Here is another thing that makes me want to bang my head against the wall:
Economic Snapshots | EPI: Surging China imports devastate U.S. industries: Trade deficits usually shrink during an economic downturn, but China's unfair trade practices have caused the U.S.-China deficit to soar despite the U.S. recession of the past two years. Between 1989 and 2001, though U.S. exports to China more than tripled, imports from China increased eightfold, causing a whopping twelvefold surge in the U.S-China trade deficit. So far this year (through September, the latest month for which data are available), the deficit has continued to grow and is projected to reach $100 billion, an all-time record.
The U.S.-China trade relationship is of growing importance to overall U.S. trade. Exports to China grew from 1.6 percent of total exports in 1989 to 2.6 percent in 2001. Imports from China now comprise 9 percent of all U.S. imports, up from 2.5 percent in 1989. China alone now accounts for more than one-fifth of the total U.S. trade deficit.
Contrary to promises by business and government leaders that increased trade would benefit workers on both sides of the Pacific, the opposite is actually occurring. China's export industries are associated with gross violations of human rights, including forced labor, and even while China's economy is growing and becoming more productive, minimum wages are stagnant or decreasing in major manufacturing centers. Meanwhile, in the U.S., growing trade deficits are resulting in closed factories and lost jobs in every industry and state. Between 1992 and 1999, growing U.S. trade deficits with China eliminated more than 683,000 jobs in the U.S. economy; EPI economists forecast the loss of an additional 872,000 U.S. jobs due to surging trade deficits with China by 2010.
Do the people who write this even pretend to believe this dreck?
I mean, if trade deficits "lost" jobs in import-competing industries, doesn't foreigners investment in America--creating demand for products made by investment-goods industries--"gain" jobs? Isn't the net impact on employment determined by the effect of international trade and investment flows on aggregate demand? And isn't its effect on aggregate demand very small unless you make the bizarre and untenable assumption that the Federal Reserve is a potted plant?
Do they really want to claim that all of the $100 billion paid by Americans to buy Chinese-manufactured goods goes straight into the pockets of the plutocrats of the Chinese Communist Party? That none of it leaks out and raises urban Chinese median standards of living?
Do they really want to claim that U.S. workers real earnings aren't boosted by their ability to benefit from China's comparative advantage in light manufacturing--that their families aren't better off because of their increased ability to buy Chinese-made goods whenever they decide that such goods give more value for money?
Things like this from the Economic Policy Institute that dive below the Lori Wallach level of intellectual respectability on trade issues are extremely distressing. I like the Economic Policy Institute's State of Working America series very much. But with things like this floating around I can't refer people to EPI works in general without doing a careful case-by-case vetting--I can't say "they are generally reliable."
However, I don't have time to do a case-by-case vetting.
Posted by DeLong at November 26, 2002 10:55 AM | TrackbackI don't get it; their domestic stuff is bang-on. Are there competing factions at EPI?
Posted by: Jason McCullough on November 26, 2002 11:56 AMThere is a need to carefully and patiently explain why jobs that "appear" to be lost because of trade are made up by jobs created in other venues. If I am a Carolina textile worker and my plant is closed in favor of a plant in Vietnam or China, where will there be a job for me? Am I entitled to be worried? Even if I know the economy as a whole is better off with freer trade, what is to become of me if my plant closes?
When complaining about articles that distort the economic impacts of freer trade, the plight of workers who are immediately effected must be respected.
Imagine working in a Carolina plant for 20 years, in a town dominated by the plant, and then the plant is gone.
Posted by: on November 26, 2002 12:31 PMOK it sounds like the EPI is going off the deep end, but methinks economists would beat their breasts a little less on this subject if international trade sometimes put them out of a job. When you're a worker in what was the only factory in town, delocalized to China, you're probably not so grateful that the Chineses middle-class is growing or that some other Americans can buy cheaper toys. Which is to say, not every wins with international trade; there are losers.
Maybe total GDP does go up, but GDP is not the only measure of well-being. One good thing that certainly goes down is dispersion, and one bad thing which goes up is risk. Take two countries, both of which have farmers and widget-makers. Suppose country A is better at farming, and B is better at making widgets. They begin to trade, and voila A only has farmers and B only makes widgets. GDP goes up, but now you have a greater risk with disruptions which are correlated geographically. E.g. if an insect pest gets loose in country A, the entire world loses its food supply. Or if there's in earthquake in B, there are no more widgets.
And finally, while over-all GDP goes up, it's possible (I don't know one way or another) that in the US the increase is basically being pocketed by the wealthiest, and the less-well-off are not getting the same benefit.
Posted by: Andrew Boucher on November 26, 2002 12:35 PMI find that most non-economists have a distinct mercantilist edge to them. It seems the EPI writer has the same thing going on.
One way this manifests is that it's fairly easy for someone to see that "exports creates jobs". Instinctive mercantilism doesn't make the leap to "trade creates jobs", it's more narrow than that -- exports(!) create jobs.
So the net exports balance then becomes a metric of job creation, with the sign of one denoting the sign of the other -- so that a negative trade balance must mean jobs are being lost, right? Well of course not, in net terms (although as previous commenters here notes, some jobs may well be lost).
So these days when I try to explain this simply, I don't talk about exports creating jobs. I talk about how trading with another country costs jobs in the same way that someone at home building a better mousetrap costs jobs. People in the "old mousetrap" industry will find life harder going. But you'd still, on balance, want the new mousetraps.
Posted by: Michael Harris on November 26, 2002 12:56 PMAndrew Boucher makes important points.
Why is it such a simple matter to forget about trade displaced workers? Individual workers, who need to be considered as much as workers in general. Of course, freer trade is most important. But, Mexican factories are closing now as companies move manufacturing to China. Where is the cushion for these Mexican workers who once were helped as companies moved from the United States?
Mexico will benefit from more trade with China, as will the United States, but what of the rigidities in the labor market can make for lasting unemployment? Please do discuss this issue.
There is a related article in the NYTimes today.
http://www.nytimes.com/2002/11/26/national/26WREA.html
Posted by: on November 26, 2002 01:20 PM"If I am a Carolina textile worker and my plant is closed in favor of a plant in Vietnam or China, where will there be a job for me? Am I entitled to be worried? Even if I know the economy as a whole is better off with freer trade, what is to become of me if my plant closes?"
There are no easy answers to your justified concerns. The gods of creative destruction are brutally harsh deities. The proverbial Carolina textile worker is often royally screwed. Every time the overall economy is improved---some people are forced to pay a severe price. There are never any exceptions.
Posted by: David Thomson on November 26, 2002 01:20 PMI'm awaiting Brad's response to the points raised here. There are 3 points where he doesn't buy into EPI's views: the effects on Chinese workers; the effects on American workers; the benefits to American consumers.
First off, what evidence is there that Chinese workers are reaping benefits? The standard retort is that they must be leaving the farms for a reason. Well, the devastated Chinese rural situation aside, there's a problem with that idea: urban factory workers in a non-union situation have not, traditionally, been better off than their rural brethren; more cash, less health (physical & mental), and it's a wash (do you know of 18 year olds who make decisions based on long-term health, not short term cash? Then don't pretend that 18 year olds in China are making well-considered, rational long-term decisions.). The vague claim that not all the money is going to plutocrats is dubious, at best. American factory workers saw little income increase in the pre-union era; American plutocrats did rather better. Indeed, if you eliminate Progressive-era gov't regs (which China, conveniently, has), then worker conditions fundamentally stagnated from 1892 to 1932. In the US, at least, workers could vote for politicians who might advance their cause; good luck in PRC.
Second, a unionized American worker who loses his job loses, in addition to conveniently uncalculated costs associated with social displacement in family and community, both wages and benefits. How many Americans have no health insurance? What is the effect of that on gov't policy, tax rates, and the nat'l debt? We _all_ pay for the uninsured, just as we _all_ pay for union wages & benefits; no free lunches. And how does saving a dime on a T-shirt compensate for a loss of income in the order of $25,000 per year? Better yet, how does the guy who keeps his job, but at the cost of, say, health benefits and $5,000 per year, do? Because the loss of a few thousand union jobs depresses the wages of every other worker in comparable industries. And cheaper geegaws at Walmart don't make up that difference (that's point 3).
Whenever these issues come up, Brad (whom I respect greatly) waxes rhapsodic about the cheaper food and consumer goods, and what that does for the poor. But if you go into almost any home in a poor neighborhood, you won't see a shortage of consumer goods or an empty pantry; you will see people working dead-end jobs with low wages and no benefits. And no sale at Walmart is going to make those people middle class.
I do want to make clear: I am not opposed to trade, I am not protectionist; but "Free Trade" advocates love to broad-brush over these issues, and pretend that the benefits of eliminating safe, secure jobs here in favor of unsafe, transient jobs over there tend chiefly to the workers. And it just ain't so.
Posted by: JRoth on November 26, 2002 01:29 PM“But, Mexican factories are closing now as companies move manufacturing to China. Where is the cushion for these Mexican workers who once were helped as companies moved from the United States?
Mexico will benefit from more trade with China, as will the United States, but what of the rigidities in the labor market can make for lasting unemployment? Please do discuss this issue.”
There is no such thing as eternal job security. No one is exempt from this cold cruel fact of life. Thus, It is of paramount importance to educate the workers. To be more precise, these folks must realize that education, formally or informally, must be a never ending lifelong pursuit. They must be prepared to handle the responsibilities of whatever new job that comes along. Ultimately, a well educated work force should be able to write its own ticket.
Also, Mexico has a greater problem than many other areas of the world. Its males are mostly contemptuous toward education and believe that only sissies read books. Real men should supposedly be macho and stupid. This deleterious mindset must be replaced if Mexico’s economy is to dramatically improve.
Posted by: David Thomson on November 26, 2002 01:40 PMThere is a fair retort to the question "what about those workers are employed behind tariff/quota-protected industries, but would be unemployed in a free-trade situation?"
Since that trade doesn't have much aggregate impact on unemployment, one could just as easily ask "What about those workers who are now unemployed, in industries that are not tariff/quota protected, but would be employed if there were no such tariffs/quotas."
I see no reason why considerations of social justice should prefer a mixed result (some unemployed, some employed) that is the status quo over a mixed result (some unemployed, some employed) that would be a change. Of course, perhaps it's harder, emotionally, to keep things as they are then to make one person's life worse and another person's life better, but I don't see why one is morally better other than that the status quo is more comfortable.
Since both have problems, and screw certain people over (not that we should try to make sure people get screwed over as little as possible), it's more sensible to choose the more efficient one (free trade, that is).
Julian Elson
Posted by: Julian Elson on November 26, 2002 02:02 PMErgg... when I said "harder," I meant "easier.
Posted by: Julian Elson on November 26, 2002 02:04 PMOh-oh, if you planned to drop by the DeLong's tonight I'd postpone, Brad's going to be in a bitter mood. Somebody has again gone and rubbished his beloved free-trade views. Lots of furniture kicking and door slamming predicted.
Ok, so I'm a know-it-all computer geek of which there are too many of us floating around the blogs, but the phrase "products made by investment-goods industries" made me blow Diet Coke out my nose onto my flat-screen. Would those "products" include the $500 title search that I had to pay when I bought my house from the man who had built it on property homesteaded by his grandparents, or the mortgage insurance (annual payout- 6% of premiums) that I had to pay just in case the title search was bad, or the SECOND title search I had to pay for when I remortgaged like something might actually have changed... I could go on. Some real "growing the pie higher" going on in the US financial industry, for sure.
And you guys get a little too comfortable with comparative advantage. Let me add to Andrew Boucher's model the possibility that, if country B is much richer than country A, it could unthinkingly buy up all of country A's fall harvest. Then what? Mother Nature will still insist on shutting down production, leftist wacko that she is.
Not only will those people starve, but that won't even be the worst of it: they'll have to read a David Thomson post excoriating them for their moral weakness.
'I do want to make clear: I am not opposed to trade, I am not protectionist; but "Free Trade" advocates love to broad-brush over these issues, and pretend that the benefits of eliminating safe, secure jobs here in favor of unsafe, transient jobs over there tend chiefly to the workers. And it just ain't so.'
Are Chinese GDP or median wages going down?
Posted by: Jason McCullough on November 26, 2002 02:30 PMLet's start with the reality that the Carolina textile mill did not magically appear there. It put New England mill towns out of business and left lots of unemployed people in those areas. 90% of the objections to international free trade apply in spades to interregional free trade--the dynamism of the economy generates losers who face sometimes huge adjustment costs. Interregional free trade led to a huge concentration of industry around the Great Lakes, reducing geographical dispersion and putting the manufacturing base at risk of a giant glacier or a small asteroid hit. And so on for the other complaints raised above. If we think that these arguments should sway policy vis a vis China trade, then we ought to have domestic protectionism and eliminate the growth and adaptation of the domestic economy.
Second reality point: The material well-being of the Chinese population appears, by both statistics and the observations of travellers, to have increased immensely since the advent of quasi-market institutions and the beginnings of competitive exports. Maybe the workers could do even better if they got Robert laFolette Chang or Franklin Roosevelt Chou to put in new policies (my reading of history differs from some of the posters on this thread), but that doesn't mean that the average worker in China isn't way better off thanks to exploiting international comparative advantage.
Third point: It amazes me how people take for granted the real effects on standard of living of falling costs of basic goods. Trust me--the biggest beneficiaries of cheap, high-quality apparel are not the yuppies (although cheaper Chinese silk is a great boon) but rather the working class and poor who can shop at Wal*Mart and its rivals. The people who pooh-pooh the importance of cheap clothing and food and home furnishings and consumer electronics strike me as Puritans rather than populists, in the sense that they devalue the importance of life as a consumer compared to life as a producer.
Of course, Brad's general point that trade creates as well as destroys jobs goes without refutation by the complainers, because it is indubitable. But the point is not job creation--we could immediately create lots of jobs by banning electricity--it is the overall standard of living.
Posted by: steven postrel on November 26, 2002 02:36 PM“Not only will those people starve, but that won't even be the worst of it: they'll have to read a David Thomson post excoriating them for their moral weakness.”
Moral weakness often has nothing to do with anything. Some people are simply in the wrong place at the wrong time. The proverbial employed textile may have done nothing wrong. Alas, the dogma of creative destruction doesn’t cut anyone slack. I’m sure, for instance, that the highly trained saddle makers who lost their jobs due to the newly arrived auto industry probably possessed a fantastic work ethic. This also holds true for the secretaries who disappeared when their bosses starting sending their own messages via e-mail.
>> Are Chinese GDP or median wages going down?
Chinese GDP is officially growing at about 7 percent per year, but there are so many problems with the national accounting system that no-one is confident in the figure.
Zhu Rongji appears convinced that China needs ten more years of over seven percent growth to stave off the collapse of China's debt-ridden banking sector. So the safe money is on the official figures not dropping much.
The question "Do they really want to claim that U.S. workers real earnings aren't boosted by their ability to benefit from China's comparative advantage in light manufacturing--that their families aren't better off because of their increased ability to buy Chinese-made goods whenever they decide that such goods give more value for money?", while meaningful, is not actually connected to the proposition that "jobs are being lost", let alone to whether that is good or bad for the groups who might be affected. You need to address the latter proposition separately, because improvements of WORKERS' situations would happen even - perhaps especially - if jobs were lost; that even happened in the Great Depression. People who lose jobs move out of the statistical base and aren't workers any more. Looking at the benefits that flow through to workers because they can afford more and more cheaply, doesn't tell you anything about (hypothetical) groups who see lower prices but have proportionately even fewer resources than they used to. After all, you can easily improve average health by increasing death rates.
Posted by: P.M.Lawrence on November 26, 2002 05:01 PM"Looking at the benefits that flow through to workers because they can afford more and more cheaply, doesn't tell you anything about (hypothetical) groups who see lower prices but have proportionately even fewer resources than they used to."
It’s obvious that somebody hasn’t been paying attention. His point has already been addressed a number of times on this discussion board. Economic improvements of any sort inevitably hurt some people. This is the price tag that has to be paid. The gods of creative destruction must be appeased.
"It’s obvious that somebody hasn’t been paying attention. ... Economic improvements of any sort inevitably hurt some people. This is the price tag that has to be paid. The gods of creative destruction must be appeased. "
This is simply not true.(And as the writer acknowledges intorduces an element of theology). Economics has produced an idea called the Pareto optimum that states for any public policy benefit that benefits one person but hurts no one then do it. A corrolary has been that if a small group of people are seriously hurt by a policy and there are benefits to the whole transfer some of those benefits to those who are hurt. This has been used in the past to adjust for trade related unemployment. For example provide extended unemployment , health and educational benefits to displaced workers. I have no problem with letting comparative advantage work. But what is actually happening in this discussion is the confusion between comparative advantage and competitive advantage. The two are not necessarilly the same. If you can force people to work without wages (slavery) then you can have a competitive advantage over those who are "forced" to pay wages. Some things that are now going on as part of a broader free trade regime go beyond the standard working of the market. There is a rise in the use of prison and child labor, and even outright slavery. Let me add that low wages do not generally constitute evidnce of comparative advantage. In fact comparative advantage should lead to an overall rise in incomes and wages.
“Economics has produced an idea called the Pareto optimum that states for any public policy benefit that benefits one person but hurts no one then do it.”
This sentence as it stands is utterly absurd. Embracing such a concept would outlaw all progress. Every policy benefit will hurt someone.
“A corrolary has been that if a small group of people are seriously hurt by a policy and there are benefits to the whole transfer some of those benefits to those who are hurt. This has been used in the past to adjust for trade related unemployment.”
These two sentences do not in any way contradict my contention that the gods of creative destruction must be appeased. We are talking about an entirely different subject when discussing how to best assist those hurt by the forces of creative destruction. Nevertheless, they have been harmed!
"There is a rise in the use of prison and child labor, and even outright slavery."
These sad issues are not in the least bit relevant to the per se dialogue concerning free trade. They are literally analogous to highlighting the threat of bank robberies if you have a banking system!
Posted by: David Thomson on November 26, 2002 06:56 PMIn fact a Pareto Optimum exists for almost all voluntary exchanges. If exchange did not benefit both parties, or at least one party, then trade would collapse. The point is that the benefits of free trade can offset the harm done through redistribution of those benefits towards those harmed.
An example of this was the Trade Readjusment Act passed in the seventies.
As far as free trade being seperate from the use of child and prison labor, or even slavery, one cannot say that a "free trade" regime based on the denial of free contract is really "free," can one?
Posted by: on November 26, 2002 08:03 PMCarolina textile workers and mose traps!!
An analogy that may be helpful. Think of what happens when a new technology (for example cars) makes an older one (buggies) obsolete. People lose their jobs. The only difference is that the new jobs remain within national borders. In both cases, consumers gain a better product (cheaper chinese imports, cars that go at 20 mph rather than buggies that move at whatever speed they do move at). If the buggy industry raises a hue and cry that the owners of the automobile factories are competing unfairly and that their products should be subject to heavy tariffs, the motive would be obvious, and would be rejected out-of-hand. The whole issue is one of psychology- not Economics. To borrow the analogy that Michael Harris uses, if the householder believes that buying a mousetrap from the market will impoverish his brother and enrich a stranger, he will pause- even if the new mousetrap is ever so much cheaper than the ones his brother makes.
Thank you, Steven Postrel. The very points that I would have wished to put across- expressed elegantly.
Posted by: Rajeev on November 26, 2002 08:20 PMAs for David Thomson's "It’s obvious that somebody hasn’t been paying attention. His point has already been addressed a number of times on this discussion board. Economic improvements of any sort inevitably hurt some people. This is the price tag that has to be paid. The gods of creative destruction must be appeased.", well it's wrong. It assumes that if the general area was addressed a number of times, the particular aspects being brought out this time are not new and not worthy of attention themselves.
For instance the "has to be paid" from that comment has been queried, but as far as I can tell only on the grounds that we don't necessarily have to take the option. It is also possible that some alternative might bypass these particular costs or provide realistic compensation - and that has not been addressed. So that's a new insight, that we can look more widely.
In my earlier comment, the main emphasis was NOT whether some people get hurt; of course that has already been addressed. The main point was whether the particular group under examination - workers - was the right group to be looking at in the first place, the right universe of discourse. And that was NOT brought out clearly in the related criticisms. Obviously not in mine either, so I'm repeating it: EVEN IF free trade gloriously, horribly, harmed all countries as a whole by throwing multitudes out of work everywhere - workers would end up better off. So looking at their improvements is no test.
It's also worth going into David Thomson's "If exchange did not benefit both parties, or at least one party, then trade would collapse. The point is that the benefits of free trade can offset the harm done through redistribution of those benefits towards those harmed.", because it's so typical of the standard responses to problems in this area.
The first part isn't necessarily so - if there are market imperfections distorting enough, e.g. if governments are leaning on people through taxes. The second part is weasel worded: it is irrelevant if "CAN offset" is true, unless "DOES offset" happens. That is, if people proceed on the grounds that they can tidy up later, on the one hand there will be casualties in the interim and on the other there is no mechanism to end that interim by making the offset happen; all you have is a carrot on the end of a stick held in front of the donkey. There is little dispute about WHETHER offsets are possible, only about the wisdom of proceeding before they are in place.
Posted by: P.M.Lawrence on November 26, 2002 09:47 PMI think you misattributed a quote by an anonymous poster to David Thomson. David Thomson would never say "Free trade increases total real income, and if that total real income is distributed in a way that is socially undesireable, then we can redistribute the gains so that everyone is at least as well off, and some better off, than in a protectionist state." He would say "We must have free trade because my deities of creative destruction must be appeased with the pain of displaced workers. Otherwise the gods will strike our economy down. (or something)"
Julian Elson
Posted by: Julian Elson on November 26, 2002 09:57 PMWell, I'm just a stupid layman, but what the hell:
When Mr. Postrel talks about the "advent of quasi-market institutions and the beginnings of competitive exports," is he referring just to the reversal of Mao's crazy policies or to recent developments? In any case, visitors to China don't normally see much of it. The vast majority of its population is living in medieval conditions and likely will be for a long time, and forgive me if I'm suspicious of China's official stats. I still haven't seen any data about the median, but I wouldn't assume that it's going up (is it going up anywhere these days?).
I was very affected by Krugman's recent "for Richer" column, and I see no reason to doubt a similar trend in a country as corrupt as China.
I don't think anybody in this discussion doubts that protectionism is counter-productive, at least for developed countries, but some of us notice that America's economic cushion is inadequate.
(yawn) good night, everybody
Posted by: David on November 27, 2002 01:02 AM"He (David Thomson) would say "We must have free trade because my deities of creative destruction must be appeased with the pain of displaced workers. Otherwise the gods will strike our economy down. (or something)""
Wow, you are starting to get the idea. The gods of creative destruction demand the price of displaced workers. There is no way of getting around it. I’m so glad that someone understands me. It’s enough to get me all sentimental and tearful.
Posted by: David Thomson on November 27, 2002 04:17 AM"For instance the "has to be paid" from that comment has been queried, but as far as I can tell only on the grounds that we don't necessarily have to take the option."
Spoken like a true follower of Ned Lud. Do we have to embrace progress? Of course we don't! This was the decision of the Islamic world some 500 years ago and that's why today they are so backward, bitter, and poverty stricken.
'It is also possible that some alternative might bypass these particular costs or provide realistic compensation - and that has not been addressed. So that's a new insight, that we can look more widely."
It's appears that someone might also believe in the tooth fairy and Santa Claus. Alas, a decent society should sometimes assist these victims of creative destruction to move onto new employment.
This, though, might be very difficult. I am reminded of the type setters who only around 30 years ago had very well paying union jobs---and today the very employment classification no longer exists. The older type setters almost certainly never found similar lucrative positions.
I”n any case, visitors to China don't normally see much of it. The vast majority of its population is living in medieval conditions”
The worker (or slave) who is constantly increasing their value is inevitably better compensated even in the most brutal of regimes. Nazi concentration camp prisoners had a much better time if they possessed the talent to produce counterfeit money. The evil Chinese government is compelled to permit their citizens more autonomy and a better lifestyle if they wish to compete in the world markets. Open markets subtly, but most assuredly, tend to democratize all dictatorships in the long run.
Posted by: David Thomson on November 27, 2002 04:49 AMwhen textile and garment industry jobs went overseas I said it was comparative advantage
when manufacturing jobs went overseas I said it was automation
when engineering jobs went overseas I said it was education
now the real wages has been stagnant for years and I blame greedy executives
Okay, I am not an economist, but I hve to ask the question - is free trade(which , BTW, is a dumb name. There is no free trade. If free trade existed, we would not have free trade treaties that set out the rules of free trade. All international trade is managed trade) actually helping the economy in a real sense? By that, I mean considering the increase in the "wealth gap", the decline or stagnation of real wages, the increase in the number of people without health insurance, and the rise in personal debt, looking at it from the outside, it doesn't seem to me that the economy has really imrpoved in a menaingful way. Oh, I beleive that the GNP has gone up, and the amount of absolute wealth has increased, but if the purchasing power of working people is actually declining, if their lives are worse, the whats the point?
Put another way - if good paying jobs are replaced predominatly with bad paying jobs, how is this good for society?
As an aside, I am willing to be convinced that the life of the average citizen,economically, is not getting worse, but from what I can see in everyday life, I believe that it is. At any rate, I don't think free trade advocates have done a very good job of convincing me that their strategies for managing trade are actually good for society.
Posted by: kevin on November 27, 2002 08:08 AMYour argument belongs in the pages of Red Herring.
By equivocating skewed trade numbers and domestic job losses as some sort of pantheist social darwinism, you've dismissed an underlying dynamic which threatens to shake America to its core. In mandating barrier-free trade policies open to a select group of highly-leveraged US exporters (e.g.Tyson), and funneling a deluge of low-cost Asian imports through a select group of US retailers (e.g.WalMart), the groundwork is laid for a "race to the bottom".
What's the end-game?
US workers fighting for minimum wage jobs or lotto shot on the union payroll or government employ, farm workers fighting for minimum wages and farmers stuck with product at below cost, big boxes hovering perpetually in Chapter 11 in a glut of manufacturing "stuff", and corporations re-chartering in the Bahamas in droves.
The free-trade downside is even more egregious in the Asian exporting countries, noone who has lived there could deny that.
Conclusion? The biological model for free trade is rampant cancer. The resource model for international capitalism is the forest fire.
Some hearsay testimony regarding Chinese working conditions, mid to late 1990s: a friend's father worked for a tool manufacturer that began outsourcing its operations to China. For some items, no plants existed and had to be built. In a session where he had to review the architectural plans, he noticed that there were no bathrooms on the blueprints, and asked about this. The response was puzzlement: why would he want bathrooms? That would raise the cost of construction.
You can dismiss this outright, or consider it an isolated aberation, or, like me, find it a symptom of the generally bad conditions for Chinese industrial workers. By itself, it certainly isn't enough to topple Brad's claim that our trade dollars raise Chinese median standards of living, something I'd certainly like to see. But my hunch is that there'll have to be some extra-economic factors on the scene in China--like unions and decent human rights--before those capital flows have broad benefits.
Posted by: ScissorsMacGillicutty on November 27, 2002 09:48 AMNone of the suffering of textile workers in the US or farmers in low-productivity farm regions is a mystery. David Thomson is all over this one. Standard trade theory, in addition to predicting that there will be a rise in welfare generally with trade, also predicts that, when borders are open to trade, groups which do not enjoy a comparative advantage will suffer a drop in wages. There is every reason to expect winners and losers with trade. A sort of standard "what to do about it" that gets tacked on is to compensate losers. That's not just a politicians' answer. It is a regular sort of response from economists (some schools excepted) when faced with the notion that any policy that increases general welfare will leave some worse off. The general increase in welfare "should" produce enough additional stuff to allow losers to be compensated.
One problem is, one policy step does not automatically lead to another. Those who back the economists in promoting efficiency don't do it for their health. They do it because they anticipate doing better under the policy economists recommend. When the prospective beneficiaries' efforts (not the economists') lead to a policy change, the second step, recompensing losers for standing aside and allowing progress, is not so obviously in the interest of the winners. So it often doesn't happen.
The other problem, of course, is that such transfers can become "entitlements", gumming up the economic works past the period when losers' transition to another way of life was to have happened. Instead of the economy climbing up to the best possible point on the production possibility curve, it wanders toward it but fails actually climb on.
As to the "things aren't getting better" arguments seen above, well, that just isn't right. Things are getting worse for the sort of guy who did well in my dad's day, the guy who got into the auto union and has a huge house and a huge boat and 3 huge cars, all without a college education. Those jobs are gone. But things in general are better here, better in China, better in India, better in Canada and better in Mexico. Arguing that they aren't doesn't change the facts. Such arguments are either highly political or benighted. Go to some of these places and really look. Yes, there is terrible poverty, but there always has been. Yes, sometimes whole decades are lost to policy time bombs that went unrecognized till it was too late. Still, the difference is, there are now whole neighborhoods of middle class housing in China and Mexico occupied by people who got there because they had the skills to crank out lots of economic value, rather than because they found a spot in the Party.
Posted by: K Harris on November 27, 2002 10:15 AM"Also, Mexico has a greater problem than many other areas of the world. Its males are mostly contemptuous toward education and believe that only sissies read books. Real men should supposedly be macho and stupid. This deleterious mindset must be replaced if Mexico’s economy is to dramatically improve. "--David Thomson
To blame Mexico's economic problems on Machismo is a gross inaccuracy and shows a total lack of comprehension concerning Mexico's culture. The middle and upper classes in Mexico, while small, have the same respect for learning and education that you might find in similar socioeconomic backgrounds in the US, or more appropriately, in Europe. The Mexican middle and upper classes have a respect for learning and culture that puts middle class US anti-intellectual know-nothingism to shame. The ITESM chain of private high schools and Universities in Mexico is filled with bright, cultured, entrepreneurial young men and women who do not subscribe to Mr. Thomson's sentiment in the slightest. The cult of Machismo is generally a lower-class, uneducated cultural stance that is very similar to the rowdy sports, beer and brawls at the Raiders' game crowd you will find in the US/California. It is not a problem that somehow causes Mexico difficulty in creating a solid economy, any more than beer-swilling gringos are a drain on the US economy. Be careful with your sweeping, uninformed generalizations, Mr. Thomson.
Potted Plant. LOL
Posted by: Bobby on November 27, 2002 11:24 AM"The cult of (Mexican) Machismo is generally...lower-class"
You may have a very valid point. Unfortunately, the problem for Mexico is that most its males are lower class. Is even 20% of Mexico’s population middle class? Richard Rodriquez, Linda Chavez, and others have remarked about this sad phenomenon concerning males of Mexican descent in both Mexico and the United States. I have also witnessed this problem at close range and a teacher friend of mine is exasperated by his high school male students of Mexican born parents who place little value on acquiring an education. Many of them are eager to leave school as soon as its legally allowable. They merely wish to get a job regardless of the low pay.
I think it’s best to for you to cease hiding from reality. The problem is not going away by pretending it doesn’t exist. Your Politically correct sentiments might provide you with a warm fuzzy feeling, but they accomplish little else.
Posted by: David Thomson on November 27, 2002 11:42 AM“It is a regular sort of response from economists (some schools excepted) when faced with the notion that any policy that increases general welfare will leave some worse off.”
I agree completely with K. Harris’ comments. However, this particular sentence caught my attention. Are there truly some schools of economic theory stupid enough to reject the dogma of creative destruction? Is this a misstatement, or do such idiots actually exist within the halls of academe?
Posted by: David Thomson on November 27, 2002 12:00 PMCan anyone point to some relatively hard data as to the winners and losers that certain trade creates in the US? (Or in China?)
Trade with China probably isn't Pareto-optimal, even for Americans. That means that some American is worse off because of it. So the question is whether we think the benefits for some and losses for others are a good thing or a bad thing.*
It seems that when a company manufactures in China rather than the US (or buys from Chinese rather than US factories), the losers are US factory workers, or those who would be working there if not for trade with China. They wind up with worse jobs, or no jobs, or have to deal with downward pressure on their wages. Agreed?
Labor costs are lower in China than in the US, or there wouldn't be an issue. The benefits come from those savings. Where do those benefits go?
I can think of a few possibilities:
(1) Savings are passed on to consumers. People pay less for goods made in China than in the US. (Shirts, shoes, etc.)
(2) The companies buying made-in-China goods plow the savings back into new offices in the US, thus creating lots of jobs for Americans.
(3) The companies buying made-in-China goods plow the savings back into executive compensation. The executives let the money sit in Swiss bank accounts.
Probably there are other possibilities. And of course, each of these has a ripple effect; savings as in (1) may be spent on other goods, thus leading to more job growth... is this what you economists call a multiplier effect?
Anyway, my opinions on trade would be affected by what the actual effects are. If all the effects are like (2), then it's all good; jobs lost in one place pop up somewhere else. If all the effects are like (3), then it seems as though trade benefits the best off at the expense of some of the worst off (within the US), which does not seem like a good thing.
Of course, probably there's some mixture of (1), (2), (3), and other things I haven't thought of. I'm new to this. The question is, does anyone have some hard statistics, or even squishy statistics, about how the effects of trade are distributed?
*By the way, David, when Lawrence Boyd says "For any... policy... that benefits one person and hurts no one then do it," he's not saying "Unless a policy benefits someone without hurting anyone, then don't do it." So embracing such a policy wouldn't "outlaw all progress." Sheesh.
Posted by: Matt Weiner on November 27, 2002 01:10 PM“They wind up with worse jobs, or no jobs, or have to deal with downward pressure on their wages. Agreed?”
That is absolutely correct. This is why these folks must strive to acquire an education. Downward wage pressure is the unavoidable reality of creative destruction.
“If all the effects are like (3), then it seems as though trade benefits the best off at the expense of some of the worst off (within the US), which does not seem like a good thing. “
*By the way, David, when Lawrence Boyd says "For any... policy... that benefits one person and hurts no one then do it," he's not saying "Unless a policy benefits someone without hurting anyone, then don't do it." So embracing such a policy wouldn't "outlaw all progress." Sheesh. “
Oh boy, wasn’t it Ronald Reagan who remarked to Jimmy Carter doing their 1980 debate “There you go again?” Such sentiments if carried out to their logical conclusion would “outlaw all progress.” All progress requires employment difficulties for certain sectors of the overall economy. There will be winners--and there will also be losers.
Posted by: David Thomson on November 27, 2002 01:32 PM“I can think of a few possibilities:
(1) Savings are passed on to consumers. People pay less for goods made in China than in the US. (Shirts, shoes, etc.)
(2) The companies buying made-in-China goods plow the savings back into new offices in the US, thus creating lots of jobs for Americans.
(3) The companies buying made-in-China goods plow the savings back into executive compensation. The executives let the money sit in Swiss bank accounts. “
Damn, you are starting to get the hang of it. There might be some hope for you after all. I have, though, a problem with your last sentence. These executives are not likely to let most of their money sit in Swiss bank accounts when they could earn more in other ways. Also, I feel it an incumbent necessity to modify the previous sentence to read “The companies buying made-in-China goods plow at least some, if not much, of the savings back into executive compensation.
Posted by: David Thomson on November 27, 2002 01:46 PM*By the way, David, when Lawrence Boyd says "For any... policy... that benefits one person and hurts no one then do it," he's not saying "Unless a policy benefits someone without hurting anyone, then don't do it." So embracing such a policy wouldn't "outlaw all progress." Sheesh. “
"Oh boy, wasn’t it Ronald Reagan who remarked to Jimmy Carter doing their 1980 debate “There you go again?” Such sentiments if carried out to their logical conclusion would “outlaw all progress.” "
David, repetition isn't argument.
"All progress requires employment difficulties for certain sectors of the overall economy. There will be winners--and there will also be losers."
Which has nothing to do with Lawrence's point.
I'll spell it out: Lawrence said something of the form, "If P, then do Q." Your objection demonstrated that you thought he had said "If not P, then don't do Q." Failure to understand this is a basic mistake of logic.
And before you call people "idiots" and patronize them, don't you think you should stay away from basic mistakes of logic?
Posted by: Matt Weiner on November 27, 2002 02:25 PMMe:
“I can think of a few possibilities:
...(3) The companies buying made-in-China goods plow the savings back into executive compensation. The executives let the money sit in Swiss bank accounts. “
David:
"I have, though, a problem with your last sentence. These executives are not likely to let most of their money sit in Swiss bank accounts when they could earn more in other ways. Also, I feel it an incumbent necessity to modify the previous sentence to read “The companies buying made-in-China goods plow at least some, if not much, of the savings back into executive compensation."
David, lecturing you on reading comprehension is getting old. I described it as a possibility, and I mentioned the ripple effect (which does not come from money sitting in Swiss bank accounts). I later said that probably there is some mixture of my three possibilities, which is what you mean by "some, but not all."
So, do you or anyone else have any data on the relative amount of the benefit that goes to my (1), (2), and (3)? Or do I just get a lecture about "creative destruction"? Not all destruction is creative, is it?
Posted by: Matt Weiner on November 27, 2002 02:31 PMWow, this degenerated pretty quickly.
Posted by: Jason McCullough on November 27, 2002 02:32 PM(1) Oops, yes, I didn't spot that a nearby piece of text belonged to another, anonymous, poster.
(2) David Thomson confuses my description of a view with an endorsement of it (and, by the way, it more strongly resembles Disraeli's views expressed in "Sybil" than those of Ned Ludd).
(3) When I recommend looking for other options on the off chance that there might be better approaches, that is NOT an over-optimistic blind faith that such exist, merely a certainty that if we jump in without looking we are guaranteed not to find any that might be there. It's not a mere mirror image of the blind certainty that we always ought to endorse any form of improvement precisely as it first offers itself. As a case in point, I believe Professor Kim Swales of the University of Strathclyde has turned up a realistic alternative approach to dealing with unemployment, in practice a Pigovian one, but I don't KNOW that it will work without bad side-effects. If we refused to look at the area we would overlook any of these other things - but stopping to look isn't blindly accepting either. We have to check things out, rejecting some as well as accepting some.
Posted by: P.M.Lawrence on November 27, 2002 02:36 PM"Not all destruction is creative, is it?"
Nope, but all creative advances are destructive to the status quo.
Posted by: David Thomson on November 27, 2002 03:04 PM“...merely a certainty that if we jump in without looking we are guaranteed not to find any that might be there.”
Unfortunately, the serendipitous aspect of creativity usually does not give us much warning when the gods of creative destruction demand their victims. These things are rarely planned. I doubt that the saddle makers were even aware of the threat of the auto industry until it was far too late. One morning we wake up and the world has changed around us. Unless, of course, you desire to scream: “Stop the world, I want to get off.” That’s what the Islamic world did, and look what happened to them.
Posted by: David Thomson on November 27, 2002 03:15 PM“It's not a mere mirror image of the blind certainty that we always ought to endorse any form of improvement precisely as it first offers itself”
Does this mean we might wish to initially reject new creative advancements? My imagination is running wild. I can see it now:
Dear software programmer,
Your new program seems to be fantastic. Nevertheless, we must first do a study to see if too many citizens will be forced onto the unemployment rolls. We will get back to you when we are ready to take the next step.
Cordially,
Ned and his buddy Luddites
Posted by: David Thomson on November 27, 2002 03:28 PMHey, would anyone else be willing to chip in a bit so that we could enroll David Thomson in a econ course so that he could learn a bit of conventional, non-theologically oriented economics? If we got 20 Brad Delong blog regulars to all chip in $20, we could probably enroll him in a good course. He's a computer programmer, if I'm not mistaken, so he probably already knows a good deal of calculus, linear algebra, logic, diff eq, etc, so he could probably take a good intermediate course without further math courses.
Granted, we'd spend money one someone whom we don't know, but one must weigh this against the oppurtunity cost we spend reading and responding to his posts.
Posted by: Julian Elson on November 27, 2002 04:02 PMDavid you seem to be more familiar with the works of Ayn Rand and to a lesser extent Shumpeter than you are with economics. Economics is a far more benign social science than the conflicted version you seem top possess.
Basically when people can trade freely, and if everything about the economy is "perfect,' no transaction costs, everyone is perfectly knowledgeable, everyone will arrive, through trade, at the point where no one can be made better off without making someone worse off. This is called a "Pareto efficient" outcome. Human progress can be described as the journey to that outcome.
Unfortunately we live in real economies with real problems that prevent that idealized outcome. Labor is not mobile, knowledge is imperfect, and there are large transaction costs. We can therefore attempt to overcome these problems by employing a guiding principle that we should move to a Pareto efficient outcome by following a criterian that goes something like, "lets move towards a situation where everyone benefits from this policy."
If some benefit and others are hurt then let us make these adjustments in peoples welfare. Free trade and the workings of comparative advantage are very deep concepts in that by allowing for an international divisoion of labor great strides in economic well being can be achieved. If that is true, and some people are hurt as a result, then let us direct those benefits to those that are hurt. Somewhat seperate from this issue, but generally related, adoption of free trade should also mean the elimination of coercion in trade;no slavery, no prison labor, no chjild labor. This is essentially the course that Britain pursued in the 19th century following the adoption of free trade. They sent the fleet out to eliminate the slave trade, they abolished slavery in their colonies, eliminated child labor in their factories, set limits on the working day and other labor legislation. Can't we at least rise to the level of the 19th century in the 21rst?
Lawrence
David you seem to be more familiar with the works of Ayn Rand and to a lesser extent Shumpeter than you are with economics. Economics is a far more benign social science than the conflicted version you seem to possess.
Basically when people can trade freely, and if everything about the economy is "perfect,' no transaction costs, everyone is perfectly knowledgeable, everyone will arrive, through trade, at the point where no one can be made better off without making someone worse off. This is called a "Pareto efficient" outcome. Human progress can be described as the journey to that outcome.
Unfortunately we live in real economies with real problems that prevent that idealized outcome. Labor is not mobile, knowledge is imperfect, and there are large transaction costs. We can therefore attempt to overcome these problems by employing a guiding principle that we should move to a Pareto efficient outcome by following a criterian that goes something like, "lets move towards a situation where everyone benefits from this policy."
If some benefit and others are hurt then let us make these adjustments in peoples welfare. Free trade and the workings of comparative advantage are very deep concepts in that by allowing for an international divisoion of labor great strides in economic well being can be achieved. If that is true, and some people are hurt as a result, then let us direct those benefits to those that are hurt. Somewhat seperate from this issue, but generally related, adoption of free trade should also mean the elimination of coercion in trade;no slavery, no prison labor, no chjild labor. This is essentially the course that Britain pursued in the 19th century following the adoption of free trade. They sent the fleet out to eliminate the slave trade, they abolished slavery in their colonies, eliminated child labor in their factories, set limits on the working day and other labor legislation. Can't we at least rise to the level of the 19th century in the 21rst?
Lawrence
"Granted, we'd spend money one someone whom we don't know, but one must weigh this against the oppurtunity cost we spend reading and responding to his [David's] posts."
An example of a Pareto efficient outcome.
After rereading David's posts I have come to the conclusion that he must be joking. The "God's of creative destruction'" bit is too much like "nature red in tooth and claw."
Bloody hell. Do you guys spend all day, every day, doing this?
*glazed look in eye*
Posted by: Michael Harris on November 27, 2002 10:35 PM“Hey, would anyone else be willing to chip in a bit so that we could enroll David Thomson in a econ course so that he could learn a bit of conventional, non-theologically oriented economics?”
I only employ theological terms in a metaphorical sense. This should be patently obvious to everyone.
“David you seem to be more familiar with the works of Ayn Rand and to a lesser extent Shumpeter than you are with economics. Economics is a far more benign social science than the conflicted version you seem top possess.”
You obviously haven’t been paying attention. I often cite my differences with Ayn Rand. Furthermore, economics is essentially a value free discipline transcending concepts such as “benign” and “conflicted.” You have also misspelled Joseph Schumpeter’s last name.
“If that is true, and some people are hurt as a result, then let us direct those benefits to those that are hurt. “
I think it best that you reread my previous comments. A viable social order should indeed provide assistance to those victimized by the gale winds of creative destruction. My only point is that these victims are an unavoidable cost of progress.
Posted by: David Thomson on November 28, 2002 12:21 AMPlease, may I renew my request for data on the apportionment on gains from trade.
Suppose I'm talking to a friend in a labor movement. I say, "We should liberalize trade whenever possible, because trade benefits both countries--that's a basic theorem of economics."
My friend says, "But when we trade with countries with low labor standards, it drives down wages for workers, and the benefits go to stockholders and executives. I don't support that. We shouldn't be redistributing wealth upward."
How do I respond? "We should be distributing wealth upward" will be a big fat loser. And if I say, "We all benefit from lowered prices due to trade," my friend will want me to prove that the lowered prices benefit the workin' class enough to make up for people who get laid off and suffer downward wage pressure.
So how do I persuade my friend that trade is good?
Posted by: Matt Weiner on November 28, 2002 06:48 AM“Please, may I renew my request for data on the apportionment on gains from trade.”
What makes you think that the committed ideologue will be persuaded by facts? Such data have never previously changed their minds. Haven't you seen any movies by Michael Moore or Oliver Stone? After all, the intellectual institutions under the control of the capitalists can't be trusted. These studies must be fraudulent.
My friend says, "But when we trade with countries with low labor standards, it drives down wages for workers, and the benefits go to stockholders and executives. I don't support that. We shouldn't be redistributing wealth upward."
I must cynically remark that if your friend is this ignorant---the stated task seems utterly hopeless. Nonetheless, perhaps you should take another look at the splendid comments of Steven Postrel. He rightfully points out that one only needs to visit a Walmart store. Dinesh D’Souza in his recent “What’s So Great About America” mentions a friend back in India who wishes to immigrate to the United States. This buddy desires to live in a land where the poor are often fat. The vast majority of lower income families own microwaves, multiple television sets, automobiles, fans, coffee makers and sometimes even cell phones.
Oh by the way, I prayed last night to the gods of creative destruction. I asked them if they might be appeased by the sacrifice of a few virgins, our running naked through the forest, or a gift of burning incense on their altar. Regretfully, they merely slapped me across the face and insisted that they will settle for nothing less than worker displacement.
Posted by: David Thomson on November 28, 2002 08:10 AMBeside which, after recent extended discussion of just who benefits from the tax cuts of the Bush administration, many, even most, economists would likely admit that the motives, methods and consequences of income redistribution by fiscal means are often contentious.
The case against creating trade barriers as the mechanism for redistributing income is that while a few interest groups benefit a lot, other fellow citizens lose out by a little and, overall, the aggregate loses are greater than the income gains achieved. Moreover, if America takes to protectionism then other trading blocs will follow suite, which is just what happened in the 1930s. In that process, the ensuing loses to all accumulate.
Posted by: Bob Briant on November 28, 2002 08:25 AMFree Trade being Good is economic orthodoxy and I understand the comparative advantage argument. However when I look at the last great period of free trade I see that it really didn't work out very well. And when I look at economies that financialize their economies (the Dutch, the British) I notice (a la Kevin Phillips) that it is, in fact, associated with economic decline.
This (along with a careful reading of Jane Jacobs) makes me wonder if free trade is quite whall that it is cracked up to be. I don't think it is. But I'm basing my suspicions on the fact that it doesn't seem to have worked (as much as it has ever existed) not on the theory that it "ought" to work. Which theory, I admit, is perfectly logical and makes a great deal of sense.
Posted by: Ian Welsh on November 28, 2002 09:54 AM>And when I look at economies that financialize their economies (the Dutch, the British) I notice (a la Kevin Phillips) that it is, in fact, associated with economic decline.
Please, run us through the supporting evidence for this claim. Are we talking about "absolute" or "relative" decline and how do we tell whichever it was is due to trade liberalisation and not other factors?
We sometimes get confused on the issue of free trade because we focus on trade between nations. It might behoove one to instead contemplate on trading between towns. How would you feel if you were forbidden to purchase less costly potatoes from a vendor right across the road because she is just outside your town’s boundary lines?
I now must make a slight detour and expose myself to be something of a low life hypocrite. James Fallows made much of Friedrich List’s anti-free trade views in his “Looking at the Sun.” Gulp, I basically agree with List that projectionist policies may have made sense some 200 years ago. A good argument could indeed be presented, for example, that America needed to put up barriers to protect its nascent steel industry. However, that was yesterday and now we must deal with today’s realities. Our ability to communicate instantly with others throughout the world mandates that these projectionist policies of yesteryear be thrown into the dustbin of history.
Posted by: David Thomson on November 28, 2002 11:26 AM"To blame Mexico's economic problems on Machismo is a gross inaccuracy and shows a total lack of comprehension concerning Mexico's culture."
Thank you for this response. There is a deep and abiding care for education and culture through the classes in Mexico. What is needed always is opportunity for education and resources to care for culture and the environment.
Posted by: on November 28, 2002 12:38 PM"'To blame Mexico's economic problems on Machismo is a gross inaccuracy and shows a total lack of comprehension concerning Mexico's culture.'"
Thank you for this response. There is a deep and abiding care for education and culture through the classes in Mexico."
Self delusion isn't helping anybody. It might give you a warm inner glow, but the facts remain that the Mexican underclass does not value education. Every legitimate study contradicts your wishful thinking. First generation Mexican-American males top the high school dropout charts. This is also true regarding native born Afro-American males who beat up their studious buddies for acting “too white.” Supposedly, being ignorant is a sincere sign that one is loyal to their roots.
This is one of the main reasons why Democrats were smashed during the recent elections. Liberals can't handle the truth and prefer fantasies. They are part of the problem and not part of the solution. The politically correct dominated Democratic Party is responsible for the disastrous bilingual programs that have caused so my grief. Many Mexican-American young adults were severely damaged by the nostrums of Liberal educational theory. Do I sound harsh? If so, that’s tough. My only duty is to tell the truth.
Posted by: David Thomson on November 28, 2002 02:46 PM"from Mexico City as seen in Los Angeles Times on August 29, 1996
by Carlos Monsivais
One of the more alarming findings of a recent Rand study on how immigrants fare in the U.S. education system was the low academic aspirations of Mexican immigrant children, compared with other immigrant groups. Even more disturbing, the study found that their academic aspirations weakened in subsequent generations.
Among the many explanations - poverty, classroom size, the language barrier, etc. - offered for this phenomenon, one has largely been unexplored: how Mexican families, particularly the poorest and those most likely to go to north looking for work, view education. Whether it is a byproduct of a traditional Catholicism that fears reading "because it poisons the soul" or rooted in the belief that "licenciados" (a professional with a degree) exist only to exploit people, it is quite common for Mexican families to harbor anti-intellectual attitudes, which, in turn, shape their responses toward education.
Many studies have shown that poor Mexican families see little intrinsic value in acquiring an education. As a result, parents do not ordinarily get involved in their children's education, save for signing the report card. Students are supposed to do their homework without bothering the rest of the family. For single mothers, who make up a very large percentage of the heads of household in Mexico, it is particularly difficult to assist their children with school work.
As long as the current economic crisis continues, more and more children will have to leave school to help feed the family. This is neither considered a deplorable act nor a premature failure in life. It does not precipitate a family crisis. Leaving school is regarded as a natural, albeit undesirable, response to either economic hardship or personal problems. It reflects a deeply held belief, shared by many poor families, that to study is useless, because, as the popular wisdom has it, "no one in the family was born for studying," which is another way of saying that "either you are born successful, in the right social class and in the proper family, or you will always be a failure."
For a poor Mexican family, the effort needed to obtain a degree does not imply a devotion toward schooling. There is no cause-effect relation. And lacking a support network, many students face their academic fate not only in isolation but fighting an adverse environment. Even in the still rare instances where professional parents can assist their children educationally, the environment does not reward their involvement. It is not uncommon in Mexican homes to hear parents scolding their kids for reading they "could be doing something useful, like fixing the door."
It thus should not be surprising that the educational landscape in Mexico is shocking. Only 14% of 19- to 24-year-olds are in college; merely seven of 100 adults have had some college education, and only 18 of 100 have a high school diploma. Last month, the vast majority of students who took a standardized test required to register for high school flunked the exam.
Mexicans, on average, complete 6.6 years of schooling. An estimated 2.5 million children between the ages of 6 and 14 never "drop into" a school. Thirteen percent of the population is illiterate.
For the past 15 years, annual government spending on education has remained slightly above 4% of the national budget. The average monthly salary of a teacher is $300.
Still, the surprise and joy of having a child attending college remains a source of pride for Mexican families. In large part, the growth in college attendance is a result of Mexico's economic progress, which has created a middle class more inclined to believe in the value of education. In addition, since the 1970's, many obstacles blocking women from attending college have fallen.
These advances, however, have a weak cultural foundation. One consequence of the economic catastrophes of 1982 and 1994 was to rekindle the anti-intellectualism that is skeptical of the value of an education. Even the educated are not immune to economic hardship. Consider the recent ad in a newspaper, "Wanted: five lawyers with a bicycle."
Unfortunately, modernity in Mexico, and among many Mexican-American families, has yet to turn learning into a family enterprise, though, certainly, more and more Mexican-Americans are attending college. The negative attitudes toward education that poor Mexican immigrants bring with them are not easily replaced by more positive ones. Until they are, Mexican immigrant children will continue to fare poorly in U.S. schools.
They will not go away, either. Mexican immigrants do not go to the United States to get a free education for their children. They go looking for better economic opportunities, and they will keep on going as long as there are jobs for them there. As for their children, the worse that can happen is to take them out of school."
http://www.rjgeib.com/biography/inner-city-blues/immigrant/immig.html
Matt
If you're arguing with a friend in the labor movement about trade, start right at the basics. Ask him/her to draw an imaginary line around their house. Then ask them what trade restrictions should be imposed on trade that passes across that line. If, for example, s/he grows tomatoes in the back garden, should tomatoes purchased at a local grocery store be subject to a tax (tariff)?
Then, as DT suggests, draw a line around your town/suburb, and ask what trade restrictions should apply across THAT border. Should there be tariffs or quotas imposed on vegetables or furniture or etc etc that cross over that line?
When your friend counters that "when we trade with countries with low labor standards, it drives down wages for workers, and the benefits go to stockholders and executives", it's a little more complex than that. Not ALL wages for ALL workers will get driven down, far from it. Workers in the import-competing industries will have the toughest time. Other industries may well experience wage growth.
If your labor-movement friend decides that s\he is going to oppose trade on the basis that it directly hurts their constituency, then so be it, if that's how they see their political role. But they should be clear that what they're doing is advocating on behalf of THEIR members, not of everyone in the country.
Hope that helps.
(Some of you guys, naming no names, need to get out more.)
Posted by: Michael Harris on November 28, 2002 03:41 PMAh - at first glance Matt Weiner seems to be making the same mistake as the original poster was. Matt Weiner wrote 'Suppose I'm talking to a friend in a labor movement... if I say, "We all benefit from lowered prices due to trade," my friend will want me to prove that the lowered prices benefit the workin' class enough to make up for people who get laid off and suffer downward wage pressure.' Of course the working class will benefit; it's those who fall out of it who end up casualties.
But the original poster was just getting his statistical base wrong - this hypothetical friend really is right to look out for his own constituency, the workers. That is why so many union policies are bad for employment - they are focussed on pay and conditions for their own members, and hang the rest.
So that is how to persuade the friend; tell him that free trade is BAD, but that his lot will benefit from it. Regardless of how free trade really works out, the latter part is true.
Posted by: P.M.Lawrence on November 28, 2002 08:04 PMRe:
>>methinks economists would beat their breasts a little less on this subject if international trade sometimes put them out of a job.<<
There are distributional (and other) arguments against free trade. But the problem is that EPI is not making them--it is simply telling lies.
Brad DeLong
"There are distributional (and other) arguments against free trade."
Is this a subtle way of saying that in the long run free trade benefits the vast majority? Meanwhile, in the short run there is often hell to pay for those caught in the middle of the creative destructive gale winds? Lord Keynes once sarcastically remarked that in the long run we are all dead.
Posted by: David Thomson on November 29, 2002 03:44 AM"We are suffering from the ruinous competition of a rival who apparently works under conditions so far superior to our own for the production of light that he is flooding the domestic market with it at an incredibly low price; for the moment he appears, our sales cease, all the consumers turn to him, and a branch of French industry whose ramifications are innumerable is all at once reduced to complete stagnation. This rival, which is none other than the sun, is waging war on us so mercilessly we suspect he is being stirred up against us by perfidious Albion (excellent diplomacy nowadays!), particularly because he has for that haughty island a respect that he does not show for us.
"We ask you to be so good as to pass a law requiring the closing of all windows, dormers, skylights, inside and outside shutters, curtains, casements, bull's-eyes, deadlights, and blinds -- in short, all openings, holes, chinks, and fissures through which the light of the sun is wont to enter houses, to the detriment of the fair industries with which, we are proud to say, we have endowed the country, a country that cannot, without betraying ingratitude, abandon us today to so unequal a combat."
Frédéric Bastiat (1845)
Source: http://bastiat.org/en/petition.html
There is a relating, if downbeat story, from a current BBC news report, of human evolution in action:
A Warwickshire mother with a rare heart condition could be killed by her baby's cry.
Rachel Willn has been fitted with a special pacemaker to prevent the everyday event from proving fatal.
She suffers from Long QT syndrome, a hereditary condition which means her heart can stop beating when she hears a loud noise.
Her sister Lisa Browne died four years ago from Long QT, aged 27 , when she was woken by her alarm clock.
Source: http://news.bbc.co.uk/1/hi/england/2526759.stm
Little insight is needed to understand why this hereditary condition is so rare in the human population. On the other hand, before the advent of heart pacemakers our ancestors might have legislated to protect us all from the potentially fatal consequences of loud noises . .
On trade, jobs and wages, Paul Krugman's Pop Internationalism (1996), chps. 3 and 4 is (as often from that source) a readily digestible analysis for non-economists. If the relative real wages of unskilled workers have been depressed by trade then we ought to find businesses substituting unskilled workers for skilled workers. Instead, we find the proportion of skilled workers has risen in most industries across the mature market economies, the apparent opposite of we should expect from profit maximising behaviour by business. That is powerful evidence for supposing the character of technical progress has changed.
Posted by: Bob Briant on November 29, 2002 05:14 AMJust to clarify--
My semi-hypothetical friend is not a committed ideologue. Nor is she interested only in policies that benefit the current members of her union. She generally would like to help people below the median, if possible, and feels that the richest people in the US don't need particular help.
So she would be open to persuasion by data that show that trade on the whole benefits the lower half of the income distribution. Just saying "It increases America's GDP," however, won't do it, because it's not clear whether those benefits accrue to the people who need them both.
Keep in mind that the concern has to do with the distributional effects of trade with countries with low labor standards. Parables about drawing a line around her house, or shutting off the sun, don't apply, because those don't involve trade with countries with low labor standards. It's quite obvious that the benefits of the sun are widely distributed.
(Some people probably will think that this concern for distributional justice shows that my friend is, indeed, a committed ideologue. I find this funny.)
Bob--Thanks for the Krugman citation. I'll try to get to it. I have a question about your summary. Suppose that liberalized trade drives down the wages of unskilled workers in the home country, while allowing business access to yet cheaper unskilled workers in the trading partner. Shouldn't we expect the proportion of unskilled workers in the home country to go down, as profit-maximizing industries decide to employ unskilled workers in the trading partner instead?
Or are you saying that the proportion of skilled workers has risen in the industry as whole, internationally--counting workers in the home country and trading partner? In which case, I withdraw my question.
Thanks.
Matt,
The scenario PK refers to is where country A (for "advanced") comes to be better endowed with hi-tech skills and therefore tends to export hi-tech products while importing low-tech products from country B. As a consequence, the pay of hi-tech workers in A rises relative to the pay of low-tech workers because of the increasing demand for its exportables - which is what has happened in America, and Britain as well, over the last 25 years. Profit-maximising businesses (theoretically) should therefore attempt to substitute low-tech workers for high-tech workers. Instead, we find that the proportion of high-tech workers has increased across virtually all industries in country A. Since it is unlikely businesses have generally given up on profit maximising, the more likely explanation is that technology innovation has changed the proportions in which it is now optimal for businesses to employ hi- and low-tech workers. In short, we cannot attribute all changes in pay relativities (or employment prospects) to trade effects alone - there's a huge professional literature focused on trying to separate out the effects between trade and technical innovation.
No one is denying that country A will tend to import products from countries where the same products are made more cheaply at current exchange rates but countries cannot have a comparative disadvantage in everything. That is because comparative advantage depends on *relative prices*, not absolute prices. If one auto exchanges for 20,000 TV sets in country A (say) and 25,000 TV sets in country B, a gain is to be made by exporting an auto from country A to B, selling it there and using the proceeds to buy up to 25,000 TV sets for import back to A. Country A has a comparative advantage in making autos and B in making TV sets. The trade is mutually beneficial so long as country A can import back any more than 20,000 TV sets for the auto exported, and country B so long as it can import an auto for anything less than 25,000 TV sets.
The outcome of trade is that more autos will be made in A and fewer TV sets - and vice versa in B - with consequential changes in pay and job prospects in the two industries in the two countries. Of course there is an issue of the distribution of the gains from trade in each of the two countries. However, we know: (1) that America (and Britain) are maintaining relatively high levels of employment alongside low inflation; (2) whole rafts of industry specific studies have shown that import barriers can indeed "protect" jobs but the cost of each job saved is almost invariably huge - retraining and relocation programmes come much less costly; (3) the infamous unintended consequences usually materialise.
Examples of unintended consequences: (i) around the mid 1980s, the government of Brazil had the idea of imposing trade barriers on imports of computers to encourage development of an indigenous computer industry. The barriers were rescinded in the mid 1990s because the barriers had certainly made computers more expensive in Brazil but the outcome was that computers were used less and so workers in Brazil fell behind on the learning curve. (ii) in late 1991, near the end of the previous Bush administration, verging on prohbitive anti-dumping duties were imposed by the US on imports of flat screens for laptops and the like to encourage domestic manufacture of flat screens. One of the early decisions of the incoming Clinton administration in 1993 was to rescind the duties because the effect was that assembly of laptops (requiring mainly relatively low tech skills) moved off shore to avoid duty on an essential component which US manufacturers were unable to supply in the volumes required.
Creating new trade barriers tends to have unforeseen consequences even forgetting the likelihood of retaliatory responses by trading partners in which all countries lose out.
“Or are you saying that the proportion of skilled workers has risen in the industry as whole, internationally--counting workers in the home country and trading partner? In which case, I withdraw my question.”
Is Matt Weiner ready to throw in the towel? Has he begun to see the errors of his ways? The world will increasingly place less value on unskilled labor. Many of the jobs Americans lose to its foreign competitors will probably not even exist by the middle of this century. Does anyone doubt that robots will eventually do most of the low skilled jobs of today? There will increasingly be no place to earn a decent living for those with low skill levels.
Is Matt’s friend a committed ideologue? Nah, probably just a well meaning sentimentalist. Unfortunately, his buddy is right to worry about these people. They are the primary victims of creative destruction. We must do what we realistically can for them without hindering progress. This will not be easy to do---and inevitably some will fall through the cracks. The price tag for human advancement is unavoidably steep.
Only last evening CBS news had a segment concerning the extremely low cost of electronic equipment. Some guy made a big deal about buying a DVD player for only $60. He joked that in a few years we will purchase these items in six packs. They also interviewed a repair shop owner that is rapidly losing business. I suspect it will be out of business in another year.
PS: Yes, I watched CBS instead of Fox for a few minutes. Please don’t tell anyone. My reputation could be ruined.
Posted by: David Thomson on November 29, 2002 09:36 AM'And when I look at economies that financialize their economies (the Dutch, the British) I notice (a la Kevin Phillips) that it is, in fact, associated with economic decline.'
I've been trying, off and on, to explain the data points in Phillip's books. His financialization driving out manufacturing theory doesn't really make sense; why on earth does it matter where the money comes from?
Maybe every case he identifies went into a nosedive after extremely unprofitable wars?
Posted by: Jason McCullough on November 29, 2002 03:21 PMBob--
Is the idea, then, that the proportion of high-tech workers increases even in industries that do not have the option of buying from cheaper low-tech workers in country B?
"Bob--
Is the idea, then, that the proportion of high-tech workers increases even in industries that do not have the option of buying from cheaper low-tech workers in country B?"
I am not Bob but the answer is yes. Constantly upgrading the skill level of your employees is the only way to thrive in today's markets. A functional illiterate is often of no value regardless of how little you pay them. Are you willing to allow an idiot to perform brain surgery on a loved one merely because they will do so for minimum wage? However, Bob can disagree with me if he thinks I'm off the reservation on this one.
Posted by: David Thomson on November 30, 2002 11:05 AMDavid--
I was asking the question in the context of Bob's analysis in particular. As I understand, Bob is saying that we can show that downward wage pressure isn't due to trade, by pointing out that trade-driven downward wage pressure would tend to increase the proportion of unskilled workers, as employers took advantage of their lower wages.
It wasn't clear to me that this would hold in the industries immediately affected by trade; even given lower wages for unskilled workers in country A, they will tend to lose their jobs to the still lower-paid workers in country B.
It does seem, however, that this should hold in industries not immediately affected by trade; they don't have the option of buying from country B, but they do have the option of hiring the lower-paid unskilled workers in country A (for instance, those who have lost jobs in trade-affected industries).
Thus, if the proportion of unskilled labor has fallen even in industries without significant imports, that indicates that something other than trade is responsible for that fall (and the attendant downward pressure on unskilled wages).
I'm just not sure whether that's the actual datum that Bob is citing (via Paul Krugman). That's why I want to make sure I'm properly understanding Bob's argument; which I'm afraid only Bob can clear up for me.
Regardless, this statement of Bob's:
"In short, we cannot attribute all changes in pay relativities (or employment prospects) to trade effects alone" seems unarguable from any perspective; I suppose that that's the problem with the EPI argument quoted. I'd still be interested in a cute summary of the literature devoted to figuring out how much of the change is due to trade, if anyone's got one.
Matt,
"It wasn't clear to me that this would hold in the industries immediately affected by trade; even given lower wages for unskilled workers in country A, they will tend to lose their jobs to the still lower-paid workers in country B."
Any industry has a profit-maximising incentive to substitute lower paid low-tech workers for higher paid hi-tech workers if that is feasible with the technology in use. However, what we observe is that the proportion of higher-tech workers has risen in virtually all industries, which is one good reason for supposing that among the factors driving change in employment patterns and pay differentials is technical innovation as well as trade.
With trade liberalisation, it is certainly true that some industries contract while others expand but then technical progress and changing buyer preferences do that too. What percentage of America's working population was engaged in farming a century back and when America's agricultural industry is hugely efficient by world standards?
Sure, multinational companies shift production sourcing from one country to another in response to cost differentials or companies import what they previously made or purchased from within their own home economies. In Europe right now, manufacturing production is gradually moving eastwards as emerging market countries establish dependable institutions and enforceable laws to protect life, limb and property rights and thereby reduce creditor and ex-pat manager risks.
The fact is that America's (and Britain's) unemployment and inflation rates are relatively low by the standards of eg the Eurozone, let alone emerging market and newly industrialising countries or world3 countries. For the most part, workers displaced from contracting industries, whether because of trade or technology, have found other jobs. What is also true, but tends to be lost sight of in this, is the steady widening of pay differentials for skills over the last quarter century. From recollection, in America the average premium pay of college over high-school graduates over that period has risen from something like 30+% to 70%. That seems to be somewhat exceptional by the standards of most mature market economies but there is other employment evidence showing a continuing strong demand for college graduates virtually across the mature market economies - the unemployment rates of college graduates are generally lower and their employment rates higher than for workers with just school leaving education.
The semiconductor industry is the exemplar of outsourcing. It is quite common for the circuits on chips to be designed in one country, etched in another onto silicon wafers made elsewhere, using masks made in yet a fourth country, and then tested and packaged (between protective ceramics) in a fifth country and perhaps put into modules in another prior to being assembled in a PC in yet another. Different countries have different specializations.
"I'd still be interested in a cute summary of the literature devoted to figuring out how much of the change is due to trade, if anyone's got one."
The widely referenced survey of the studies literature, at least up to 1996, is Robert Lawrence: Single World, Divided Nations; Brookings Institution Press (1996). A snip from his conclusions: "In general, the impact of globalization on OECD labor markets has been far less significant or damaging than many have argued. Trade has played no role in the sluggish growth in U.S wages over the past two decades, a development that reflects the slowdown in U.S. productivity growth outside manufacturing [remember, this was written before the steep rise in U.S. productivity growth post 1996]. Trade appears to to have played some role in employment shifts, however, particularly in the declining employment opportunities in labor-intensive sectors such as apparel. Nonetheless, as estimated by conventional net-factor-content methods, over the 1980s these effects remained too small to account for more than about 10 to 15 percent (this is 1.5 percentage points) of the differential that emerged between high-school and college workers in the U.S, and very little of the unemployment that emerged in the UK and Germany. Moreover, trade contributed positively to employment in Japan." Perhaps a reader here will know of a later survey.
Sigh. Responses fresh from Dreck, Inc. --
I don't usually write about trade, except to correct Brad Delong.
The basic confusion here is that when people fight about trade policy, they equate changes in job composition with jobs 'gained' or 'lost.' Hence advocates for NAFTA and trade liberalization in general speak of gains and critics speak of job losses, whereas they are actually referring to changes in the types of jobs. Anyone trying to criticize or promote trade liberalization who admits that few jobs are either gained or lost, in total net terms, will lose the public argument. The people at EPI who write about trade are trying not to lose the argument. They feel they must sink to the level of free trade advocates, in this particular type of argument -- jobs won and lost. I make no brief for that position. You can criticize it all you like. There is plenty more to find wanting in many of the comments here.
What's wrong with changes in job composition? Plenty, if we tend to get fewer good jobs and more bad ones. On this topic -- the declining quality of jobs and increasing inequality -- EPI is a fount of data. Brad asserts that an increase in the trade deficit means demand for investment goods and jobs manufacturing them must go up. This is logical but lacks empirical references. Likewise for the nostrum that reduction in the price level is good for the working class. Oh really? Is this one of those points of religious faith, along with the God of Creative Destruction, like Great God Walmart? Is it possible to compare trade-induced changes in wages and prices? If not, what's the empirical case for trade liberalization?
A second problem with churning in the job market, uncontested by trade advocates, is that for many people, the new job is not as good as the old one, and the transition itself is costly. Aggregate data tends to gloss over composition, and economists gend to gloss over the costs of displacement.
A point made several times in the comments is not addressed explicitly by Brad but lurks beneath his exhortations. A trade liberalization that improves GDP but hurts some people is worthwhile because the winners can compensate the losers.
Only problem is, THE WINNERS NEVER COMPENSATE THE LOSERS!!!! What point is there in winning if you give away a big share of your winnings? Trade adjustment legislation hasn't been worth a pee-hole in the snow.
More specific responses to a few remarks --
Jason McC -- there are no factions at EPI because there is no group decision-making mechanism. We do not vet things as a group. We are not a political organization. We are a research institute. People write what they like. Brad doesn't like what our trade people write. I don't usually read our trade material until after it's published, if then.
Andrew B -- I would say risk is more of a problem for a relatively undiversified economy, something not true of the U.S. or China, but more pertinent to a developing nation. Free and volatile trade is a risk in that case. Didn't we see this with currency values in Asia?
Michael H -- you allude to gains from specialization. Certainly there are gains from more 'efficient' allocation of capital or labor. What this means for, say, wage levels and income distribution could be a totally different story. We seem to accept equity-efficiency trade-offs in other policy venues. Why are they off the table in trade policy?
I think Lawrence Boyd makes an important point. Presumptions about welfare-improving changes gloss over the fundamental unfreeness of labor in the PRC. Welfare for whom? I would also suggest that as long as tourist movements in the PRC are severely restricted, we should be leery of inferences on general well-being based on casual observation.
***
Where does all this leave trade policy? One premise is to have meaningful trade adjustment assistance and better social insurance. It would facilitate trade liberalization. I imagine Brad is for these, but meanwhile the working class is supposed to sit, supine, while the God of Creative Destruction has another mood swing.
Another is to try to attenuate sharp swings in capital flows that cause volatile changes in employment. Nobody I know endorses indefinite protectionist measures, and most critics of so-called free trade are not much interested in protectionism. They are interested in efforts to lift standards on human rights, labor rights, and labor standards (pay and that bathroom thing) through 'social clauses' in trade agreements.
Max Sawicky
Infidel to the Church of Creative Destruction &
Senior Economist
Economic Policy Institute
Ah, thanks for clearing up the EPI internal structure, Max.
Let's see if I can identify the major themes here:
1) Everyone agrees that trade-driven shifts in sector employment make for painful adjustment ("Imagine working in a Carolina plant for 20 years, in a town dominated by the plant, and then the plant is gone.") Some favor more mitigation programs for this; some say we already have a variety of mitigation programs for domestic-driven shifts.
Do trade-driven shifts require a bigger response, or a different kind? Why?
It can't be total magnitude-based; nothing that happens in the export or import market compares in size to the domestic shifts we deal with just fine. A few possibilities (none of which I find convincing) are the speed of the transition, the focus on a few specific industries, and (most tenously) the destruction of a sector favored by society for non-economic reasons (The wierd focus on manufacturing jobs, as an example; sure, we were a pretty equal society back when manufacturing was bigger, but is this because of the manufacturing? Sounds cargo-cultish.)
2) Some favor linking trade to agreements on rights and standards. This is, basically, foreign policy, and entirely independent of the trade discussion. Sure, to pick a corner case, trading with China for the fruits of slave labor should cause reductions in low-wage domestic sectors, but this is just another shift in sector employment, and it would be dealt with like any other shift. If it's morally objectionable to buy slave-made (or communist, or fascist, or whatever) goods, we shouldn't be buying them, regardless of the economic incidence.
I think both sides always end up conflating 1) and 2).
My opinion: trade-driven shifts aren't really different from domestic ones at all; there's just the unpopular foreigner factor. I have no idea whether linking trade to rights progress is a good idea, though.
Posted by: Jason McCullough on December 1, 2002 06:07 PM>A second problem with churning in the job market, uncontested by trade advocates, is that for many people, the new job is not as good as the old one, and the transition itself is costly. Aggregate data tends to gloss over composition, and economists gend to gloss over the costs of displacement. . . .
Only problem is, THE WINNERS NEVER COMPENSATE THE LOSERS!!!! What point is there in winning if you give away a big share of your winnings? Trade adjustment legislation hasn't been worth a pee-hole in the snow.
Do I take it with all the job churning that has been going on in America through trade expansion since WW2, most people have been getting steadily worse off? Is that actually supported by the data for household ownership of homes, autos and consumer durables or the health stats?
Posted by: Bob Briant on December 1, 2002 06:21 PMMax
I'll let Brad come in here if he wishes, on the details. I'll just make a couple of points.
Paul Krugman has made the point a few times that he wishes the job-creation-versus-job-loss approach to the trade issue were downplayed. I don't have the citation to hand, but I bet it's easily found at www.pkarchive.org, where he talks about some pro-NAFTA advocates getting irritated with him for not being upbeat enough about the jobs angle. He kept saying that jobs in aggregate were pretty much in Greenspan's hands, and NAFTA shouldn't be made a jobs-issue.
To someone else's question -- Matt Weiner? -- about how trade affects job composition and thus wage relativities based on skill ... as I know the work in this field, there's two main hypotheses. Basically "trade-versus-technical-change". The trade argument says that global competition in fiercest in those industries requiring unskilled labour, hence wages in such industries are pushed down. The tech-change argument says that as production methods change at home, the skills required to be valuable in those industries/production processes increase, so, again, unskilled wages are pushed downward.
I know empirical work is progressing in assessing these main (and perhaps other) hypotheses, but I can't think where to point you off the top of my head.
Finally, about the equity-efficiency trade-offs. Well, David T seems to have turned "creative destruction" into a mantra, but it's basically related to the idea that there are winners and losers, and then trade is good because/if "the winners can compensate the losers".
In VERY few words about a big topic -- I don't see popular trade arguments being mounted in terms of accepting the efficiency and improving the equity aspects of trade reforms. What I usually see is mercantilist sentiments running up against free-trade sentiments. I would MUCH rather see the former style of argument dominate, so we could figure out how to adjust in response to trade-related losses to sectors, industries and individuals. But we shouldn't be having silly arguments about re-introducing tariffs, surely.
Posted by: Michael Harris on December 1, 2002 06:26 PMJason -- Regarding job displacement, I don't share your view that "we deal with domestic shifts just fine." We talk about domestic shifts too. The "weird" preoccupation with manufacturing jobs stems from their consistent advantage for workers in terms of labor standards. The proof is in the data.
Bob, you foxy devil, it is not churning in general that is a cause for concern, but the erosion of manufacturing, and within the service sector, the erosion of job tenure ('churning' in my context) that we equate with the decay of labor standards. The proof is in the data.
Michael H -- We are well aware that overall employment is up to the Fed. We talk about that often. For examples of contrary views, perhaps Brad will take us down memory lane and showcase the statements of one Mickey Kantor.
The trade v. technology lit points up the reality that the effects of trade are not easily subject to isolation and explanation. Hence Brad's outrage over EPI's economic incorrectness is not supported by research. We are instead provided the exalted power of pure logic applied to abstract and necessarily simplified models. Sort of like the eternal truths that the minimum wage reduces employment, or the free flow of capital benefits developing nations. Isn't there a reason they call it "micro"?
'The "weird" preoccupation with manufacturing jobs stems from their consistent advantage for workers in terms of labor standards. The proof is in the data.'
Is the "advantage in labor standards" worth banning manufacturing imports entirely? That's what it's going to take, eventually, if you want to keep those jobs around.
Posted by: Jason McCullough on December 2, 2002 12:14 PM“Max Sawicky
Infidel to the Church of Creative Destruction &
Senior Economist
Economic Policy Institute”
Why can’t we live in the 13th Century? The gods demand that Max Sawicky be burned at the stake for heresy. Sigh, what is a loyal follower to do? It seems that today they arrest you for carrying out your duties. Damn it, why couldn’t I have born been in the good old days?
“...and economists gend to gloss over the costs of displacement.”
I readily concede that many of these victims pay a harsh price for progress. This is a cold fact and I refuse to be a mealy mouther. Some of these workers may never again find another job equal in pay to the one they lost. More than a few will fall through the cracks.
“Likewise for the nostrum that reduction in the price level is good for the working class. Oh really? Is this one of those points of religious faith, along with the God of Creative Destruction, like Great God Walmart? Is it possible to compare trade-induced changes in wages and prices? If not, what's the empirical case for trade liberalization?”
Did Mr. Sawicky actually write this in dead earnest? It’s obvious that he rarely shops at a large discount store. Even in China there are stores opening that allow these Communist slaves an opportunity to by goods previously thought unattainable. Walmart is constantly opening up new stores throughout the world. Maybe Max lives in an affluent yuppie neighborhood, but I don’t. I actually see everyday how the poor have dramatically increased their standard of living in the Houston area.
“...but meanwhile the working class is supposed to sit, supine, while the God of Creative Destruction has another mood swing.”
Yup, these gods are some real bastards. There are no easy answers to Max Sawicky’s concerns. The best we perhaps can do is be cognizant of them while advocating policies that will assist the majority of people on this planet.
Posted by: David Thomson on December 2, 2002 02:00 PMYikes.
OK, maybe I am lost as to the point at issue here.
In the little snippet Brad lifted from the EPI "Economic Snapshot", the stuff he was objecting to, you find this: "Between 1992 and 1999, growing U.S. trade deficits with China eliminated more than 683,000 jobs in the U.S. economy; EPI economists forecast the loss of an additional 872,000 U.S. jobs due to surging trade deficits with China by 2010."
See? Trade-deficits-lead-to-job-losses. I can't see what OTHER inference the reader is invited to draw from that.
So, scroll up to my first post here, the 3rd of the 80-something currently in this commentary, and you'll see me get into this head on. The logic (sic) of trade-deficits-lead-to-job-losses comes (in my experience) from a mercantilist point of view that says "exports create jobs, therefore imports must REDUCE job, therefore trade deficits must mean NET job losses for the country in deficit".
Now, I'll happily mark myself down as someone who rejects this argument. If the EPI has some OTHER argument in mind to support their trade-deficits-lead-to-job-losses claim, let's hear it. Otherwise, IMHO, it's just another mercantilist mis-statement.
By the way, while there's a passing reference to "closed factories", they are not singling out manufacturing in their text. Lost jobs in every industry and state -- their words.
Posted by: Michael Harris on December 2, 2002 04:14 PMHow many of you guys are employed? How many of you are contemplating the axe any time soon? If you have lost your job and are over a certain age, how do you manage to compete with younger people who will take less pay? How many of you are worried that your child may not have medication or food on the table tomorrow? How many are worried about losing your home? If you have lost it, are you at a shelter or living on the charity of relatives?
Maybe bringing this down to earth will explain why the average american considers economics to be at best an exercise in intellectual masturbation. The Gods of Creative Destruction are Harsh indeed!
Gee, Emma. Finally SOMEONE who will bring the discussion back "down to earth" and avoid "intellectual masturbation". Whatever that means.
So when you've figured out what your point actually is, make it, and myself, or someone, might respond if we're still paying attention.
Posted by: Michael Harris on December 5, 2002 08:34 PMMichael,
my point is that economics, which is one of the most important social sciences, is ignored by everyday folk because it seems to divorce itself from the every day living concerns of those whose decisions are not made by EPI numbers or "gods" of destruction. And, because it seems so unconcerned about the daily life of human beings, its lessons are lost.
I am a fairly intelligent adult with a serious interest in the social sciences. I have read every post in this thread as carefully as I can. And what I see is academics exchanging high-minded explanations about "profit maximization" and "OECD labor markets". And when someone tries to bring up the human angle, they are brushed away with comments like "the gods of constructive destruction exact a harsh price" (or something like that). That is why I posted my questions. Everyday questions faced by everyday human beings.
Anyhow. I'm going away now. Prof. Delong has opened a site for his new class on economic history and I'm going to be following that closely. Maybe I can find my own answers to my questions.
Posted by: Emma on December 6, 2002 05:40 AM