Brad DeLong's Semi-Daily Journal (2004)

Echoing Drezner's final sentence, I personally am shocked Bush hasn't relentlessly pandered to regional constituencies with protectionist promises. Instead he's just yelling "isolationist!" at Kerry and hoping nobody calls him on his own record.

Frankly, I'm getting pissed off at the fact that NO ONE even examines the possibility that these opinions might actually be a logical conclusion to the facts on the ground.

The American public might be right, and they understand that there is no such thing as free trade and free markets, only simulations approach this state with varying degrees of success.

Further, if they believe that the free trade/free market implementation is really primarily corporatist (in the same sense that Mussolini used the term), then it is not in their best interest.

What's good for agents of arbitrage is more often than not good for the average person, regardless of nationality.

On THIS subject, the preponderance of the available evidence supports the view that Americans (Americans outside the DC Beltway and/or off-off Wall Street, anyway) are "stone cold" REALISTS: NOT "mercantilists". What's TRULY "stupid" about all the blather to the contrary is the studied indifference to chronic, unsustainable US trade deficits by people who (whether they actually DO or not) OUGHT to know better...

http://www.levy.org/docs/stratan/stratan.html

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

http://www.sdcia.com/msgboard.mv?parm_func=showmsg+parm_msgnum=1003491

If public support for free trade is tied to the state of the job market, how come Clinton wasn't able to get fast track authority renewed at any point during the late '90s, during one of the tightest labor markets in history?

rd, for the same reason he wasn't able to get the line item veto. There was no way in hell a republican congress was going to cede Clinton one iota of authority, regardless of the specific issue. Note that he was able to get PNTR for China, a feat that I think you'll agree would have a snowball's chance in hell of becoming law nowadays.

Your biggest trading partner is Canada, but Clinton did nothing to lower the barriers against softwood lumber, making your houses more expensive to build while placating Max Baucus and the northwestern crowd. Clinton also pandered to boost his party's chances.

But the republicans in Congress supported fast track by large majorities. It was Dem opposition that killed it. Plus, they *did* give Clinton a form of the line item veto. The Supreme Court struck it down.

Ah, but doesn't the maintenance of a sufficiently stable and continuous macroeconomic policy to offset the disruptions and shifts in employment due to open trade require a sufficient public sector and regulatory framework, (especially with respect to labor rights and financial stability), rather than an ever-increasing privatization of the economy? Monetary policy may not work, since other factors, such as the exchange rate and default risk, may tend to keep long-term interests rates higher, and tax cuts might be subject to demand leakage. And then there's that $3+ trillion accumulated net indebtedness that keeps on growing...

"Americans are stone cold mercantilists."
I haven't been to, or heard of, a single country where mercantilism wasn't an easy sell to the people. It's much harder to sell free trade. Maybe Walmart should market it -- "Free Trade-it's behind 99% of our products."

Drezner finally admits that outsourcing jobs is a quid pro quo by our government to other governments to support EMPIRE. Maybe American's don't support free trade because we aren't stupid enough to buy the Brooklyn Bridge many times over. If you want support for free trade, economists had better come up with some hard numbers and examples of how free trade works favorably for us.

Is a insecure job that pays $70,000/year worth more than a secure job that pays $60,000? The idea of working in a field that disappears when you're in your fifties is a nightmare. I would rather have the $60,000/year secure job than the slightly higher paying insecure one.

Freer trade makes us more wealthy at the cost of making jobs more volatile. Free trade boosters never really address the possibility that a stable job can be worth more than an unstable job. For me to be convinced that free trade is a good thing, I would have to have at least a rough idea of how much additional wealth a typical worker gets (I don't have the slightest idea), how much additional risk we take on, and decide that the former justifies the latter. I have never seen anyone even attempt to do so. I've seen simplistic arguments like "free trade increases median income. Therefore, free trade is good policy". That doesn't cut it.

I'd like to know whether a tenured economics professor would give up tenure for a 3% pay hike.

One record trade deficit after another in conjunction with budget deficits as far as the eye can see=bankruptcy.

Whoa. The comments hostile to free trade are pretty scary here.

"Stone-cold mercantilists?" Good grief!

Go to Commerce's BEA site (www.bea.gov), and click down through the Balance of Payments->Interactive Tables path to the little down-arrow button at the right of "Table 1. U.S. International Transactions" (with luck, http://www.bea.gov/bea/international/bp_web/tb_download.cfm?list=1&anon=71&table_id=1&area_id=3 will take you there).

Download and open the xls file, and in cell AV90 on the "Annual" sheet enter "=SUM(C90:AT90)". This gives our cumulative current account deficit from 1960 through 2003: $3.75 trillion. Copy that cell up to AV87, and you'll see our cumulative deficit on goods and services: $3.61 trillion (by now, $3.9 trillion). Along Excel rows 85 and 86 you'll see our small positive balance in services decline even as the goods account plunges ever more negative.

This is *American* mercantilism????

No, it's Asian mercantilism, inducing us to live far beyond our means while they engage in something very like the "vendor financing" of the bubble-era telecomms.

If one truly believes that proper relative pricing is essential to proper market function, how can one not be outraged by the currency manipulations that sustain these imbalances?

In 1994 the Chinese devalued by 35% (in the opinion of some, a major cause of the 1997 Asian currrency crisis), and the World Bank in 2002 estimated their rate of 8.28 yuan to the dollar to be undervalued by a factor of 4.7 on a purchasing-power-parity (PPP) basis. In Japan, the BOJ expended over $300 billion in 2003 and Q1 2004 to suppress the yen, and the Diet has authorized $1 trillion more for intervention. Asian foreign currency reserves now exceed $2 trillion.

In the future, we must either repay the debt, renege on it, or forever pay interest (or some combination thereof). At 5%, we would need a $200 billion surplus in goods and services just to stabilize the current account -- a $700 billion shift in US economic activity from imports to exports.

Do the benefits we get from allowing this gross subversion of markets truly justify the wrenching dislocations, even in the short term? I could easily expand on the excellent points "rps" has made above.

I cannot believe we will enjoy any long-term benefits. On the back of my envelope, a $700 billion shift in goods and services trade implies career dislocations for more than 10 million Americans, as we scrap distribution centers and retail stores and rebuild our factories from scratch. On the other end, Asia will suffer from the excess manufacturing capacity.

Those who opine that the exchange rate manipulation doesn't matter, because overseas labor would be so much cheaper than American even without it, just aren't doing their homework. Labor is only part of product cost, and offshoring has true comparative advantage only when the savings it would give at unmanipulated exchange rates more than offset the additional management overhead and shipping costs.

Although the US might run a deficit with Asia even with unmanipulated currencies, and some level of job loss and dislocation is inherent to progress, today's situation is unjustified and unsustainable.

rps: "The idea of working in a field that disappears when you're in your fifties is a nightmare."

And to think that some of us are crazy enough to try changing fields voluntarily. A department head told me just the other day, "You can write the greatest dissertation we've ever read. And we'd give you a courtesy interview. But the chances that we would hire a 55-year-old with a shiny new degree for a tenure-track position are exactly zero. And I know that saying that violates the law."

I am beginning to feel strongly that if the answer to the problems is "The baby boomers must remain in the work force longer," then it is unlikely that the US workplace is prepared to provide that answer.

A correction from jm:

Above I wrote that, "At 5%, we would need a $200 billion surplus ... a $700 billion shift." But that is incorrect. The amount by which interest and income payments to foreigners will rise if US interest rates rise to 5% will be less than 0.05 times the accumulated deficit because the delta in payments will be proportional only to the delta in rates. Since much of the accumulated deficit is in instruments other than short-term Treasury bills, the effective rate delta on a return of short-term rates to 5% would be less even than 4%.

An excellent summary by Richard Berner at http://www.morganstanley.com/GEFdata/digests/20040625-fri.html#anchor2 anticipates net change due to rising rates to be $60-80 billion. So the magnitude of the shift required to balance the current account will be about $130 billion less than $700 billion -- still a huge number.

rps:

The economic research shows that trade dislocated workers are hit very hard
and some never recover.

Lori Kletzer (Ph.D. Economics Berkeley) states 25% of trade dislocated workers experience earnings losses in excess of 30%.

http://www.iie.com/publications/newsreleases/kletzer.htm

Kletzer continues:

"no American president will be successful at persuading ... the American people to accept further trade liberalization until additional measures, aimed specifically at easing the pain of worker dislocations and encouraging rapid reemployment, are embraced by federal policy makers."

http://www.post-gazette.com/pg/04084/290519.stm

What free trade advocates consistently fail to point out is that America has a huge protected sector - housing, medicine, higher education and defense - where pricing power is easily out stripping all other sectors.

When the sectors that are growing are all protected, there will, rationally, be a call for other sectors to be protected as well. People say "I want the same deal that Haliburton is getting."

This is what comes from not taxing the "winners" for actions which are not the consequence of their improving their stock of capital, and instead allowing them to collect exhorbinant rents, because, after all, protectionism is a rental income - paid by the consumer to those sectors which do not have import competition.

Fix this problem, and people will want free trade again.

The other way, of course, is to have a huge oil crisis, as other nations stop taking our grossly over valued dollars. At which point Americans will learn that they cannot import more than they export, and at the same time protect domestic markets.

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