March 24, 2004

Free Trade!

David Wessel comes out swinging with a very good column praising imports:

WSJ.com - Capital: Let us now praise the virtues of imports.

Consider the clothes Americans buy for the four million babies born each year in the U.S. The typical family with a young child spends about $500 a year on those cute T-shirts, blue jeans and tiny socks. That's $2 billion a year. Not so long ago, the U.S. had a ceiling on imports of baby clothes. That limit was lifted for most countries in 1998, and for China at the beginning of 2003. Imports of baby clothes more than doubled between 1997 and 2003, notes Ed Gresser, who labors to make the case for free trade for the centrist Democrats' Progressive Policy Institute. Wholesale prices at the ports dropped 28%. Consumers saved. In the same years, the consumer-price index for all items rose 15%. But the retail price of infant and toddler apparel of all sorts fell 5.2%. Had the price of baby clothes increased as much as the price of everything else, parents would have had to spend about $400 million more to buy as many baby T-shirts, blue jeans and socks as they did last year.

Imports are the consumer's best friend.

You wouldn't know that to listen to public debate: Exports equal jobs. Exports are good. Imports kill jobs. Imports are bad. We must accept imports because only then will others take our exports. Imports are a necessary evil. This logic is a bipartisan vice. It's how former President Clinton sold the North American Free Trade Agreement. And it's how President Bush tries to sell free trade today: "America has got about 5% of the world's population," he said in Cleveland recently. "That means 95% of potential customers are in other countries. We cannot expect to sell our goods and services, and create jobs, if America and our trading partners start ... closing off markets."

Exports do create jobs, often good ones. And closing the U.S. to imports would encourage others to retaliate. But that isn't the truly compelling reason for trade, a point Adam Smith made to British politicians in the 18th century, when they made the same case that Mr. Bush does today. The argument "seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce," Mr. Smith wrote. But "consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer."

A compelling reason to trade, if you think about it, is to get imports. "Imports are the stuff that you get that you didn't have to make," argues Brink Lindsey of the Cato Institute, a libertarian Washington think tank. "Exports are the stuff you send off for foreigners to enjoy." No family any longer tries to make everything it eats, wears and enjoys. If it's cheaper to make at home, the family usually does it. If it's cheaper to buy from someone else, the family does that. Is a nation any different? Gene Sperling, the Clinton aide who is a master at fashioning economic messages, advises the Democratic Party "not to be afraid to point out that higher prices resulting from protectionism operate like a regressive tax, hitting the pocketbooks of modest- and low-income families the hardest." Tell voters that the price of toys at Christmas 2003 was 24% lower than in 1997 because tariffs were eliminated, he counsels.

Politicians don't find the appeal to consumers a winner, though. As one Bush administration official confides, it's like telling a textile worker whose job has moved abroad: "Imports allow you to stretch your unemployment check further at Wal-Mart."...

Ah. But when employment is high, the argument for imports becomes a much stronger one. Yet another reason to value competent macroeconomic policy.

Posted by DeLong at March 24, 2004 08:33 PM | TrackBack | | Other weblogs commenting on this post
Comments

Another fine example of why the WSJ is America's finest paper.. But what is with the illiteracy of the editorial page. I realize the editorial page is written by a bunch of hacks who couldn't cut it on the real news side of the house. But today's piece by Wayne Angell (claiming that the recession we're still emerging from was caused by Bob Rubin's leaving taxes too high) is extraordinary.

Posted by: Dan Ryan on March 24, 2004 08:51 PM

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Yes one wonders how the news and editorial staff can stand to work in the same (large luxurious) building.

Paul Krugman has a great line, even better than those quoted in the WSJ. I can't find it but it goes something like this

"the nice part of international trade is that people send us all these neat products. The bad part is that they are crass enough to demand something in return"

I assume a WSJ reported could find the quote, but, I suppose if you work in the same building as the WSJ editorial staff it isn't safe to quote Krugman.

Posted by: Robert Waldmann on March 24, 2004 09:46 PM

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Imports are good. The ever-increasing trade deficit and people dropping out of the work force is not so much fun though.

Posted by: bubba on March 24, 2004 10:22 PM

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"Had the price of baby clothes increased as much as the price of everything else, parents would have had to spend about $400 million more to buy as many baby T-shirts, blue jeans and socks as they did last year."

New baby clothes?

For the love of Jehosephat, why? The little tykes outgrow 'em before they wear out. Every mom in the world knows 17 other moms who have sacks full of clothes their own kids have outgrown.

Hasn't anyone at the WSJ ever heard of the Salvation Army?

Posted by: Quaker on March 24, 2004 11:09 PM

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I'm one of those who's sceptical that Say's Law is an unconditional truth. But now we have an alternative, S'ays Law: consumption creates its own supply.

More seriously, the rate of inflation was 15%- (but that includes medical and housing costs, no?)-, but the wholesale price of toddler clothes decreased by 28%, whereas the retail price decreased by 5.2%. To be sure, there are the addition costs of transport, distribution, and retailing, but we are given no accounting of the discrepacy here, so we can not tell how much of the wholesale price decrease on these imports was actually passed on to the consumer. "Had the price of baby clothes increased as much as the price of everything else, parents would have had to spend $400 million more..." Objection! Assuming facts not in evidence!

Posted by: john c. halasz on March 25, 2004 01:47 AM

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Quaker - they've heard of it, but the reality is that we are a rich nation. People just aren't going to put hand-me-downs on their kids if they feel they can afford new. Which, mostly, they can.

The WSJ quote touches on something that seems to get skipped past in most op-ed pieces about jobs and free trade. If imports are cheaper, they do indeed make us all incrementally wealthier, and that is good. But each such increase in wealth, pleasant as it is, affects our lives on the margins; it's not crucial to our lives. Even if after awhile, the increments pile up, and sum to something pretty noticeable.

Jobs, on the other hand, come in big, solid, discrete lumps. I'm not going to have 1.048 jobs today, and .979 jobs this time next year; I'm going to have a job, or no job. And when you have no job for awhile, it really knocks a hole in your life, and your family's life.

So what's the balance here? How do the incremental gains in wealth from imports measure up against the periodic knocking of holes in people's lives? How do we measure the effects of the holes in several million persons' lives, and balance that against the more modest increase of wealth spread across the lives of 292 million Americans? What's 'coming out ahead' and what's 'coming out behind' in terms of human cost and benefit?

I don't know how you start answering a question like this, but I know it won't get answered if it isn't asked.

Posted by: RT on March 25, 2004 03:18 AM

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After yesterday's Clarke hearing, it is clear that the world competent is jostling its way down the dictionary to be spelled "kompetent" simply because being in the neighborhood of the word "bush" is bad for its image.

Posted by: Stirling Newberry on March 25, 2004 03:58 AM

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So, I take it you guys have no problems with high gas prices, then?

Posted by: Tim H. on March 25, 2004 06:06 AM

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and just yesterday Kieran Healy was talking about facile arguments from the first chapter.

Posted by: david on March 25, 2004 06:08 AM

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Nothing is free.

Cheap, maybe, but free?

Never.

Posted by: SW on March 25, 2004 06:40 AM

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When people argue free trade, they frequently are talking about different things.

In the case of baby clothes, for example, most people would see that as being a Chinese enterprise manufacturing baby clothes and sending them to the US.

However, in the current structure of free trade, much of this activity is defined in terms of capital flows, not goods flows.

The standard world model for "free trade" seems to be largely unregulated, arbitrage friendly business investment policy.

When one examines various countries around the world though, it seems that those countries that have currency and investment controls do better over the long term.

This is not surprising. The profits from the aforementioned baby clothes typically accrue largely to the US.

This situation is analogous to the British Empire, where there was a trade deficit with the colonies, but the profits largely ended up in British banks.

Posted by: Matthew Saroff on March 25, 2004 06:46 AM

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Fire the Mad(Economic)Hatter(s)!


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


James K. Galbraith on Global Keynesianism

[circa 1995]

http://www.jobsletter.org.nz/art/artg0002.htm


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


THE END OF CHEAP OIL

by Colin J. Campbell and Jean H. Laherrère, Scientific American, March 1998

http://dieoff.org/page140.htm


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Power to the people

Kevin Danaher April 29, 2001

http://observer.guardian.co.uk/global/story/0,10786,524245,00.html


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US dollar hegemony has got to go

By Henry C K Liu

April 11, 2002

http://www.atimes.com/global-econ/DD11Dj01.html


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U.S. Budget [and Trade] Deficit[s] Threatens World Economy, IMF Warns

Thursday, January 8, 2004

http://www.unwire.org/UNWire/20040108/449_11858.asp


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


The Earth's life-support system is in peril

Margot Wallström, Bert Bolin, Paul Crutzen and Will Steffen IHT

Monday, January 19, 2004

http://www.iht.com/cgi-bin/generic.cgi?template=articleprint.tmplh&ArticleId=125563


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


An Open-and-Shut Case of Fiscal Flimflam

By Matthew Miller

March 19, 2004

http://www.latimes.com/news/printedition/opinion/la-oe-miller19mar19,1,2166480.story

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


The Perfect Storm That's About to Hit: Rising Oil Prices and a Weak Dollar could Shatter the Global Economy

by Jeremy Rifkin

March 24, 2004, Guardian/UK

http://www.commondreams.org/views04/0324-06.htm


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

Posted by: Mike on March 25, 2004 06:59 AM

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One point I want to raise (related, somewhat, to Quaker's): are families now spending less than $500 in that first year, or are they simply buying - what? 5%? - more baby clothes? And if so, what's the real gain, except for those who profit? I mean, I don't want to get all Thoreau here - the economy would collapse if people lived in modest houses with only a few changes of clothes - but, seriously, all this article illustrates is that free trade allows people to own more redundant stuff ($500 certainly buys all the clothes any baby could possibly _need_ in a year).

Brad likes to say that sweatshop goods allow single mothers and other sympathetic figures to spread their money around more, but actual interaction with Americans of all income levels suggests that it adds up to more stuff, much of it redundant. People don't have more savings because the cost of the goods & services they purchase has gone down. American savings remain absurdly low. Instead, people have more stuff.

Again, my point isn't that we should all be ascetics; my point is that articles like this one blithely assume that parents buying more articles of clothing for well-clothed babies is an objective good. And I don't think anything in the article shows that.

One other thing: the numbers pointed out by john halasz suggest that some 80% of the wholesale cost reduction is captured by retailers, not consumers. Isn't this exactly what Brad was insisting could never happen just a few posts ago? I shouldn't have argued CDs & milk, I should have argued onesies.

Posted by: JRoth on March 25, 2004 07:25 AM

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Economists confuse cheap consumer goods with happiness. Back in the 60's when you had to save for a while to buy a TV, TV's were greatly appreciated. Who needs 5 TV's in one home? It contributes to the dumbing down and cheapening of our society. Housing is the important cost in the lives of most citizens. I wish our resouces would go into affordable housing and education, not supporting the rest of the world through buying a bunch of stuff that we don't need anyway. By the way, everyone I know got used baby clothes from friends and relatives, I hardly bought anything for my children.

Have you ever wondered why we aquire more stuff and are less happy?

Posted by: Lynne on March 25, 2004 08:05 AM

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"Yet another reason to value competent macroeconomic policy."

What unmitigated arrogance!

In my lifetime, I have twice watched the macroeconomists do a tap dance worthy of a Scott McClellan.

First, in the Carter administration we had "stagflation."

"Stagflation: a term coined by economists in the 1970s to describe the previously unprecedented combination of slow economic growth and rising prices.

"'Many of today's investors were still in diapers during the great stagflation of the 1970s. Those who weren't will never forget the darkest period in modern financial market history.'" --Stephen Roach Morgan Stanley Dean Witter

http://www.internetional.se/toft/stagflation.htm

Note the term "unprecedented" above.

Now comes the "jobless recovery."

"That's what's created a brand-new concept in economics: the 'jobless recovery.' It's something like a foodless dinner"

("Spinning lack of job growth is hard work" http://www.oregonlive.com/printer/printer.ssf?/base/editorial/1079701196142430.xml)

Note the term "brand-new."

So now the macroeconomists have "free-trade" all figured out with the help of Adam Smith and David Ricardo. How does one sputter with a keyboard?

Posted by: Handy Fuse on March 25, 2004 08:12 AM

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JRoth, the numbers pointed out by John do not demonstrate that 80% of the wholesale cost reduction is captured by retailers. If overall prices are rising 15% -- so labor costs, prices of other inputs into stores, etc., are rising by a similar level -- but the prices of clothes are dropping 5%, it suggests that very little of the reduction is being captured by retailers. Now, we don't know this for sure, which was John's point. But we definitely know that 80% of the reduction was not captured by retailers.

As for buying more stuff being an objective good, well, I don't know what "objective" means. An efficient economic system is one that produces and delivers the goods that people want at the lowest cost. Imports make the system more efficient. So they are, in that sense, a very good thing.

People wouldn't buy new baby clothes unless putting their babies in new clothes made them happier than not. Telling people that what they want is wrong (or, even worse, that they wouldn't really want it if they weren't led astray by our evil consumerist society) is both theoretically absurd -- where is the Archimedean point that allows you stand outside the system and distinguish between authentic desires and false ones? -- and practically hopeless.

Posted by: Steve Carr on March 25, 2004 09:12 AM

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Lynne: "Economists confuse cheap consumer goods with happiness." Do you have any citations to back this up? Whatever happiness is, we sure don't confuse it with some concept of ordinal utility. Either way I'd rather have more utility even if it doesn't make me happier.

Handy Fuse: What? You're blaming academic economists for the Fed's policy mistakes in the 1970s? Maybe I should blame John Kerry for Mayor (Richard J.) Daley's racism while I'm at it. It's the same ludicrous concept that you're applying. The fact is, we had stagflation because the Fed got into an expectations trap. It knew pretty early on what was happening but it had more brains than guts. Volcker came along and did something about it, causing a nasty recession in the process. From the "Lessons in Long Term Monetary Neutrality" department.

Posted by: Chris on March 25, 2004 09:27 AM

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"People wouldn't buy new baby clothes unless putting their babies in new clothes made them happier than not. Telling people that what they want is wrong (or, even worse, that they wouldn't really want it if they weren't led astray by our evil consumerist society) is both theoretically absurd -- where is the Archimedean point that allows you stand outside the system and distinguish between authentic desires and false ones? -- and practically hopeless."

What a ridiculous comment. You're failing to differentiate between relative and absolute wealth effects. If one person in society gets a new consumer good, they may become slightly happier. If all people in society get the same new consumer good, people do not get happier (except for a brief period following the new purchase). Dramatic increases in the availability of consumer goods in the last several decades have led to no overall increase in happiness/wellbeing. None, nada, zip, zero.

Telling people that what the consumer goods they want are "right" in the sense that it will make them collectively feel happier or better about their life, is theoretically absurd and without any foundation in evidence.

Posted by: Ian Montgomerie on March 25, 2004 09:42 AM

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Thank you Ian Montgomerie for the very articulate defense. I believe that study after study shows (I would have to look this up) that after a certain level of comfort is reached, consumer goods do not make anyone happier. I also repeat my point that possessions that are obtained too easily are esteemed too lightly.

Posted by: Lynne on March 25, 2004 10:06 AM

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Ian, you're confusing two separate things. One is the question of whether people today, with all their consumer goods, are happier than people were in the 1950s. Studies suggest, as you say, that they're not. These studies are, of course, methodologically suspect, etc., but I'll accept them for the sake of argument.

But that question is different from the one I was writing about -- namely, is a given person today made happier by purchasing a given good. And here I would absolutely disagree with you. Buying a new product makes most people happier than they were before. Actually, I'm not even sure I'm disagreeing with you here, since you say that people may become "slightly happier" when they buy something new, and that even when everyone has a good, buying it makes people happier "for a brief period." I wasn't claiming that buying new baby clothes sends people into paroxysms of joy. Just that parents, in general, feel better after buying new baby clothes than they did before. (If they didn't, why would they buy them in the first place?)

To carry this discussion to the level of personal anecdote, I've always been a little baffled by the idea that the quality and availability of consumer goods doesn't make a difference. I will say that beyond a doubt, my life was made significantly better when I got a DVD player, and it doesn't make a whit of difference to me that everyone else has one, too. (In fact, it's good that they do, since it means that companies are more likely to put films on DVD.) I feel the same way about my IPod, about the 500 gigabytes of storage I have on my computer, and about my XBox. I feel the same way about the books that are stacked all over my apartment, books I could never have afforded if they were ridiculously expensive. These things have all made my life better, and I honestly can't believe people don't feel the same about the consumer products that matter to them.

Posted by: Steve Carr on March 25, 2004 10:26 AM

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Cheap consumer goods leave more money available to pay for housing, all else being equal.

Posted by: Christian Murphy on March 25, 2004 12:00 PM

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Isn't your argument about there being a disconnect a little disingenuous Brad?

I mean if people only can get money for consumption by production of goods and services, then I think that their concern about how they are going to afford imports is a real concern. If you don't have a job, cheap imports of baby clothes aren't going to help you feed and clothe your baby.

If the results were there - job and wage growth - were proportional to imports I don't think anybody on earth would object to increased imports. People are not as stupid as commonly believed. However, they aren't there. And since they aren't there, people are asking questions.

These are good questions, and deserve to be answered by more than patronizing sneers about bably clothes.

Posted by: Oldman on March 25, 2004 12:28 PM

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I think Steve is right. More generally, buying some things makes people happy, buying other things can make them feel unhappy or guilty. What consumer products makes a person happy varies from person to person. Typically, buying items that are under used or wasted doesn't make people happy.

I think some anti-consumerist sentiment is from people who expand on the fact that buying item X doesn't make them happy to believe that buying item X should not make anyone happy, and anyone who says it does is suffering from false consiousness.

This trick is expanded by some people to exclude some certain categories, typically music and books, from the mental concept of "consumerist items", so that buying a lot of shoes is considered differently from buying a lot of books.

Posted by: Joe O on March 25, 2004 01:28 PM

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Chris wrote, "Handy Fuse: What? You're blaming academic economists for the Fed's policy mistakes in the 1970s? Maybe I should blame John Kerry for Mayor (Richard J.) Daley's racism while I'm at it. It's the same ludicrous concept that you're applying."

My point, Chris, is that the concept did not even exist. It was one of those economic events that "wasn't supposed to happen"--i.e., was contrary to economists' beliefs at the time. Of course, there was plenty of post-hoc economic analysis around to make it all seem quite inevitable. Ditto for "jobless recovery."

But then let me use an example from Prof. DeLong's writings:

"And we--or at least I--really did believe that after NAFTA we would see a sustained, substantial, long-term wave of investment in newly-neoliberalized Mexico that would produce a substantial U.S.-Mexican bilateral export surplus for a decade or so. My implicit models were of the late-nineteenth century industrialization experience of places like Australia, Canada, and Argentina.

"And of course you laugh. You were right....

"It *was* my lifetime analytical nadir. (So far, that is.)"

(http://www.j-bradford-delong.net/movable_type/2004_archives/000119.html)

In fairness to Prof. DeLong, he states (and I am not capable of arguing otherwise) that his failure was a failure to predict the behavior of the upper classes (New York financiers vs. the Mexican upper class). But shouldn't macroeconomic theory encompass such behavior? Is the economic behavior of the upper classes less relevant than my ability to buy baby clothes?

Posted by: Handy Fuse on March 25, 2004 02:12 PM

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Handy, I'm not sure what you're arguing. We've seen the beneficial effects of free trade -- in practice, not just in theory -- for roughly two centuries now. That certainly creates a prima facie case that, in the absence of overwhelming evidence to the contrary, free trade is still a good thing -- for society as a whole, but not for every member of that society. There's been no convincing argument that something new has happened to alter the case for free trade. Does the fact that economists have been wrong before mean that we have toss aside the best ideas we have in the absence of any evidence to the contrary?

Posted by: Steve Carr on March 25, 2004 03:12 PM

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Steve-

On the numbers first: I don't think you're addressing my question (and I agree that I may be wrong, but I don't think you've shown that I am). We have a 28% reduction in wholesale costs (a number that doesn't even appear in your rebuttal) and, possibly, a 15% increase due to inflation, with a net of 5% reduction in retail costs. If you think that 15+5=28, then I think we may have trouble having a discussion. Of course it's impossible to talk about price changes and inflation as if one doesn't affect the other (if clothes weren't getting cheaper, would inflation over time have been 20%, not 15%?), but you can't deny that the only segments in this economy where real costs have increased in any inflationary way are, as john said, housing and medical. Certainly, (retail and manuf.) wages have been stagnant (no significant retailer still pays benefits to their labor, so I don't buy that labor costs have gone up 15%). So I have a real problem even using the 15% number in this equation. Regardless, there's at least a missing 8% out of a 28% cost reduction at the wholesale. So retailers capture 30% (my 80% number was based on a big cut in the inflation, and some sloppy mental division). This is still not possible according to our host's post of Tuesday.

Anyway, I wasn't trying to be overly philosophical in the body of my post - are people really happier? - but rather to point out that, on the consumer side, if cheaper baby clothes only mean more baby clothes, with no increase in utility, then gains are minimal. Steve would argue that buying items inherently equals happiness, and therefore that's an increase in utility. It would be interesting to compare that (fleeting) happiness with the feelings of unemployed textile workers, but let's set that aside.

What I was really getting at was overall benefit to our economy. Cheaper baby clothes have not equalled a better fed, better housed, or better employed nation. They have equalled a nation with (about) 5% more baby clothes. I don't see that as a slam-dunk refutation of trade barriers.

I know I tend to post in this vein, and some of you must doubt me when I say this, but I'm not a protectionist. I understand the benefits of trade and of efficient allocation of resources. But I find the polemics on the free trade side of the debate to be incredibly weak (and often incredibly smug, but that's a side issue). If the best argument (and our host thought this was a very good one) for free trade is that thousands of Americans should be thrown out of good jobs so that millions of other Americans can own more cute jumpers (and so hundreds of major stockholders can increase their earnings on wealth), then maybe free trade isn't what it's cracked up to be.

Last point, because I'm looking at Steve's 3:12 post as I write this: we have not had 200 years of free trade. We have not had one year of free trade. The last 200 hundred years have shown, uncontestably, that restrictions on trade can still permit astonishing levels of wealth generation for entire nations and civilizations. Unless you claim the strawman of protectionism means zero trade ever, anywhere, then your "prima facie" argument falls down, because your side has not, actually, been tested.

Posted by: JRoth on March 25, 2004 03:59 PM

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JRoth, how did I not address your point? You claimed 80% of the reduction in the wholesale price was captured by retailers. I suggested that the numbers showed that was not true.

In any case, let's look more closely at the numbers. I certainly can deny that the only segment of the economy where real costs have increased since the late 1990s is housing and medical. Take the most obvious example. A barrel of oil was roughly 300% more expensive in 2003 than in 1998. Transportation is obviously a major cost for wholesalers and retailers (those baby clothes don't get themselves from the port to Wal-Marts in the middle of America by themselves), which means that energy prices have a bigger impact on a retailer's bottom line than they do on the CPI. So right there you're talking about a significant increase.

Labor costs have not been stagnant. In the first place, it's not true that major retailers don't pay benefits. Costco pays benefits to almost all or all of its workers. Target pays benefits to its full-time workers. Even Wal-Mart offers benefits -- albeit skimpy ones -- to workers who have been with it for more than six months. And we know how sharply employer-paid premiums have risen in the last five years. Even setting that aside, though, wages were not stagnant between 1997 and 2003. On the contrary, wages for American workers in every quartile rose between 1996 and 2001. They have been flat since then, but there's no evidence that these companies have cut wages or, for that matter, employment. And remember that the wage increases reported by the Bureau of Labor Statistics are after inflation. That is, they're on top of the 15% increase we're talking about. Finally, if housing prices have been rising, so too have been real estate prices. So those stores that lease stores or warehouses have almost certainly seen their costs rise, too.

The point is that costs for these companies have almost certainly risen more than 15%. But let's use the 15% for the sake of argument. So let's say that roughly speaking, the price of baby clothes was 8% higher in 2003 than it was in 1997 (which is to say, 8% higher than it should have been, if all the cost cuts had been passed along to the consumer). That means that retailers were able to charge 1.3% more a year for baby clothes than they would have been able to do in a perfectly competitive market. If this is your evidence that consumers are not the chief beneficiaries of cost cutting, I don't think you're in any position to call anyone else's arguments incredibly weak.

In fact, your thesis about inflation -- namely, that only medical and housing costs have really increased in six years -- undercuts your entire argument about retailers' and manufacturers' ability to raise prices. If they can raise prices with impunity -- or not cut them when costs fall -- why haven't prices gone up? Why, by your own account, are we paying about the same for most stuff today as we were in 1997? Look, no one's saying that there's perfect competition. (If there were, wages would never rise, no companies would earn profits, and no new companies would ever enter the field.) But in most industries, competition plays exactly the role it's supposed to: it holds down prices and it ensures that consumers reap the biggest benefits from cost cutting.

There's actually a simple way to demonstrate this, at least when it comes to retail. Just go look at the 10-Ks of, for instance, Wal-Mart. Its operating profit margin has not budged since 1997. It's stayed right between 4.5%-4.7% during the entire period. Nearly all of its cost savings are passed along in the form of lower prices, and its profit growth comes from increased sales.

As for the point about free trade, I'm baffled by the idea that giving tens of millions of Americans more money to spend on what they want is not better, from the perspective of society as a whole, then protecting the jobs of a few thousand people -- who, in any case, are not going to be permanently doomed to unemployment. Think about what you're saying. The vast majority of people who buy baby clothes, for instance, at Wal-Mart or Target are middle- and lower-middle-class people. You're saying that they should pay an extra tax to keep textile workers employed. How is that fair? Why should a bartender who's going to get no help if the bar she works for shuts down have to subsidize a worker in a textile factory? Because you think it's harsher to lose a job to China than to lose a job to a lack of customer interest? I'm sorry. That's incredibly weak.

Posted by: Steve Carr on March 25, 2004 09:14 PM

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Steve Carr wrote:

"I will say that beyond a doubt, my life was made significantly better when I got a DVD player"

I pity you and your life. Did you try dating, marriage, shrink or religion? It is possible that you could be helped.

Posted by: Homer Pile on March 26, 2004 09:43 AM

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I doubt Steve will see this, as I was away too long, but I'm interested in this discussion, so I'm back.

You're absolutely right about oil prices (well, not the 300% red herring - do WalMart trucks run on crude? Was diesel $.40/gal in '97? No? Then those costs did not go up 300%, or anything like it.) - they have been a part of the tiny inflation we've seen. But I think all we can see is that the 15% number is one we can both agree on - we'll each try to argue it in our own favor, and it's marginal.

But your numbers rebuttal comes down to saying that, since 8% annualized is *only* 1.3% per year, that's a meaningless number. Did everyone here see 1.3% real wage increases every year from 1997 to 2003? I sure didn't. And the BLS didn't. I think Bush would be in better political shape if people had. So let's not pretend that annualizing a number makes it go away. Either 5% cost savings over 5 yrs to consumers is a big deal and 8% profit capture (over the same time period) by retailers also is, or both numbers are so small as to be insignificant. You want it both ways with your 1.3% number. The numbers show that, if $13 worth of savings come along, consumers may only get $5 and retailers can get $8. The whole reason I jumped in is that free traders (and specifically Brad, just a few days ago) deny this as a possibility. Perhaps WalMart's margins have stayed the same because they've used some of that $8 to apply to loss-leaders in other segments, in order to fund their expansion.

As to the last para, you're right to say that tarrifs are, in effect, a tax on consumers, and in the case of low-end consumer goods, it's a regressive tax. But in reality the savings from free trade in onesies are not the equivalent of a tax break, because that is not how consumers act. If you pay less in taxes, then you have more cash. There's no other part of the equation. But when prices in consumer goods come down, people tend to buy more of the good (check fast food purchase patterns for another example). They are not using those savings to buy bonds, save for retirement, or anything else beneficial to the overall economy. I don't have a number to back that up directly (although is that $500 number stayed the same from 97 to 03, that would prove my point), but the consumer debt levels and national savings rates bear out my point.

I think I made pretty clear in my prior post that, if the only discernable benefit to the loss of thousands of textile jobs is more onesies (but NOT greater nat'l savings, NOT lower consumer debt), then all you're arguing for is free trade for its own sake. And I wonder why this textbook principle is the only one that should be applied universally, while other ones, like free speech and personal liberty, are sometimes restrained for the greater good.

Posted by: JRoth on March 27, 2004 02:42 PM

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An interesting homily from this thread, used baby clothes, especially with designer labels, are being snatched up like hot-cakes by everyone from 2nd-income eBay retailers to newly American immigrants wanting to send some chi-chi back to their home village. The trade is enormous, and entirely Chinese in origin, and yes, EVERYONE wears second hand clothes in America, unless you throw your clothes out the day after you wear them like some famous rap stars, or like the ultra-rich, who return them to the store, because the store can't say no to Les Riche.

Meanwhile, Bush Administration has reclassified hamburger flippers as "manufacturing workers".

Say it ain't so!

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