WSJ.com - Free-Trade Worriers: By DOUGLAS A. IRWIN August 9, 2004; Page A12 If there is one truth about the public debate over trade policy, it is that free trade is always under fire.... But recent free trade critics* are content to beat up on the idea of free trade and stop there, seemingly afraid to go the next step and embrace protectionism. Messrs. Schumer and Roberts state that "old-fashioned protectionist measures are not the answer," and Mr. Cassidy concedes that "economists are right when they say that protectionism isn't the answer to outsourcing."... So why are the recent critics so hostile to free trade while ruling out protectionist solutions? To hide the fact that they have no solutions to offer. The poverty of free-trade critics is that they fail to bring anything constructive to the table.... Many of the free-trade critics raise legitimate and important issues about wages and job creation in the United States. One would think the debate would focus on strengthening the economy or empowering workers in a difficult labor market. Workers can be empowered by allowing them to have portable retirement accounts rather than pensions tied to a particular employer. The portability of health-care benefits should be examined,...

Abiola Lapite is somewhat nonplussed to find himself agreeing with John Quiggin: Foreign Dispatches: Something on Which We Agree: I rarely agree with John Quiggin on political matters, so when such an instance does arise, it's worth commenting on. Today he makes an excellent case against the Australia-USA "Free Trade" Agreement, which turns out to be little more than an excuse for America to foist harsh intellectual property laws on the Australians. I know that “Trade agreement said harmful to small faraway country” is the stereotype of a boring newspaper story, but this one is really important to Americans as well as Australians, and to anyone interested in health policy. If you ever hope to see affordable health care in the US, you’d better hope that (against all the odds) this agreement falls at the final hurdle. Although it’s called a Free Trade Agreement, it’s nothing of the kind. Australia has hardly any trade barriers to speak of, and the US has given very little ground on its barriers and subsidies. The important bits of the agreement are those relating to intellectual property and (closely related) pharmaceuticals. In both areas, the Americans have pushed Australia to adopt the strong IP...

John Cassidy in the New Yorker writes about outsourcing. He ultimately gets to an entirely reasonable place, but it takes him quite a while: [the United States] will have to insure that its scientists are the most creative, its business leaders the most innovative, and its workers the most highly skilled.... A truly enlightened trade policy would involve increasing federal support for science at all levels of the education system; creating financial incentives for firms to pursue technological innovation; building up pre-school and mentoring initiatives to reduce dropout rates; expanding scholarships and visas to attract able foreign students and entrepreneurs to these shores; and encouraging the development of the arts. In short, insuring our prosperity involves investing in our human, social, and cultural capital. But don't expect to see that slogan on a campaign bumper sticker anytime soon. The only bone I have to pick with the final paragraph is that you do see this--not on bumper stickers but in the Democratic platform. All of it (with the exception of greater arts funding) is what you hear in standard Democratic speeches on dealing with globalization. This was, for example, Robert Reich's wish-list program when he was Secretary of Labor--but there...

Ah. Things become clear. The people whom I was negotiating with over the internet in order to get cheaper hotel rooms in Rome are based in... Bangkok. No wonder they can offer such good rates: the Italian hotels are crafting the rates they offer the brokers for Asian tourists, and the brokers' labor costs are very very low indeed. I must admit that this is something I did not expect--not so soon....

The Wall Street Journal's Dan Bilefsky reports on the shifting international division of labor from Timosoara, in Transylvania. A very nice article. Companies seeking lower costs head east (while trying to stay on the right side of the moving socio-economic frontier where property rights are respected and productive efficiency is attainable) while people with skills seeking better lives head west (while trying not to become desperately lonely and alienated). Romanians--speaking a Latin language--may well have an easier time heading west than many Poles or Czechs or Hungarians: WSJ.com - European City Wins Jobs -- and Looks Over Its Shoulder: Timisoara, Romania, Struggles To Keep Outsourcing Boom; Engineers Seek Higher Pay Joining EU Could Blunt Edge by DAN BILEFSKY, Staff Reporter of THE WALL STREET JOURNAL, July 8, 2004; Page A1 TIMISOARA, Romania.... dozens of young software engineers sit hunched over computers in a neighborhood still pocked with bullet holes... beneficiaries of this city's decade-long drive to transform itself into a high-tech center. But Mircea Stoinescu, a 22-year-old software-engineering student... would trade in Timisoara's war-scarred offices for Silicon Valley in an instant. "Why would I want to wait around here 20 years for wages to rise when I can get what I want tomorrow?"...

The Bush administration decides to make China and Vietnam a little bit poorer: Prepare for jumbo shrimp prices Carolyn Said, Chronicle Staff Writer Wednesday, July 7, 2004 ...On Tuesday, the Commerce Department announced preliminary tariffs on shrimp imported from China and Vietnam. Tariffs on sales from Thailand, Brazil, Ecuador and India may be imposed by the end of the month. Those six countries account for the lion's share of imported shrimp. Of the 1 billion pounds of shrimp consumed annually in the United States, about 87 percent is imported, according to the U.S. International Trade Commission.... "It will translate into higher prices for shrimp in the very near future, " said Wally Stevens, president of the American Seafood Distributors Association, which represents importers, cold-storage warehouses, freight forwarders, truckers, restaurants and retailers.... While tariffs for Chinese companies range from nothing to 112 percent, the average tariff will be 49 percent; Vietnamese company tariffs will range from 12 to 93 percent, with an average rate of 16 percent.... "It certainly is not going to make shrimp less expensive for the consumer, that is for certain," said Tom Elliott, vice president and general manager in San Francisco at Slade Gorton & Co., which...

Matthew Yglesias catches me in an error, and kindly and gently admonishes me: matthew: No, No, No!: Brad DeLong warns Tyler Cowen against getting too outraged by George W. Bush absurd Cuba policy: I should, however, point out that there is fine print: this kind of absurd, punitive, counterproductive, and stupid policy toward Cuba is not the exclusive province of this particular administration or this particular congress, but is the reflection of the structural strength of the anti-Castro lobby. Don't hope for things to become less stupid for a while, no matter who wins elections. Six months ago that would have been right, but after a brief feint toward trying to out-absurd Bush on Cuba policy, John Kerry has seen the light. Listening to pollsters who tell him that younger generations of Cuban-Americans (see, e.g., me) do not favor absurd, punitive, counterproductive, and stupid policy toward Cuba, Kerry has come out against these latest moves, thus making his Cuba policy marginally less absurd, punitive, counterproductive, and stupid. From a short-term perspective, the Cuba policy implications of this election are probably not enormous, but there's a big "but" here. This is to say that if Kerry's strategy works, and he managed...

Jacob Levy alerts us to Tyler Cowen's desire to join the ranks of the shrill: Marginal Revolution: I've had enough: Here is our latest foreign policy initiative: New US curbs on travel to communist-ruled Cuba went into effect on Wednesday, with opponents decrying them as an attack on family and the Bush administration arguing they will hasten the fall of Cuban President Fidel Castro. Cuban Americans may now visit relatives on the island once every three years instead of annually and they may go only to see close family members rather than more distant relatives, among other restrictions aimed at toughening the four-decade-old US economic embargo on Cuba. "It's unimaginable, abusive," said Raquel Chaviano, one of hundreds waiting at Havana airport on Tuesday for one of the last flights back to Miami before the rules went into force. "The family is the main thing in life, and it has nothing to do with politics," said Chaviano, who left the Caribbean island in 1980, leaving behind her daughter and siblings. Here is the full, sad story. Here are more details about the human costs of the policy. Here is some material on America's failed use of sanctions against Cuba. What do...

Daniel Drezner worries about American mercantilism: TNR Online | Trade Off (print): Between 1999 and 2004, public support for free trade declined across the board. The most dramatic shift in opinion came from Americans making more than $100,000 a year, among whom support for promoting trade dropped from 57 percent to 28 percent. These kinds of attitudes create a powerful constraint for policymakers at a delicate moment in global trade negotiations. Efforts to restart the Doha trade round after the disaster in Cancun will require concessions by U.S. trade negotiators on contentious political issues like farm subsidies. If public opinion is increasingly hostile to trade liberalization, the Bush administration might choose not to invest significant political capital in the process.... Americans are stone cold mercantilists. That is, they view trade as a zero-sum game, in which one country's gain is another country's loss. There is reason to believe that all the good economic news in the world will not alter that fact.... Americans are mercantilists in the sense that they support trade liberalization only when they believe it will improve export opportunities with no threat of increasing imports. Given the widespread support among economists for trade liberalization, are Americans just...

Is this a new low in New York Times coverage of global economic issues? Perhaps. Not a word about benefits from ending the Multifiber Agreement for American consumers. Not a word on poor people in developing countries who have been kept in poverty because of artificial blocks to their ability to sell textiles to the United States. Not a word of explanation of why no developing-country governments want the MFA question reopened at the WTO. And no sense that the New York Times has any clue that it should have a reporter who knows the issue write this story. The New York Times: White House Shuns Role on Textile Quotas: By ELIZABETH BECKER. WASHINGTON, June 9 - More than 130 Republican and Democratic members of Congress asked President Bush on Wednesday to persuade the World Trade Organization to delay the phase-out of a global quota system on textiles and garments. The administration swiftly rejected the request, which would mean breaking a 10-year-old global agreement to end the quotas on Jan. 1, 2005. Ending the quotas could lead to a wide-ranging realignment of the industry and spell disaster for textile and apparel industries in dozens of nations, including those in...

And now we're blocking imports of color TVs from China. Truly, truly an act of idiocy....

Tyler Cowen alerts me to a charge of economic treason. But what surprises me most is the quote attributed to Neal van Alfen, Dean of the College of Agricultural and Environmental Sciences at UC-Davis. Is van Alfen qualified to hold his job? If Paul Blustein's story below is correct, then the answer is clearly "No," and UC Davis's Chancellor Vanderhoef badly needs to choose a different dean, and choose one soon: washingtonpost.com: In U.S., Cotton Cries Betrayal: ...Sumner, an agricultural economist at the University of California at Davis, played a key role in an international trade case that is shaping up as one of the most significant defeats the United States has ever suffered on the trade front. An analysis that he wrote helped frame a preliminary decision issued two weeks ago by a World Trade Organization panel, which held that the federal subsidies paid to U.S. cotton farmers violate WTO rules because they cause overproduction, drive down world prices and impoverish farmers in developing countries. Since Sumner served as a paid consultant for Brazil, which brought the case against Washington, he is being reviled as a traitor by some U.S. farmers. Leaders of some farm groups, furious at Sumner...

No, I am not making this up: The New York Times > New York Region > Rabbis' Rules and Indian Wigs Stir Crisis in Orthodox Brooklyn: For thousands of Orthodox women, one of the most fundamental practices of daily life — adhering to the code of modesty that prohibits a public display of their hair after marriage — was thrown into turmoil this week by a ruling from a distant authority. More than 5,700 miles away in Israel, several rabbis issued a ban on wigs made in India from human hair, which is used to make many of the wigs sold in Brooklyn. The rabbis said the hair may have been used in Hindu religious ceremonies, which like other pantheistic practices are considered idolatrous in Orthodox teaching. As a result, many of the women felt obliged to put aside their costly wigs, flocking instead to stores that sold acceptable replacements. "You have to hope whatever you have is good, otherwise you put a thousand dollars in the garbage," said a woman named Mindy, who declined to give her last name for fear of what her father-in-law would think... Do we need to convene a WTO panel to assess whether under...

Outsourcing continues: Google steps into Bangalore: The Hindu | Friday, May 07, 2004 | Google to open R&D centre in Bangalore BANGALORE, MAY 6. The popular web search engine maker Google Inc's first research and development centre outside the U.S. has been approved by the Software Technology Parks of India (STPI), officials said. The centre, Google Online, is registered as a unit with the STPI, which provides satellite-linked datacom services to IT firms. The new centre "was given approval towards the end of April,'' said Ramali R, an official with the new registrations division of the STPI. Google has taken space on two floors in one of the commercial buildings in the central business area of Bangalore, which would be ready `soon,' engineers on site said. In time, the centre is expected to house some 100 engineers. It will be headed by a three-member team, including Krishna Bharat, Google's principal scientist, and Antoine Colaco, a manager from the company headquarters at Mountain View, California in the U.S. The engineers at the Bangalore centre would work on data mining, data warehousing, business intelligence and knowledge management. "We just want more really great engineers,'' senior Google executive, Wayne Rosing, had told...

Lance Knobel meets Martin Wolf returning, unshod, from Mt. Sinai: Davos Newbies : Davos Newbies Home: "Martin Wolf has a new book out, Why Globalization Works. The Financial Times is serialising parts (and as is its wont, hiding the material behind a subscription firewall -- a great way to encourage book purchases, not). Today's instalment includes his ten commandments of globalisation. They aren't as pithy as the original ten, but as always with Wolf, they make great good sense:   1. The market economy is the only arrangement capable of generating sustained increases in prosperity, providing the underpinnings of liberal democracy and giving individual human beings the opportunity to strive for what they desire in life.   2. Individual states remain the locus of political debate and legitimacy. Supranational institutions gain their legitimacy and authority from the states that belong to them.   3. It is in the interest of both states and their citizens to participate in international treaty- based regimes and institutions that deliver global public goods, including open markets, environmental protection, health and international security.   4. Such regimes need to be specific and focused. But they also need means of enforcement.   5. The World Trade...

From Paul Bergin, Reuven Glick, and Alan Taylor (2004), "Productivity, Tradability, and The Great Divergence" (Davis: U.C. Davis xerox). The strength of the relationship between high levels of GDP per capita on the one hand and appreciated real exchange rates on the other. Alan's main point is that the relationship was much weaker back before the 1960s--and shows signs of growing weaker once again. This may be important: the fact that poor countries have relatively depreciated exchange rates--and thus that a large chunk of national output is needed to purchase a relatively small quantity of imports from the industrial core--has been a powerful obstacle to development over the past generation and a half....

The Economist likes Jagdish Bhagwati's In Defense of Globalization: Economist.com | Hitting back: ONE thing people in today's rapidly globalising world economy no longer need, you might think, is another book exploring the implications of the rapid globalisation of the world economy. Publishers have churned them out by the dozen in recent years. Can there really be room for yet another? Certainly—and especially so in the case of this new work from the prolific Jagdish Bhagwati of Columbia University. Up to now, anti-globalist works have had too much the upper hand. They heavily outnumber books advocating or celebrating globalisation. Multiply titles by sales, and their preponderance is overwhelming. Also, one cannot say that globalists have had the lead in quality, at least, or even (as you might suppose) in authors' academic credentials. Many pro-globalisation books are so badly argued, so keen to deploy anecdote not evidence, that they discredit their cause. So far as credentials go, note that anti-globalists would regard Joseph Stiglitz's bestselling “Globalisation and its Discontents”, published in 2002 (and none too kindly reviewed in The Economist of June 6th that year), as mostly taking their side—and Mr Stiglitz, a Nobel prize-winner, is an undisputed star in the...

Daniel Davies is in unspeakable torment because Thomas Friedman is neither some fantasy construct nor the inhabitant of a parallel universe, but somebody who lives in the same world as Daniel Davies and whose writings Davies must confront every single week: Crooked Timber: Industrial policy for me but not for thee : I realise that this is about the fourth time I’ve had a hit-and-run shot at an Airmiles column, while crying off doing the proper Globollocks analysis for lack of time. I am a bit short of time at the moment, but the real reason is thatit’s so dispiriting; the general miasma of Globollocks overwhelms any specific instance. Check out today’s example. Friedman believes that it would be a danger to the USA on a par with global terrorism if someone in India working for a US-owned firm were to invent something useful. Think I’m joking? Read the bugger. He actually uses the phrase “war for innovation”. Apparently the USA isn’t bringing through enough research scientists. What’s the solution? Presumably the rush to global competition of the free market. Nope, sorry, wrong, the solution is massive amounts of government money. In the Airmiles world, agricultural subsidies are terrible, awful...

*Sigh*. Yet another thing I need to read: Brink Lindsey on outsourcing: http://www.freetrade.org/pubs/briefs/tbp-019.pdf I am confident, however, that I will like it--when it rises to the top of the pile....

Aha! Welcome to NAFTALAW.ORG (a.k.a. NAFTACLAIMS.COM), a web site where you can obtain some information about NAFTA investor-state dispute settlement; obtain copies of recent NAFTA Claim documents; and contact someone to learn more about bringing a NAFTA investor-state claim. My name is Todd Weiler.  I am an attorney, called to the Bar of Ontario, who has been involved as counsel on a number of the earliest NAFTA claims.  I remain involved as expert counsel in ongoing claims against all three NAFTA Parties.   I am retained both by lawyers to assist them in representing their clients, and by individuals who require my assistance in putting their legal teams together....

A very strange article in the New York Times by Adam Liptak this morning. The fact pattern appears to be as follows: Prominent Mississippi family sues prominent Canadian family in contract dispute: Nafta Tribunals Stir U.S. Worries: The Mississippi case arose from an exchange of companies between a Canadian concern, the Loewen Group, and companies owned by a Mississippi family, the O'Keefes. The O'Keefe family, contending that the Loewen Group did not live up to its obligations, sued for breach of contract and fraud. The Mississippi courts take a serious dive and put their whole body on the scale on the side of the O'Keefes: "The whole trial and its resultant verdict... were clearly improper and discreditable and cannot be squared with minimum standards of international law and equitable treatment." Although the tribunal found that the businesses were worth no more than $8 million, a jury in Jackson, Miss., awarded the family $500 million in 1995. Loewen settled the case the next year, for $175 million.... [T]he [NAFTA] tribunal called the Mississippi trial "a disgrace" and "the antithesis of due process" .... [T]he tribunal had faulted Judge James E. Graves Jr. of Circuit Court in Jackson for allowing lawyers for...

The Euro at Five (Note: not open because of Fed security concerns. See BRIE for invitations.) Tuesday, April 27th 2004 8.30 am - 1.30 pm at the Federal Reserve Bank of San Francisco 101 Market Street San Francisco, CA 94105Continental Breakfast 8.30WELCOME AND INTRODUCTION: George Scalise, Chairman, Federal Reserve Bank of San Francisco"The Euro as an Economic Instrument to Political Ends": Stephen Cohen, Professor & Co-Director, BRIE, University of California, Berkeley 9.00THE EURO INSIDE EUROPEAlberto Giovannini, Juergen Kroeger, Gérard Roland, Andrew Rose, John Zysman Creating the Euro European capital markets European growth Productivity, employment, and stability Convergence and enlargement 9.15 THE EURO OUTSIDE EUROPEHervé Carré, Stephen Cohen, J. Bradford DeLong, Reuven Glick, Pierre-Olivier Gourinchas, Federico Rampini Euro as a reserve currency: risks, opportunities US/Europe economic relations The Euro/the Dollar and the Asian currencies Exchange rates 11.00LUNCH: Introduction: Robert T. Parry, President, Federal Reserve Bank of San FranciscoLuncheon Speech: "Five Years of the Euro: Past Achievements and Future Challenges": Lucas Papademos, Vice President, European Central Bank 12.15...

Andrew Rose believes that Europe's currency union--the euro--will be a really big deal indeed: Andrew Rose (2004), "A Meta-Analysis of the Effect of Common Currencies on International Trade" (Cambridge: NBER Working Paper No. w10373): Thirty-four recent studies have investigated the effect of currency union on trade, resulting in 754 point estimates of the effect. This paper is a quantitative attempt to summarize the current state of debate; meta-analysis is used to combine the disparate estimates. The chief findings are that: a) the hypothesis that there is no effect of currency union on trade can be rejected at standard significance levels; b) the combined estimate implies that a bilateral currency union increase trade by between 30% and 90%; and c) the estimates are heterogeneous and not consistently tied to most features of the studies. What are the real GDP and real wealth effects of increasing intra-European trade by between 30% and 90%?...

Of all the surprising things to have happened on this weblog, the comment reaction to what I saw as an innocuous post quoting Jared Bernstein on outsourcing was the most surprising. The assertion that outsourcing was more benign if it put downward pressure on the incomes of the yuppie rich than if it put downward pressure on the incomes of the working class drew the most fire.But I think I'm right. And here's why: A Finger Exercise:Let's try a finger exercise to evaluate the effects of expanded international trade via "outsourcing" on an economy. We'll set up a simple model--not a realistic model, an unrealistic model, a model that has only the features we absolutely need to understand the principal impacts of expanded trade on an economy.Begin with the assumption that the economy has two kinds of people in it--workers and yuppies. Workers make things, or transport things, or provide services like gardening of hairdressing. All workers are alike, and let's assume that each of them earns a fixed amount of 40,000 thalers a year. Yuppies are doctors, investment advisors, lawyers, moviemakers, et cetera. The population is made up of 75% workers and 25% yuppies.Both workers and yuppies spend half...

In response to me evangel, Tyler Cowen throws down the gauntlet: Marginal Revolution: Brad DeLong tries to convert me: Finally, I'll offer Brad a deal. I will refuse to vote for the Presidential candidate he specifies (guess who that might be), if he will write in his blog, with no subsequent irony or repudiation the following: "The classical liberal recipe of increased immigration is superior to strengthening the welfare state. I just don't think it will or can happen, so I will advocate the next best thing." As a pure freebie, I will in advance volunteer the concession that most tax systems should be mildly progressive rather than flat or regressive. I can deal with the no irony or repudiation part, but there do have to be three clarifying footnotes: Footnote 1: As Robert Waldmann has pointed out, you can't be an economist without asking "how much?" How much immigration does an extra unit of social insurance crowd out? Marginal rates of transformation matter. If the answer is "almost zero," the implications for public policy are very different from what they are if the answer is "a lot." This is an empirical question on which there is some (but...

Tyler Cowen attempts to explain why he thinks that he is not a liberal: The Volokh Conspiracy: I can think of a few reasons why I am not a liberal, but here is arguably the most fundamental.... Immigration is a better anti-poverty program than is welfare spending. At the relevant margins, I would rather devote public sector resources to coping with additional immigrants rather than funding more domestic transfers. Unlike many libertarians, I don't believe that we can do without welfare spending. Welfare, at the very least, contributes to political stability. So we need some welfare spending to keep the gears of capitalism in motion. That being said, I don't see the egalitarian case for increasing welfare spending above this basic level. People in other countries are much needier. Furthermore immigration is the best anti-poverty institution we have. A rural Mexican earns $1 a day; in Houston he earns $10 an hour (admittedly his rent goes up too). The next generation does even better, and legal immigrants do better yet. How many government programs bring that much value added? To draw another contrast with (some) libertarians, I don't believe that additional immigration is necessarily a win-win game at all margins....

Stephen Cohen and I have a first rough cut on what we think about outsourcing... Our Outsourced FutureStephen S. Cohen and J. Bradford DeLong Draft 1.3 Politically, today's fears about job losses and international trade got their start last summer; they will heat up during the campaign and cool off in a year or so. Economically, they are just starting, and are likely to develop over the next years into serious questions of economic theory and policy. In 2001, 2002, and 2003 the Bush administration used concerns about recession and stagnant employment to fuel its successful effort to pass tax cuts that did little to cure the recession or stimulate employment. The big and, critically, permanent tax cuts for the $300,000+ a year crowd, the cut in dividend taxes--these were things that powerful factions within the Bush administration wanted but that would do next to nothing to cure a sick macroeconomy. The Bush administration placed a bet. It believed that it was very likely that the labor market would strengthen and employment would grow on its own. So why bother with a real employment stimulus package? They gambled, and the rest of us--America--lost.So come the summer of 2003 the Bush...

The Wall Street Journal's David Wessel has a very nice article about outsourcing this morning: WSJ.com - The Future of Jobs: New Ones Arise, Wage Gap Widens: ...two different kinds of jobs are likely to flourish amid outsourcing and computerization. One sort requires physical contact -- nursing-home aides, janitors, gardeners, dentists. Foreign-born workers may do them, but they'll have to move to the U.S. A 2000 survey found that the average starting salary of graduates of community-college dental-hygiene programs was $41,900. A hot program at many community colleges these days is massage therapy. Springfield Technical Community College in western Massachusetts gets nearly 50 applications each year for the 20 slots in its six-year-old program, nearly all of them from women. Graduates earn an associate's degree and haven't had any trouble finding work, says Bernadette Della Bitta Nicholson, who runs the program. About a third go to work for local spas, which give therapists half of the $80-an-hour charge for a massage. Another third find work at local health-care facilities and the remainder go into business for themselves. The other sort of jobs destined to remain here are high-end jobs. Some require exchanging information in ways that e-mail and teleconferencing don't...

Jared Bernstein has a good and thought-provoking piece on "Outsourcing," from The American Prospect: ... The topic was the role of education in a "knowledge economy." Greenspan's testimony offered eloquent, if conventional, wisdom leading to this punch line: "As history clearly shows, our economy is best served by full and vigorous engagement in the global economy. Consequently, we need to increase our efforts to ensure that as many of our citizens as possible have the opportunity to capture the benefits that flow from that engagement… one critical element in creating that opportunity is the provision of rigorous education and ongoing training to all members of our society." True. Education is surely critical. It's just not the only policy solution to our short- and long-term challenges -- and sometimes not even a particularly useful one. First, the collapse of job creation in this recovery cannot plausibly be blamed on the supposed educational or skills shortcomings of our workforce. The problem isn't the lack of skilled workers; it's the lack of jobs. Don't blame the supply side for the failure of the demand side. Our most highly educated workers are having a historically tough time in the current job market. In fact,...

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...

Daniel Drezner writes about outsourcing for Foreign Affairs: Foreign Affairs: ...Should Americans be concerned about the economic effects of outsourcing? Not particularly. Most of the numbers thrown around are vague, overhyped estimates. What hard data exist suggest that gross job losses due to offshore outsourcing have been minimal when compared to the size of the entire U.S. economy. The outsourcing phenomenon has shown that globalization can affect white-collar professions, heretofore immune to foreign competition, in the same way that it has affected manufacturing jobs for years. But Mankiw's statements on outsourcing are absolutely correct; the law of comparative advantage does not stop working just because 401(k) plans are involved. The creation of new jobs overseas will eventually lead to more jobs and higher incomes in the United States. Because the economy -- and especially job growth -- is sluggish at the moment, commentators are attempting to draw a connection between offshore outsourcing and high unemployment. But believing that offshore outsourcing causes unemployment is the economic equivalent of believing that the sun revolves around the earth: intuitively compelling but clearly wrong. Should Americans be concerned about the political backlash to outsourcing? Absolutely. Anecdotes of workers affected by outsourcing are politically powerful,...

In an extraordinary lapse of judgment, the Wall Street Journal's news pages pretend that we do not know whether the end of textile export quotas will put upward or downward pressure on garment prices in the U.S.: WSJ.com - Apparel's Loose Thread: With End of Trade Quotas, Will Clothes Cost More, Less? One Safe Bet: China Will Gain: ...Mr. Yau, a middleman who buys clothes directly for Retail Brand Alliance Inc.'s Casual Corner and Brooks Brothers stores, among other company brands, believes some of the merchandise he buys will be cheaper next year. That's when decades-old quotas governing the world garment trade are set to expire. Others, though say prices consumers pay for clothes may not fall, and even could rise temporarily. Either way, the removal of the quota system is likely to reverberate across the garment industry world-wide for some time to come, causing big shifts in how multinational clothing companies do business and sell clothes to shoppers.... The quota system was created in the 1960s by developed countries including the U.S. and those in the European Union to protect their own textile manufacturers from cheap foreign competitors. In the U.S., the government sets strict limits on the...

What I want to figure out some way of convincingly saying in my interventions into the current political debate is this: "It's not offshoring that's responsible for our current lousy labor market performance, it's (i) primarily that the economy was hit by big shocks and (ii) that the Federal Reserve ran out of running room, and (iii) secondarily that the Bush administration kept pretending that dividend tax cuts and other favors to the $300,000+ a year crowd were jobs-creating programs."...

Fred Bergsten writes a very good how-to manual for the Treasury Secretary and the Under Secretary of the Treasury for International Affairs.One of the many, many things that the Clown Show that is the current administration appears incapable of learning is that our soft power is a great deal harder and more powerful than our hard power. If China is a partner rather than an adversary in fifty years, it will not be because of the 82nd Airborne Division, it will be because the economic, social, and cultural links between the U.S. and China are so strong that its politics will have reshaped themselves to some degree in our image and its people will see how much they have to gain from peace and how much we all have to lose from confrontation.But the current administration cannot grasp an idea that Fred Bergsten grasps very well: that it was George Marshall's economic aid plan, and not John Pershing's or Dwight Eisenhower's armies, that made and keeps western European countries our allies and partners. They see trade as a source of weakness: as a way of creating potentially traitorous interest groups inside the U.S. that will block attempts to "get tough."And...

Ed Hugh of Bonobo Land directs us to Blame India Watch....

How Strong a Supporter of International Capital Mobility Can I Still Be? J. Bradford DeLong U.C. BerkeleyFebruary 27, 2004; draft 2.0; 1843 wordsFifteen years ago, I at least found that was easy to be in favor of international capital mobility. It was easy to preach for an end to the systems of controls on capital that hindered the flow of investment financing from one country to another. Capital controls created large-scale opportunities for corruption. Whoever got the scarce permissions to borrow abroad had a good chance of becoming rich, and somehow those who got the scarce permissions to borrow abroad often turned out to be married to the niece of the vice-minister of finance. A highly corrupt society is one in which tax rates are idiosyncratically and randomly high, and cannot be a productive society. Eliminating capital controls seemed likely to be a great help in the general anti-corruption drive.Capital controls kept the level of investment in peripheral developing countries down. This seemed to be a very bad thing. Higher investment boosts the capital stock and so directly raises labor productivity and wages. It also acts as a carrier for those important parts of technological advance that are embodied in...

Paul Krugman writes that if there are "effective job creation measures and a strong domestic social safety net" then even a union-funded Democrat can be for free trade. Conversely, an administration that focuses on tax cuts for the rich and thinks that the poor are poor for a reason will find itself under heavy pressure to impose voluntary export restraints on other countries and hike tariffs: "there's a reason why the two U.S. presidents who did the most to promote growth in world trade were Franklin Roosevelt and Harry Truman, while the two most protectionist presidents of the last 70 years have been Ronald Reagan and, yes, George W. Bush." But I can and do blame Democratic politicians for not resisting temptation: every day that Americans are told that trade destroys jobs--rather than that it shifts jobs from one industry to another, hopefully from lower-paying to higher-paying--is a day that makes it harder to pursue good policies to enrich America. Blame Bush for failing to take out the obvious insurance against a slack job market--for pursuing tax cuts for the upper class rather than fiscal policies that would provide an effective stimulus to demand and employment. But don't you dare...

Virginia Postrel channels my former student Kris Mitchener on income convergence within the United States. I wish he (and she) had been a little more explicit about linkages: The fact that the south has caught up to the rest of the country is part of the reason that the north has grown. Rich customers and productive suppliers are (usually) a benefit and not a hindrance to prosperity. Economic Scene: U.S. Is a Case Study in Free Trade: "In 1880 the United States was poised to overtake Britain as the most efficient industrial economy and become the century-long benchmark against which all other economies' productivity performance would be compared. Yet in that year, labor productivity in the least productive state (North Carolina) was a mere 18 percent of the most productive (Nevada)," wrote Professor Mitchener and Professor McLean of the University of Adelaide in Australia in a more recent study in The Journal of Economic Growth. That extraordinary difference cannot be attributed to Nevada's mining efficiency alone. North Carolina's productivity was only about 24 percent of California's or New York's. These gaps are comparable to the difference between the United States and Thailand or Morocco today.Today, North Carolina is still poorer...

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: 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. 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...

David Pink of Wired has a truly excellent article on the Indian software industry: Wired 12.02: The New Face of the Silicon Age: ...Now meet the cause of all this fear and loathing: Aparna Jairam of Mumbai. She's 33 years old. Her long black hair is clasped with a barrette. Her dark eyes are deep-set and unusually calm. She has the air of the smartest girl in class - not the one always raising her hand and shouting out answers, but the one who sits in back, taking it all in and responding only when called upon, yet delivering answers that make the whole class turn around and listen. In 1992, Jairam graduated from India's University of Pune with a degree in engineering. She has since worked in a variety of jobs in the software industry and is now a project manager at Hexaware Technologies in Mumbai, the city formerly known as Bombay. Jairam specializes in embedded systems software for handheld devices. She leaves her two children with a babysitter each morning, commutes an hour to the office, and spends her days attending meetings, perfecting her team's code, and emailing her main client, a utility company in the western US....

From Friday's Wall Street Journal: Bush Plays Down Outsourcing Praise By JACKIE CALMES Staff Reporter of THE WALL STREET JOURNAL: BUSH SEEKS distance from his economist's praise for outsourcing jobs.: At an economic forum in Harrisburg, Pa., Thursday, he complains, "There are still some people looking for work because jobs have gone overseas, and we need to act in this country." Still, Democrats keep up attacks on Mankiw's remarks that sending service jobs overseas is "a plus" over time for the economy. As I said, it's to Greg Mankiw's credit that he's out front on free trade given how "wet" George W. Bush, Richard Cheney, and the rest of the administration are on the issue....

Ever have one of those days when you think that everybody is laughing at you? And then the phone start ringing, and you realize that everybody is laughing at you? Today is one of those days. For the record: I want it known that I gave Bob Davis of the Wall Street Journal a much better quote than the one he used in his February 12 story. The better quote is: "I think Greg [Mankiw] deserves a lot of credit for being so aggressive in his advocacy of free trade given how 'wet' this administration is on free trade." Well, at least it's on page A-4 rather than page A-1....

The Wall Street Journal's Bob Davis spends the day on the phone, rounding up Democratic economists willing to say that Greg Mankiw is correct when he says that "outsourcing" is, for America as a whole, more of an opportunity than a threat (even though it looks like Greg could use some of the lessons about talking to reporters that were beaten into me by people like Jack DeVore and Gene Sperling). Who does he succeed in rounding up? Former CEA Chair Janet Yellen... former CEA Chair and NEC Head Laura D'Andrea Tyson... former Labor Secretary Bob Reich (I think Reich hits the exact right note when he criticizes the Bush administration for failing to make "a serious attempt to deal with the profound structural problems of an economy in transition as it affects middle-class jobs"; working-class jobs too; it is certainly true that the Bush administration is much more concerned with the problems of CEOs suffering under SEC overreach than it is with the problems of regular people who have lost their jobs)... and former Treasury lowly worm-analyst Brad DeLong. Very nice company to be in. However: note to self: be less colorful when talking to Wall Street Journal reporters!...

I'm sorry. I can't let this pass. You ask any of the recent Chairs of the Council of Economic Advisers--Mankiw, Hubbard, Baily, Yellen, Stiglitz, Tyson, Boskin, Feldstein, Weidenbau, Schultze, Greenspan--of either party, and they will say that politicians who link trade and jobs and reporters who enable them do America no good service at all. Increasing trade does not create or destroy jobs in aggregate. The level of employment in the United States is determined by how good a job the Federal Reserve does in offsetting shocks to domestic demand, in setting monetary policy to hit the sweet spot where there is neither high unemployment nor rising inflation (with a secondary assist or hobbling by fiscal policy). What trade does is to shift jobs, shift the composition of American employment: people in import-competing industries lose jobs, while people in export industries (or, with the capital inflow, construction and investment goods industries) gain jobs. Economists have lots of good reasons for believing that the jobs gained are better jobs than the jobs lost, and that there are more and bigger winners from expanded international trade than there are losers. But does thePost note that Greg Mankiw is simply saying what every...

Virginia Postrel appeals to us to spread the word about Catherine Mann's IIE high-tech outsourcing study and to make Charles Schumer pay a healthy political price for his protectionist rantings in alliance with Paul "Slaves were happy! Really happy! Much happier than those of us who have to fill out our Schedule Cs!" Craig Roberts. Gladly. Catherine Mann does very good work. And Charles Schumer does need to be whapped on the nose for three reasons: first, for advocating protectionist policies to slow the growth of the American economy without having any positive effect on distribution; second, for advocating policies to slow the growth of China and India, because fifty years from now I want my grandchildren to live in a world in which Indian and Chinese schools teach that Americans did all they could to help the world develop, and not that Americans did all they could to keep the world poor and barefoot as long as possible; and, third, for making a political alliance with a racist wacko who not only doesn't want an administration that looks like America, but doesn't want an America that looks like America. But how does one put the fear of God...

Jeff Faux of the Economic Policy Institute asks some questions about the Clinton administration's understanding of what the effects of NAFTA would be: Jeff: Clinton's mantra [on NAFTA] was "jobs-jobs-jobs." But I have always doubted that the... [administration] economists... believed that NAFTA was going to be an important job stimulus to the US economy. Me: I think we in the Clinton administration did produce a small "200,000 net jobs" number--or I have the memory that Sherman Robinson and I did, although I forget whether it ever got approved at higher levels. The argument was that NAFTA would lead to a somewhat stronger peso as foreign capital became more willing to invest in Mexico in response, and that as a result the with-NAFTA scenario had more U.S. net exports and a short-run Keynesian boost to employment of 200,000 or so relative to the no-NAFTA scenario. The argument was then hedged with the qualifiers that (a) NAFTA had to actually work as a device generating an inflow of capital to Mexico, and (b) that this was a short-run immediate post-recession gain only: that in the long run the level of employment is set by the Federal Reserve in the Eccles Building, and...

The Economist on NAFTA after ten years: Ten years of NAFTA: Free trade on trial The North American Free-Trade Agreement is ten years old this week. It has proved a success, though not in the way its advocates promised Get article backgroundFROM the start, the North American Free-Trade Agreement was bitterly controversial in all three of the countries taking part—the United States, Canada and Mexico. Its terms, which went into effect on January 1st 1994, were argued over line by line: despite its name, the agreement fell far short of scrapping all trade restrictions, and the fine print of the various exemptions and exclusions gave rise to heated argument. More than this, the agreement was attacked as bad in principle. Everybody recognised that NAFTA was an extraordinarily bold attempt to accelerate economic integration—or, as critics put it, an experiment in reckless globalisation. As such, they said, it would destroy jobs, make the poor worse off and start an environmental race to the bottom. Equally, advocates of the agreement made some bold claims about the good it would bring. Far from destroying jobs, it would create lots of new and better ones; incomes would rise and the poor would benefit proportionately;...