of the Institute for International Economics in Washington, C. Fred Bergsten. "If those twin deficits — of the federal budget and the trade deficit — continue to grow you are increasing the risk of a day of reckoning when things can get pretty nasty" (Becker/Andrews, New York Times)...
http://www.unwire.org/UNWire/20040108/449_11858.asp
So why do the "organized money" boys on Wall Street and our elected and appointed 'public servants' in Washington ignore reality and march merrily along as if nothing at all was wrong? The short answer is:
Impunity. And habit.
See, given the fact that most people really don't know what's going on, and given the fact that very few people who really need their job are about to risk it to tell you what's really going on, and given the fact that there's not much you could do about it even if you did know what's really going on, they really don't have an incentive to sober up. Then there's the fact that it took better than twenty years for them to squander all the good faith, goodwill, and good credit Americans built up in the world over the last two centuries or so. They're used to 'business as usual'. And besides, they have enjoyed themselves AND each other's company--IMMENSELY--while they were doing it. Nobody likes to see the lights go out on a really swell party, with really swell friends....
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"THE END OF CHEAP OIL"
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"Power to the people"
http://observer.guardian.co.uk/global/story/0,10786,524245,00.html
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"US dollar hegemony has got to go"
http://www.atimes.com/global-econ/DD11Dj01.html
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"Last of the Big Time Spenders: U.S. Military Budget Still the World's Largest, and Growing"
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"BUSH'S DEEP REASONS FOR WAR ON IRAQ: OIL, PETRODOLLARS, AND THE OPEC EURO QUESTION"
http://ist-socrates.berkeley.edu/~pdscott/iraq.html
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"The Earth's life-support system is in peril"
http://www.iht.com/articles/125563.html
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Posted by: Mike on February 26, 2004 03:38 AMIt just occurred to me that after the rest of the world wakes up today, somebody will probably come along saying, in effect, "Well, yeah. But that's ancient history, there's really nothing we can do and anyway, it's really nobody's fault. Lets just move on."
Before you fall for that 'argument', do yourself a favor. Read this:
---------------
"Ronald Reagan and the Commitment of the Mentally Ill: Capital, Interest Groups, and the Eclipse of Social Policy"
http://www.sociology.org/content/vol003.004/thomas.html
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And this.
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"Blood Money"
http://www.truthout.org/cgi-bin/artman/exec/view.cgi?archive=1&num=53
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And this:
"SUBVERTING THE MEDIA"
http://www.deepblacklies.co.uk/subverting_the_media.htm
---------------
SteveC wrote, "One thing I didn't realize was that these economic models purporting to show the 'benefits' of 'free trade' pre-suppose an economy at or near full employment, which is laughable."
I'd be very interested in hearing about these kinds of issues.
Some people claim that Ricardian comparative advantage arguments fail in the modern free-trade regime, because contrary to Ricardo's assumptions capital is no longer immobile, but on a left-leaning econ msg board, Peter Dorman claimed that modern models no longer assume that.
Then there's that book by Baumol and another guy which ostensibly has a rigorous model showing there are conditions under which one country *looses* to trade.
Finally, there's the distributional issue---free trade could increase the wealth of both countries, but decrease returns to labor in one or both of them.
Posted by: liberal on February 26, 2004 06:34 AMI'm glad to see that more commenters here, some clearly "trained" in economics, are not buying into "free trade" as currently practiced or envisioned.
If economics is a science, it is certainly the most politicized of sciences.
But let us see what is being foist upon us with such gravitas by the economists. John C. Halasz' post above questions the assertion that lack of investment supply is the problem. And it is enlightening in showing how many variables go into the determination of the truth of that assertion.
Assuming that his list of variables is exhaustive, there is the matter of weighting them, then there is the matter of assigning values on the basis of "economic data," which is frequently described as "the best we have for the moment." I wouldn't take my chances on a bicycle built according to these principles.
I have said before that I have no training in economics, but I have had some experience with economists. Many years ago I had a temp job at, of all places, the World Bank, in the economics section. There I would type out treatises on such things as the economy of Brazil.
While I knew no economics, I did know how to read a linear equation. My most vivid memory from that experience was when I realized that some of the equations were wrong on their face. I took them to the economist, who thanked me for noticing the problems, and he revised them to make them algebraically correct. What I then realized was that the equations didn't really matter. They were just a pseudoscientific window-dressing for conclusions that had already been drawn.
If the politicians listen to their constituencies, they will be doing what they're supposed to do. If they listen to (some set of) economists, God knows what they may do. If the constituencies are wrong, that will become evident to the constituencies, and other approaches, other arguments will arise. In a democracy this seems highly preferable to government-by-economist.
" 'From which, household median income in 2001 dollars:
1973 $36,278
2001 $42,228'
"Look at the *individual* median incomes. "
Well, as the Census says average household size declined from 3.01 in 1973 to 2.58 in 2001, it looks like median income per individual household member increased an extra 17% over the number above.
If there's another number for "individuals" you prefer to use, please give it as provided at the link you sourced. Also define "individual" (per capita? per worker?)
"Household incomes rose for a reason that should be obvious"
The decline of the two-parent family and growth of one-adult households? Of course family incomes did even better than household incomes over the period.
Anyhow, the relevant number when making claims about the effect of international competition on employee compensation is, of course, that for employee compensation.
A quick look at BEA data shows real compensation per employee grew 18% 1973-2001. And that of course ignores how that figure is artificially depressed by the big increase in the employee participation rate (especially women newly entering the work force) over that period, with entry level wages for new workers driving the average wage down. (I.e., the benefit of new job creation is ignored in the number and instead looks like a cost of slowed wage growth, due to statistical artifact.)
If we instead reflect the happy development of the big increase in the percentage of working-age people who got jobs in the compensation data (economic liberation for women) by counting their compensation as an increase from $0 -- which is in fact what they earned previously -- then real employee compensation per employee grew 32% from 1973-2001. Which doesn't exactly look like domestic wages were devastated by foreign competition.
And even *that* ignores the bit of gamesmanship involved in picking 1973 and 2001 as comparison years, what with 1973 being a cyclical peak wages year and 2001 a recession down wages year. Measuring properly peak-to-peak or trough-to-trough of course make the increase in personal income by any measure larger yet.
"then real employee compensation per employee grew 32% from 1973-2001"
So over a period of 28 years, employee compensation grew 32%, over 28 years? What's that number per year? Slightly over 1%? I wonder what the CEO increase was.
Posted by: SteveC on February 26, 2004 09:48 AM"A quick look at BEA data shows real compensation per employee grew 18% 1973-2001. "
Is that 'mean' employee income?
If yes, how is that statistic at all useful?
More economic income data for the debate.
The Census figures show that median earnings of full time male workers aged 15 and older remained static from 1973 to 2000 at around $37,000.
The median earnings of female full time workers did increase from around $21,000 to $27,300.
This is based my scanning of figure 3 in the Census publication "Money Income In The United States: 2000". Icouldn't locate the actual figures on which the graph is based, but maybe I'm just dumb.
Are the BEA income statistics average income or median? I would think the Census's median figure would be more representative of what's happening to workers incomes.
http://www.census.gov/prod/2001pubs/p60-213.pdf
One other critique of Jim Glass's argument re: household income.
The number of households with both spouses working probably increased greatly from 1973 to 2000. This obviously would lead to higher median household incomes, even if median wages were static.
Posted by: mr_crawford on February 26, 2004 03:31 PMTalking about "liberals": "I'm sure these people mean well. But in truth, they're helping consign literally billions of people to poverty."
The "anti-globalization protesters" are not "anti-globalization" and they are not "anti-trade." This, along with the term "free trade" is a clever use of language by the corporatists to distort the argument in their favor.
The "protesters" and others who question whether the current trade situation is beneficial or not are asking that trade be used to RAISE living standards instead of LOWER them. They are protesting against situations in countries where people are arrested or killed for trying to organize unions or for asking for political freedoms and are saying that we should not be engaging in "free trade" with those countries until there is some basis to believe that the trade does benefit the people here and there.
In China you are arrested or killed if you try to organize for labor or political rights or to protect the environment. AND they hold their currency down so that market forces don't come into play to balance the situation. So when we send our jobs over there it is not helping "the people" it is helping to further enrich corrupt Party officials there and here.
So you can complain about "liberals" and maybe gain points with the Limbaugh crowd, but those of us who think we need to improve trade agreements aren't going to just go away because you use words that distort meanings.
Posted by: Dave Johnson on February 26, 2004 03:55 PMAnd another thing - show me where these "free trade" arguments differ from the arguments for lowering or getting rid of the minimum wage, safety regulations and other corporatist arguments that they must be more "competitive" even as they increase executive wages yet again?
The struggle between labor and the moneyed interests has been going on for a long time. It is interesting that every time labor gains a notch the living standards of all of us increase along with them, as does the income of the richest. Has anyone else noticed that the periods of highest taxation are also the periods of highest GDP growth? Redistribution of the wealth -- consumer economy -- demand -- could it be...?
Posted by: Dave Johnson on February 26, 2004 04:35 PMWhat Dave Johnson said!!!!!
Posted by: SteveC on February 26, 2004 07:17 PMNo, I'm not SteveC, but I find myself in near-total agreement with him.
Here's another angle with which to contemplate this: Free traders can't write a paragraph without bemoaning the demagoguery of politicians "pandering to protectionists", or saying that Mankiw is right, but alas "politically incorrect".
What I'd like some free-trade ideologue to tell me is how the above attitudes square with a belief in democracy? I can't see a single way in which they do. You're basically saying that since no politician can tell the truth to the people (we're in a race to the bottom) and survive, any decent politican (by your lights) MUST be dishonest.
How does that square with a belief in democracy? And if you admit that it doesn't, when the FUCK are you idiots going to wake up and realize that a free people is free to oppose "free trade" and that some concession to reality must be made?
Pure "free trade" doesn't work, any more than pure communism worked. Americans want to know what future they may possibly have under its regime. And you can't tell them, except with lies.
Posted by: Steve Cohen on February 26, 2004 07:59 PMRe: Tsquared's comments on the Thomas Friedman article extolling the benefits of outsourcing of jobs to India. http://www.nytimes.com/2004/02/26/opinion/26FRIE.html
I thought Friedman's article was dishonest, misleading and biased.
Friedman visits an Indian call center, to show how outsourcing of jobs will help the U.S. economy because Indian workers and businesses will buy more U.S. products.
His examples are all ludicrous on their face. He credulously quotes the Indian boss who points to the purchase of Carrier air conditioners, Compaq computers, Lucent phones, and Coca Cola water by the Indian call center. He doesn't realize that all these products are probably made in India. Coke has bottling plants in India. Compaq (Hewlett Packard) has manufacturing plants in China and India. Carrier, has an Indian manufacturing subsidiary named Carrier Aircore ltd. Lucent has manufacturing partners in India. He points out that the call center is 90% owned by U.S investors. Great U.S. shareholders, are profiting from the export of U.S. jobs.
But his most dishonest claim is that U.S. exports to India will increase because of this outsourcing. He points to how exports to India have increased from $2.5 Billion in 1990 to $4.2 billion in 2002. What he leaves out is that imports from Indian have increased 10 times as fast during that same period, from $3.1 to $13.7 billion. We have a large and growing trade imbalance with India.
If this article was supposed to show the benefits to the U.S. economy from outsourcing to India, it failed miserably.
Posted by: mr_crawford on February 27, 2004 12:22 AMAnybody who wishes to read my full column, can do so on the Financial Times website (subscription, I'm afraid)at www.ft.com.
Ad hominem arguments are "the last refuge of the scoundrel".
Martin Wolf
Posted by: martin wolf on February 27, 2004 12:35 AMMartin: Yes, there are some ad hominem arguments listed. There are also a lot of credible points to which you (and Brad) have not responded in any way. What both of you do not seem to understand is that, even if unfettered free trade is better for the nation's GDP, the people might decide that having a strong and robust middle class is more important than pure GDP maximization. You say: "Attacking cheap imports of services is no more logical than bewailing rising productivity. The US, they should remember, benefits hugely from both." But what do you mean by "the US"? A large portion of the middle class is not seeing the promised benefits and is growing skeptical of the premise. If you want to fight protectionism, then the only way to do so is to create good jobs and make the middle class feel more secure. (Telling people they're going to have to go back to school every five years and switch careers isn't an answer either - most people don't want to do that and can't afford to, especially if they already have started families.)
Possible solutions to offshoring include levying U.S. payroll taxes on salaries paid overseas, targeted tax breaks for U.S. hiring, preventing companies from deducting foreign salaries as a business expense, and effluent fees for offshoring (which is a negative externality to those affected, just like pollution). Another important step in this extended job depression is direct government creation of good jobs for the duration. Repairing our nation's decaying infrastructure can be portrayed as a national security issue - just as we had the "National Defense Highway System" under Ike as a public works project, so we could have a "National Defense Infrastructure Program" under President Kerry. Also, since broadband Internet access is destined to be as important in the 21st century as electricity is in the 20th, we should work on a mass project to make it available to all Americans via fiber optic lines to the home rather than 100-year-old copper phone lines or coaxial cable not designed for that purpose. Think of all the tech jobs this would create - people to lay the lines, people to administer the routers and servers, people to teach the recipients how to use the Internet... this could take care of the tech underemployment/unemployment problem.
Posted by: Firebug on February 27, 2004 03:00 AMExcellent suggestions, Firebug.
And if Indian high-tech is here to stay, and I will agree with the free-traders that it is, then their interests and ours would be well-served by their developing DOMESTIC markets for their high-tech services. Even with all the high-tech, India is still a woefully underdeveloped nation and high-tech services can play a role in modernizing it. An Indian fellow I know worries about a gaping class divide that high tech is bringing there and fears instability in the near future.
If Wall Street was looking out for anything but its own bottom line, it would be encouraging Indian high tech along these lines, instead of doing what it's doing now, punishing American firms for not outsourcing fast enough.
Obviously, America cannot keep all the high tech jobs and deny them elsewhere. But we should not be artificially accelerating the trend. We should be slowing it down.
One thing that can be done in the short term to slow it down: put an end to H1B and L1 abuse. These visas were designed to address a labor shortage which no longer exists. Allowing these programs to continue is nothing but corporate welfare. Companies should have to prove good faith efforts to hire Americans before being permitted to import an immigrant. And to those who will say that this will just make offshoring move faster, I say that it makes no difference to the unemployed American high-tech worker whether his job is taken by an immigrant or by outsourcing. Removing the visa incentive will force corporations to work a little harder at finding the qualified American programmers who ARE there.
I'm following up on Firebug's suggestion for a "National Defense Infrastructure Program."
One of the premises of "free trade" is that we in the US, permanently re-educating ourselves, are going to produce technologies as yet unknown that will lift us (the lower classes, that is) out of the morass into which we have fallen. This is, of course, what the Christians would call a "matter of faith," and for some economists it does appear to be a little like the Rapture. (There are other "free trade" economists who feel that the American party is probably over but that the world as a whole will be "raised up.")
So what might that technology be, I've been wondering. Most of the technologies in development are so easily exported that they'll be producing the product in Cambodia before the ink has dried on the US-funded research papers.
Then I read J. Maynard Salinas interesting comment above: "Globalization presupposes low enough energy prices that manufacturing goods in low wage countries in order to ship them to high wage countries to market is cost effective. I've yet to see any economist create an economic model using renewable energy as a cost baseline in order to determine if globalized markets are actually sustainably cost effective compared to local manufacture and delivery to market.
"We know that oil is running out. We know that after peak oil production energy prices will both show high volatility and trend upward. All these companies investing in low wage markets for manufacturing may just be exposing themselves to severe losses should energy prices rise significantly over the next decade or two."
This reminded me of an article in the LA Times called "U.S., China Are on Collision Course Over Oil" (sorry, the link has expired) written by Gal Luft, described as "executive director of the Institute for the Analysis of Global Security and publisher of the online publication Energy Security."
Mr. Luft concludes,
"... Without a comprehensive strategy designed to prevent China from becoming an oil consumer on a par with the U.S., a superpower collision is in the cards. The good news is that *we are still in a position to halt China's slide into total dependency.*
"Unlike the U.S., China's energy infrastructure is largely underdeveloped and primarily coal-based. It has not yet invested in a multibillion-dollar oil infrastructure. China is therefore in a better position than the U.S. to bypass oil in favor of next-generation fuels.
"The U.S. should embark on a frank dialogue with China, conveying to the Chinese the mutual benefits of circumventing oil and *offering any assistance required* to curb China's growing appetite for it. A shift from oil into other sources of transportation energy — such as bio-fuels or coal-based fuels, hydrogen and natural gas — could prevent future conflict and foster unprecedented Sino-American cooperation with significant economic benefits for both countries.
"The Chinese would probably leapfrog oil if they could. Dependency of any kind is foreign to their culture. *But without substantial American technological support,* China is likely to follow the path of least resistance and become a full-fledged oil economy." (boldface mine)
If China isn't already the next economic superpower, Mr. Luft wants to speed them along. While Mr. Luft's lust for oil is palpable, he seems to feel we have the technology to help the Chinese "leapfrog" an oil economy.
I've got a better idea. Why don't we use that technology to step beyond our own oil economy! For manufacturing, transportation and consumers, there's nothing better than cheap energy. So along with Firebug's "National Defense Infrastructure Program" let's have a "National Defense Alternative Energy Program." FDR, where are you when we really need you?
Jim Glass (and others):
I wish people would be more precise when they quote figures (and yes, I am guilty too)
But looking at Text Table 4 for the Employment Cost Index the following pub:
http://www.bls.gov/ncs/ect/sp/ecbl0014.pdf
I see a 2.5 percent increase in real wages and benefits over the period. When I update the series to 2003, I get a 7 percent increase over the whole period, the increase mostly occuring during 200 and 2001.
The report says:
"Over the entire September 1975-December 1999 period,the constant-dollar ECI increased by 2.5 percent. ECI wages and salaries rose 216 percent, while consumer prices increased 208 percent over the same period."
What series are you using? I am not an expert in this area at all, so I have no axe to grind.
But some of your arguments do seem a little odd to me. When a woman leaves housework for a family and takes a job, that does not mean her economic resources to from zero to whatever her salary is. I think for the purposes of the person who brought this subject up, the relevant number is total compensation per person, without changes in lobor force participation or household composition included.