The Problem of the Liberal Elites Part 3 on Trade
Paul Krugman has been walking back his nearly unbridled support of trade treaties lately. In this blog post, he says “I think I’ve never assumed away the income distribution effects.” Those distributional effects are, he says, predicted by the standard models. In the Foreign Affairs article I’ve discussed in the last two posts in this series, he must be referring to his statement that NAFTA will “…probably lead to a slight fall in the real wages of unskilled U.S. workers”. Here’s part of of his explanation:
When a country with a highly skilled labor force increases its trade with a country in which skill is at a greater premium, it can expect a decline in the real wages of its own unskilled workers. As a matter of economic principles, we should expect to see at least some adverse impact of NAFTA on the wages of American manual workers.
All the evidence suggests, however, that this effect will be extremely small. For one thing, since the existing barriers to trade between the United States and Mexico are already quite low, it is hard to see how removing them could have any dramatic effect on wage rates.
At first, the evidence did better, but then the trade explosion with China began. That resulted in enormous job losses directly and indirectly in the US, The rest of what happened is that real wages of both the working class and the middle class stagnated, and substantially all the gains went to a tiny minority of rich people. I don’t see that prediction in this or any of Krugman’s other writings. In fact, inequality plays no role in any of these early works of Krugman or, for that matter, any other liberal or conservative economists.
As part of his walk-back on free trade, Krugman says this:
Furthermore, as Mark Kleiman sagely observes, the conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins — but we now have an ideology utterly opposed to such redistribution in full control of one party, and with blocking power against anything but a minor move in that direction by the other.
Here’s what Kleiman said:
The Econ-101 case for free trade is straightforward: Trade benefits those who produce exports and those who consume imports (including producers who use imported goods as inputs). It hurts the producers of goods which can be made better or more cheaply abroad. But the gains to the winners exceed the gains to the losers: that is, the winners could make the losers whole and still come out ahead themselves. Therefore, trade passes the Pareto test.
[Yes, this elides a number of issues, including path-dependency in increasing-returns and learning-by-doing markets on the pure-economics side and the salting of actual agreements with provisions that create or protect economic rents on the political-economy side. It also ignores the biggest gainers from trade: workers in low-wage countries, most notably the Chinese factory workers whose parents were barefoot peasants.]
So, the key point in this analysis is the Pareto test. This is the idea that any change in any change in economic allocation that makes one person or group better off without hurting anyone else is good. Suppose the 1% has 90% of the wealth of a society, and the 99% has the rest. If you try to take some of the wealth from the 1% to balance things out a bit, you violate the Pareto test, because the 1% is made worse off by loss of a bit of wealth, even though the bulk of society is better off. That principle sounds like a justification for the way the rich whine about taxation. It also sounds like a lousy way to run a society.
The Pareto test also implies that if a change benefits one group and another group loses, then if the winners pay enough to make the losers whole financially, then it should be just fine. That’s what Kleiman means when he talks about the government redistributing the benefits of trade. So, suppose the allocation of the social goods in a society gives the 1% all the gains but the 99% all lose. Then we redistribute money from the 1% to the 99%. Krugman and the rest of the liberal elites accepted this as a justification for the damage which their models predicted free trade would inflict on the working class. This astonishing idea is common in the economist tribe, even among more conservative economists.
I hardly need point out that neither political party ever contemplated any reallocation of gains either on the expected losses from NAFTA (small decrease in real wages of low-skilled workers), or on the massive losses that arose from trade with China. Krugman didn’t mention this argument in his 1993 Foreign Affairs article. Congress did set up a small program to support the hundreds of thousands who lost jobs because of NAFTA, but those funds were quickly exhausted, did little to ameliorate the problem and never reached anyone who didn’t get a job because US corporate executives built new advanced manufacturing facilities in China and Taiwan. And there was no compensation for anyone whose job was an indirect casualty of the closing of US factories, and no compensation to communities wrecked by plant closures, or forced to bid tax concessions and more to keep jobs.
So, how did things turn out so badly when the great brains all told us it would all work out on average?
This is a wonderful point you make: “In fact, inequality plays no role in any of these early works of Krugman or, for that matter, any other liberal or conservative economists.” If no economists at all saw this issue, then something’s obviously wrong with the profession as a whole. Is the profession too insular? How does that get fixed?
I note that Krugman and others are also silent on how the redistribution would actually work. So far as I can tell that is a government operations problem and it is something that they are content to assume (1990’s Krugman) or to criticize others for (2016 Krugman).
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In neither case do they prove that such a redistribution is tractable or sustainable, nor have I seen them put forward a tested policy that will achieve it.
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For the most part what I have seen is arguments that we should invest in education in the abstract. And while I am always a champion of education that is more about preparing the next generation for new jobs, that is not the same as compensating the 50 year olds who have lost their retirement.
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It is not at all clear to me that age actually enters into Economists’ models except when discussing the collapse of social security.
Is it not very simple?
Society redistributes the wealth purloined from the mass of the population by taxing the wealth of the individuals and institutions taking the profits and using the revenues accruing to finance a ‘welfare state.’
As to whether this is possible in the United States, the answer must be that not only is it possible but it was public policy until the day before yesterday. Neo-liberalism’s hegemony is very novel. Indeed it is far from being here yet as programs such as Medicare and Social Security indicate.
The neo-liberal movement cannot last without, at last, resorting to violence because the full array of neo-liberal policies will be intolerable to a population that will not allow millions to be abandoned without medical care, social services and access to material essentials.
Corporations defending their privileges against popular definitions of social justice either abandon their positions or institute fascism.
Bevin, I would argue that it is not that simple.
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Firstly, absent from these models is a clear way to compute who exactly lost from trade and by how much. It is one thing to expect a percentage of losses, or a ratio of change in inequality, it is another to start cutting checks.
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Second, computing the amount an individual is harmed is not quite the same as an automatic remedy. Shy of cutting checks we don’t have a way of quantifying the exact recompensation rate. What is the value of available worker training? How does it relate to a lost job with retirement?
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And Third, even if we do come to some agreement about who should be compensated and by how much we have to ask how that works out over time? Do we simply give out salary for jobs not being done? How long do we do it? And will that make the communities whole or just take care of the lucky few who had a gig and lost it and then were able to cash in? What about the next generation?
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Ultimately, these are hard problems, and while I don’t expect Krugman to solve them per-se I do question whether economics really deserves any claim to science if it can get away with prognostications that blithely assume that problems such as this will be solved by someone else.
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In effect the mainstream economic arguments for trade boil down to: “It will work, so long as you people go and do all the hard parts.”
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While I acknowledge that Krugman and other mainstream economists have started to acknowledge some of the problems with their assumptions, I have yet to see any of them acknowledge just what these big assumptions really mean. This is a fatal blind spot for a profession that claims to have models that predict whole societies.
Good points and I am glad Ed is part of the Emptywheel team. At least we can discuss
economics ideas.
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The Globe had a great article about UMass’s economic Department
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“The department, known for its Marxist traditions and radical economics, has been thrust front and center in the presidential campaign since Senator Bernie Sanders of Vermont, a self-professed democratic socialist, cited a UMass analysis of his domestic policies from universal health care to free college.”
The analysis, by UMass economics professor Gerald Friedman, found that under Sanders policies, the US economy would grow at an annual rate of 5.3 percent, more than double the 2015 pace.”
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The bad news was “four top economic advisers to Democratic presidents blasting Friedman’s results as “extreme,” and New York Times columnist and Nobel laureate Paul Krugman indirectly questioning his credentials and motives.”
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Can’t we all just get along? We are suppose to test ideas and change if necessary but our
society is too fragmented.
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One of my professors at UMass, once told the class “One never knows, one never knows.” Best advice I ever heard
there are some issues that science can advise on but that ultimately are matters of political judgement. i don’t hold economists respnsible for determining these policies, though they often advise, e. g., the size and effect of government stimulus in a recession.
“…Firstly, absent from these models is a clear way to compute who exactly lost from trade and by how much. It is one thing to expect a percentage of losses, or a ratio of change in inequality, it is another to start cutting checks.
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Second, computing the amount an individual is harmed is not quite the same as an automatic remedy. Shy of cutting checks we don’t have a way of quantifying the exact recompensation rate. What is the value of available worker training? How does it relate to a lost job with retirement?
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And Third, even if we do come to some agreement about who should be compensated and by how much we have to ask how that works out over time? Do we simply give out salary for jobs not being done? How long do we do it? And will that make the communities whole or just take care of the lucky few who had a gig and lost it and then were able to cash in? What about the next generation… ”
personally, i’d say “cut some checks and be quick about.” say, for a five year period, or maybe 10. that would be a policy/political decision just like any other welfare payment. in fact, those who have lost jobs in a community might be folded into a special welfare program.
one problem though is the multiplier effect of job losses. loses on a large scale mean losses to non-company workers – gas station owners, grocers, pizza shops, and doctors, etc.
another policy might be to have the company pay some of the first or second year costs with gov picking up after that.
retraining may be just the ticket for some, but not others, e. g., older workers. for older workers maybe soc cecurity at an early age.
the point is to do something for some period of time to ease the economic and psychological shock. ultimately, though in this society individuals are expected to adjust on their own initiative.
there is some economic info, e. g., on large-scale income experiments that might prove useful guides, but this is not a question for economic science but one for politicians and policy makers.
economic science can predict this and can study job loss effects, but policy making and politics just don’t follow economic theory. economists are not responsible for the performan e of thececonomy – ever.
It is a political problem, a massive one at that. The “scientific model” of trade blithely assumes that we will: a) identify the harm caused by trade; b) agree upon the solution; and c) implement it perfectly. Any mode of this form l is entirely useless both from a scientific and a policy-making perspective.
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It is useless from a policymaking perspective because the logic could equally recommend almost any policy. As long as it has some theoretical benefit, you can just assume that the negatives will be dealt with by someone else.
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It is useless scientifically because the strong assumption voids any prediction of behaviors since you are assuming a massive policy that is not defined in any way. Absent that definition you don’t know who will win or lose from trade, you don’t know what will be done for the losers, other than that it will perfectly compensate them. You don’t know how much that compensation will cost the winners and thus how much it will affect their winnings. And, you don’t know how long that policy could be sustained (see Greece).
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At the end of the day this is the central problem with economics. It bills itself as a science of personal and social behavior yet as a field it is content with assuming away all of the really hard parts.
thank you for these several thoughtful comments.
pereonally, i am really inclined to let economists off the hook whenever politics and policy intersect with economics. thenreason is partly because i prefer that economists focus on their science and work to perfect, and partly because economics and economists tend to get ground up when pulled into politics and serious policy making.
when the time comes that economists can incorporate policy making in their models, i might change my opinion. but at present i have the great depression of 2007-2015 as my guide where policy changes orchestrated by those adept at gaming the system overwhelmed anyneconimic sense that might have prevailed, e. g., small but important covert changes in the fannie may-freddie mac rules.
“… It also ignores the biggest gainers from trade: workers in low-wage countries, most notably the Chinese factory workers whose parents were barefoot peasants.]”
This assertion, which is as old as the factory system, is almost always untrue. The rule that the displaced peasant, driven from home into the urban labour market is always, (often or ever) better off in terms of living standards is one of the foundations of Economic History as an apology for capitalism.
It was certainly not the case in Britain and was never the case except in those countries in which tariffs etc were used to protect industries and workers against the ravages of Free Trade.
The surprising thing is that this needs to be mentioned, given the long record of Americans using Protectionism as a means to assist developing industries and to mitigate the evils of Free Trade on working people. Protectionism, in other words, was part of a social contract giving the ruling class the advantage of not having to deal with socialist movements and mass Trade Union militancy and the white working class relative;y high living standards and the right to call themselves “middle class” and enter the magic circle of respectable and prosperous society.
As Polanyi pointed out the market society which the Liberals integrate into those ‘models’ which never fail to malfunction, has never existed and cannot exist without risking both social and economic catastrophes.
There is no recovery from the death spiral of Free Trade which does not involve political protectionism of a sort which is almost certainly likely to be found illegal under the rules of NAFTA, TPP or TTIP. In consequence the interests of the 99% and of their right to self government/ sovereignty are on a collision course with the interests of the corporations whose interests Professor Krugman has long and assiduously defended.
Exactly.
Social Darwinism makes a nice comparison, because seems to justify the original distribution, which, as I have noted, is always the result of muscle and force, and has nothing to do with merit. I think the Pareto test is widely used because of age and because it’s fairly easy to test. More complicated and more just schemes, such as John Rawls vision in A Theory of Justice, are more difficult to measure and to administer, and they would require substantially more redistribution.
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Politicians, and perhaps economists, have no clue about the actual impact of job losses on communities. They were agreed that a few months of job counseling and a lick and a promise about retraining were an adequate response to the hundreds of thousands of job losses. They have no idea of the costs to families forced to take care of their parents and grandparents who were thrown out of work with little or nothing. The impact on communities like Detroit, Flint and others was never considered or compensated.
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Capitalism justifies all kinds of vicious punishments of the utterly innocent.
would you please state here what you think the “pareto test” is because i think you don’t understand that it applies to academic, mathematical graphs and models used in teaching, not to real-world decision making. it is a mathematic technique for evaluating alternatives, not a way to reach realworld conclusions.
ed w :
“… at first, the evidence did better, but then the trade explosion with China began. That resulted in enormous job losses directly and indirectly in the US, The rest of what happened is that real wages of both the working class and the middle class stagnated, and substantially all the gains went to a tiny minority of rich people…”
– again, would you please provide some numbers to back this assertion up, as i initially requested in #12.
if you know it’s true, can you not provide the numerical evidence for your skeptical readers?
Why you ask?
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Politics
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Not enough Thomas Merton’s in the world
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“It is true, political problems are not solved by love and mercy. But the world of politics is not the only world, and unless political decisions rest on a foundation of something better and higher than politics, they can never do any real good for men. When a country has to be rebuilt after war, the passions and energies of war are no longer enough. There must be a new force, the power of love, the power of understanding and human compassion, the strength of selflessness and cooperation, and the creative dynamism of the will to live and to build, and the will to forgive. The will for reconciliation.” – from Introductions East & West. The Foreign Prefaces of Thomas Merton
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Our political system as of 3/19/2016 is corrupt
“… So, how did things turn out so badly when the great brains all told us it would all work out on average?…”
the answer to this question is very, very simple.
as krugman said, in an ed walker quote in the first of walker’s three essays targeting krugman here at emptywheel, there is no way the movement of producers toward cheap labor can be stopped; you may as easily try to stop the tides.
rail all you want, but the profit-seeking corporation is currently the principle means of producing goods (it doesn’t have to be, it just is). that corporation, its patents, its machinery, its logistics, its sales network is flexible. it can be moved. americans are not going to stop buying cars, or washing machines, or towels because they are produced outside the country.
the workers who produce these goods, however, are NOT flexible; they are attached to family, to homes, to communities. they have great trouble moving.
furthermore, focus on workers who have lost good (usually adequate) manufacturing jobs is just half of the picture.
how about those in poverty who can’t find a good job? where are they discussed alongside whitebread manufacturing job losses? why not?
how about those who have experienced bankrupcy due to medical billls? the affordable care act was intended to ameliorate this problem, but the aca is under nationwide attack by republicans, and even from well-to-do progressives.
how about those who lost their homes in bankruptcy during the great home mortgage fraud caper of 2004-12?
how about workers who have gained or retained jobs outside of manufacturing or within it? or those who lost one job and found another?
i see a few solutions but their implementation is economically unlikely or politically difficult:
– protection barriers of various sorts involving laws prescribing behavior to corporations directly, or charges such as tarriffs placed on imported goods.
– compensation to workers whose jobs have been eliminated.
compensation to workers is entirely doable and fair, but are like in our contemporary political climate are like welfare programs for the poor. or compensation to workers is like the hamp program to help those whose home mortgages were failing in 2009-12, it was never wholegheartedly implemented
in the last 35 years, the republican party has created a political climate in which neither party will take the politicsl risk of putting forth any overt, detailed policy move to help those fellow citizens who have suffered misfortune or been born into misfortune. witness the recent republican attack on the food stamp program.
– gov’t programs to create jobs. the need for investment in infrastucture is an obvious and socially valuable candidate for thousands of jobs for some years. the need for more workers in education at all levels is another obvious job-creating solution.
as a shortgsighted consequence of the current political scene, we see sudden obsessive concern for whitebread who have lost a good manufacturing job. with this obsession is a concurrent lack of focus on the national scene where the millions on millions daily struggle financially in a rich country, and never receive the help they need and could take advantage of to make a better life and a stronger economy.
i will add another comment related to economists and why things can be bad in the realvworldceconomy, e. g., with regard to jobs and income distribution:
economists are responsible for economic science, economic theory. they are not responsible for economic policy. the policy of austerity – the terrible, unsustainable national debt problem – was and remains a political decision, not a policy decision.
if paul krugman’s steady, longstanding advice against the folly of austerity had been followed in this country, this website would not have posted this essay.
The Pareto test seems to be a generalization based on a given set of historical circumstances, with little analysis of how the targeted economic allocations were arrived at. Fundamentally, it benefits the status quo, in part by seeking to charge the have nots for any cost incurred by social reforms that require some payment by the economically dominant. When enforced by state police powers, that’s a sure fire way to strangle reform.
I also note that it was developed at the same time Social Darwinism was at its height. SD is a naked justification for brutal economic inequalities (described, for example, by Sinclair and London). It is based on a bastardized application of biological observations to human social relations. In short, SD is special pleading, an argument that the haves’ economic dominance is a function of nature – and, therefore, unchangeable – instead of human agency and large dollops of greed, corruption and luck.
Narrowly defined economic efficiency is a questionable basis for running a business: at the extreme, it leads to excessive short-termism and self-destructive resource extraction. It is not a basis for human social or political organization. It leaves no room for human rights or social justice. Indeed, it argues for reimbursing the wealthy when called to meet social obligations to the society which protects and enables them and allows them to flourish. Think of a church reimbursing only its wealthiest members for the cost of their tithes, or a military victor reimbursing its host businesses for the wartime destruction of their subsidiaries which aided and abetted the campaigns of the losers.
Importantly, it fails to acknowledge human agency and how economic allocations are arrived at in the first place. For example, we have our recent discussions about how California’s Big Four accumulated their railroad wealth: through legitimate entrepreneurship supplemented by large amounts of bribery, fraud, corruption, and massive ecological destruction.
With all due respect, why is there not an NCAA Trash Talk thread?
does anyone writing here really have any idea of how pareto optimization is understood and used in a wide range of analyses, including economic analysis?
this is a complex mathematical concept. its intent and design is to help evaluate situations where there are many possible outcomes. it is not your ordinary policymaking tool.
http://www.economicshelp.org/blog/glossary/pareto-efficiency/
pareto efficiency : http://wilcoxen.maxwell.insightworks.com/pages/225.html
pareto optimization : https://en.m.wikipedia.org/wiki/Multi-objective_optimization
from above:
“… the key point in this analysis is the Pareto test. This is the idea that any change in any change in economic allocation that makes one person or group better off without hurting anyone else is good. Suppose the 1% has 90% of the wealth of a society, and the 99% has the rest. If you try to take some of the wealth from the 1% to balance things out a bit, you violate the Pareto test, because the 1% is made worse off by loss of a bit of wealth, even though the bulk of society is better off. That principle sounds like a justification for the way the rich whine about taxation. It also sounds like a lousy way to run a society.
The Pareto test also implies that if a change benefits one group and another group loses, then if the winners pay enough to make the losers whole financially, then it should be just fine. That’s what Kleiman means when he talks about the government redistributing the benefits of trade. So, suppose the allocation of the social goods in a society gives the 1% all the gains but the 99% all lose. Then we redistribute money from the 1% to the 99%. Krugman and the rest of the liberal elites accepted this as a justification for the damage which their models predicted free trade would inflict on the working class. This astonishing idea is common in the economist tribe, even among more conservative economists… ”
this comment doesn’t make any sense to me. i suspect it represents a serious misunderstanding of the pareto principle or at least the above example misuses pareto optimization.
here is what kleiman said, again: “… But the gains to the winners exceed the gains to the losers: that is, the winners could make the losers whole and still come out ahead themselves…”
” the winners could make the losers whole and still come out ahead themselves”
the whole idea of pareto optimization is that no “one” loses.
ed w : “… Paul Krugman has been walking back his nearly unbridled support of trade treaties lately…. ”
would it not be fairer to write something like: ” today, 23 years after he first wrote in support of the north american free trade agreement, paul krugman writes…?
calling this “walking back” is like writing: ” 23 years later, niels bohr was walking back his original view of the structure of the atom. ”
ed w :”… [the trade with china] resulted in enormous job losses directly and indirectly in the US… ”
first, krugman was writing in 1993 specifically about nafta, not china. he wrote before the china crevass had opened up for u. s. workers.
ed w: “… [then] real wages of both the working class and the middle class stagnated, and substantially all the gains went to a tiny minority of rich people…”
i was under the impression that the rich got rich not off of china trade but off of monopoly profits from internet businesses, communications, hedge funds, and off of historically aberant, unbridled corporate bonuses (liberty media, 300 million per top lieutenant a year or so ago).
what specific, numerical evidence do you have 1) linking lowered real wages of the working AND the middle class in the u. s. economy 2) directly with the china trade specifically, and 3) proving that those lost wages due to china trade went specifically to a tiny minority of rich people.
ed w: “As part of his walk-back on free trade, Krugman says this:
‘… but we now have an ideology utterly opposed to such redistribution in full control of one party, and with blocking power against anything but a minor move in that direction by the other.’ ”
rather than manufacture criticism of krugman based on his failure to support senator sanders economic opinions, wouldn’t it make more sense in terms of actual political history and of social justice, to criticize the republican party which has placed one hurdle after anothe in the path of any kind of economic justice – that regarding wages, that regarding taxes, that regarding compensation for trade-induced job losses, that regarding fair corporate compensation, that regarding union activity, that regarding assistance to impoverished citizens, etc., etc.?
here is some historical info on the growth of income inequity:
http://stateofworkingamerica.org/inequality/income-inequality/
i don’t know the organization.
one fact that sticks out questions ed w’s thesis, associated with the sanders political campaign, that income inequality is a relatively recent, since the china thing, event.
income inequality in this reading began to rise in 1973.
from the source cited in #16 above:
“… The stunning growth of income inequality in the U.S. economy that characterized the last 30 years was not always the norm. Between 1947 and 1973, economic growth was both rapid and distributed equally across income classes. The poorest 20% of families saw growth at least as fast as the richest 20% of families, and everybody in between experienced similar rates of income growth. Since then, growth in average living standards has unambiguously slowed. Between 1973 and 1995, growth in productivity, or how much income can be generated in each hour of work, collapsed to less than half the rate that characterized the previous quarter century. Since 1995, productivity growth has risen sharply, but it remains well below the progress that prevailed between 1947 and 1973… “
another quote, again suggesting that u. s. income inequity problems began long before the currently politically convenient date of 1996 (nafta passage and, somevyears later, corporate flight to china:
“… The chart above shows how increases at the top squeeze growth in the middle. The lines show actual growth in median family incomes as well as the growth that would have prevailed had there been no increase in inequality over the period—that is, if all incomes had growth at the overall average rate. Had this happened, the median family today would have incomes $9,220 higher.
This chart represents the amount of overall national income the bottom 99.5% of the population has to share. All but the top one-half of one percent (0.5%) of the U.S. population receives 83.1% of all household income, an amount that has shrunk over 10% since 1973. In essence, it is like the bottom 99.5% of the population had incomes cut by 10%, simply as a result of the growth in inequality over that time… “
here is a chart on historical median real family income:
perhaps someone here who understands these matters better than i do can fit this into ed walker’s essay.
http://stateofworkingamerica.org/chart/swa-income-figure-2a-real-median-family/
quote”One of my professors at UMass, once told the class “One never knows, one never knows.” Best advice I ever heard”unquote
I’m sure some terminally unemployed elderly homeless person out there is thanking their lucky stars economists have a clue to where the next meal is coming from.
“Capitalism justifies all kinds of vicious punishments of the utterly innocent.”
Carved in the marble over the entrance to the New York Fed.
Meanwhile a few million unemployed, disillusioned and angry people mobilize to elect a narcissistic madman based on their trust a racist billionaire will save them from the invading hordes of pillaging, raping and murdering foreigners. I’m sure some economist in the future will thank them for providing the next batch of statistics that bolsters their theory why Murika collapsed into fascism.
if ed walker can’t provide data, this graph will have to serve:
http://stateofworkingamerica.org/chart/swa-wages-figure-4a-change-total-economy/
note wages rose from 1995 until about 2004, apparently despite nafta. i would guess it was the beginning of the housing bust about 2004 that caused things to level out or drop.
just how is paul krugman or other economists who don’t support senator sanders’ very thin economic gruel (all stump rhetoric, no worked-out, written-down, detailed policies) responsible for that?
another chart to consider thisxone about changes in wealth. notecthe drastic changexaround 2007. howxare krugman or trade responsible for that?
http://stateofworkingamerica.org/chart/swa-wealth-table-6-3-change-average-wealth/
here’s an interesting chart – median family income by race.
http://stateofworkingamerica.org/chart/swa-income-table-2-5-median-family-income/
note that whitebread, which complains the loudest, and supports the trump/sanders political philosophies, has substantaially better incomes than blacks or hispanics. but bad times arrived uniformly for all after the bush election of 2000.
curiously, incomes rose from 1995 to 2000. how to explain this?
well, it damn sure was not any effect of nafta because that much maligned policy had an effect almost too small to measure on the giant american economy. but the fall afterwards? why that had to be nafta. what else? bush policies? nah. o. k., maybe it was an extraterrestrial intervention.
here is the first complete evaluation of the effects of nafta i have been able to find:
http://www.epi.org/publication/briefingpapers_bp147/
it dates from 2003, whether that makes it dated or not i can’t say.
the bottom line on job losses is a net 900k job losses during a 10-yr period when the u. s. economy created 21 million jobs. in other words, the losses were about 5‰ of new job creation.
the author faults then president bush for bragging about the good effects while failing to directly addressing the harmful effects.
in one way, bush, and ed walker and emptywheel and sanders are all in the same boat – they praise nafta (bush) or they criticize nafta (walker, emptywheel, sanders) but they never suggest specific, detailed remedies for the harm it does. there is a reason sanders doesn’t do that, just as he doesn’t with poverty; there is a political cost to doing so in the current political climate.
here above, and elsewhere, i have suggested detailed remedies. i don’t know that they are the best or the only, but they are doable. but then my goal is not to skewer krugman as insensitive member of some phantasy group labelled, pejoratively, “the liberal elite”.
see #23 “personally, i’d cut some checks…”
Trade with China costs millions of US manufacturing jobs: This one from EPI, easily available to anyone with the google, includes outsourcing and other issues: http://www.epi.org/publication/china-trade-outsourcing-and-jobs/
Also this, covered heavily in the press, http://economics.mit.edu/files/6613
NBER WORKING PAPER SERIES
THE CHINA SHOCK:
LEARNING FROM LABOR MARKET ADJUSTMENT TO LARGE CHANGES IN TRADE
David H. Autor
David Dorn
Gordon H. Hanson
Working Paper 21906
http://www.nber.org/papers/w21906
The abstract:
Here’s expert commentary from Mike Konczal at The Roosevelt Institute. https://rortybomb.wordpress.com/2011/02/22/david-autor-on-trade-with-china-unemployment-wage-loss-and-redistribution/
thanks. that makes the discussion more concrete for me.
here is a discussion of remedies in konczalvs article:
it is these that interest me and need to be talked about and talked up, because no current presidential candidate likes to talk about remedies for the problem in specific detail.
there is another issue not discussed, maybe never discussed publicly, that is that the great american adjustment to labor moving to china may be about completed. china’s currency is now overvalued, it’s wage rates are much higher, its labor force fully engaged.
in this election year rhetoric, we are looking backwards for ammunition and arguing the last war when a new is waiting at the horizon.
forgot the quote from konczal on remedies for individuals harmed by trade:
“… One of the interesting things that the paper makes clear is that the normal compensation for losses from trade mechanisms – especially the Trade Adjustment Assistance Act – are rounding errors. The real mechanisms for redistribution from trade are workers going on disability and health insurance compensation. Food stamps play a major role, and the growth of food stamps over the past two decades should be thought of as as part of trade policy in addition to welfare policy…”
and the republican party just voted to cut the food stamp program.
and which dem or republican candidate has a specific, detailed program to remedy financial losses associated with job loss due to any legitimate business reason? or medical bankruptcy events? or corporate downsizing events.
one of the hidden mechanisms working on corporations to downsize and cut labor costs are, not just wall street pressure in general but, can you guess, pension plans.
go on. keep beating up on krugman for 1993. that makes good strategic sense, doesnvt it.
there is another, i think very important moral question, i want to raise about all this sudden rise expressed here and by sen sanders in their moral consciousness for the economic wellbeing of americans who lost jobs to trade:
– what about equal moral concern for americans who lost good jobs not due to trade, but for a comparably devastating time orbpermanently?
– what makes factory workers in a town where the corp pulls up stakes and moves to mexico or thailand morally more worthynof concern than hundreds of thousands of other american workers whose misfortune is individual, not collective, and not subject to media coverage?
examples:
– a working mother who gives birth to a non-normal child – cystic fibrosis, downs, severe heart deformaty, etc.
– a worker who is injured in a workplace accident sufficiently that he cannot do his job but not so much that he is eligible for disability.
– an employee who cannot get along with her supervisor for harassment reasons, leaves and is given an especially bad referral making new jobs difficult to acquire.
– a 55 year old employee who has kept the company books for decades is laid off. nobody wants to hire again.
– a worker jailed for being behind on child support.
– a group of workers in their 50’s are laid of, then later fired, by a company looking to cut its labor costs.
– a worker has a disabling auto accident.
– a worker has mental health problems.
i could create many more categories, adding up to what i suspect would be millions MORE americans than have certifiably lost their jobs to trade.
where is the concern of the sanders partisans for these unfortunates, equivalent to their concern for those laid off up to 20+ years ago by the nafta?
where is the concern for the (likely) millions more than the numbers of trade casualty victims, millions who have experienced severe income loss that is ignored because their economic tragedies occurr piecemeal rather than as the more appealing tale of a corp pulling up stakes in a town and leaving their workers without work?
re #32
in addition to the individual by individual job losses in a large economy i mentioned above, each of which can be every bit as harmful as those at a group laid off when a factory moves overseas, there are these collectivites of workers, coal miners, whose fate is tied not to trade but to environmental regulation:
http://www.nytimes.com/2016/03/21/business/dealbook/as-coals-future-grows-murkier-banks-pull-financing.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region®ion=bottom-well&WT.nav=bottom-well
along with coal workers these days go american oil workers, especially those in places like north dakota working in fracking. with oil prices down, fracking and coal may be parts of another of the notorious western boom and bust in western energy mining.
do we pay equal attention to these workers and regard their lost job issues as the equal of factory workers whose company moved to mexico?
re #34
the point is obvious but let me make it explicit:
do we label the climate scientists behind the impending ban on coal-fired power plants “liberal elites”, a disguised political pejorative, because their intellectual work has led to coal mining job loss on a large scale?
shall we imply, as is implied here and elsewhere about paul krugman, that these scientists are insensitive to the economic hurt their intellectual activity has and will create?
shall we hold these scientists personally responsible, as we are holding paul krugman personally responsible, for what are in fact the shortcomings and politically convenient blindness of our society and its political machinary in failing to provide help to those who have lost jobs due to an economic shify and/or a govt policy?
nothing exposes the political opportunism, mean spiritedness, and anti-intellectualism of the attack on krugman like the evident similarity between the seismic economic changes resulting in trade-induced job losses and the impending seismic changes that will result in environment-induced job losses.
automotive jobs? just think about those alone over the next 20 years.
about them jobs that ain’t never coming back,
no matter what brother donald and brother bernard continue to promise:
http://fivethirtyeight.com/features/manufacturing-jobs-are-never-coming-back/
so when is any candidate going to start talking in detail about a systematic program to help all citizens facing long-term job loss whether due to manufacturing, climate change mitigation or individual bad luck?
and when are we going to realize that any manufacturing we do have is going to be vastly different from any past manufacuring employing lots of people in sheet metal buildings.
them days is gone!
I partly disagree with your contention that the jobs are simply gone. Yes some jobs are likely gone for good. Certainly automation has done more to kill factory line jobs than even China could. But many jobs are offshore not because they inherently need to be but because we have made it cheaper to do so, at least in the short run.
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We also actively subsidize the production of unsustainable jobs through a welfare policy that is subsidizing large corporations such as WalMart and is helping them to kill local businesses and local production. And we use a tax structure that actively supports companies such as Amazon that centralize the supply chain still further.
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As it stands now we have trade policies that actively encourage elimination of tariffs paired with subsidy programs (e.g. for the cost of oil) that mask the true cost of international supply chains. We also reward companies, or more specifically executives, in the short term for off-shoring with little assessment of the long-term economic consequences. If we were to reverse many of those policies some of the jobs would return.
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Other jobs are gone not because of automation or trade but because of investment. Many people forget that in the 50’s, 60’s and even 70’s we invested heavily in our infrastructure. That public investment created real jobs which in turn created real spending and thus real economies. Despite the large highway trust fund we have made far fewer public investments and that has been felt.
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And finally, while many jobs are gone we have done an inadequate job of creating an incentive for jobs or in making job training affordable. This has happened because public investment in education has declined causing the costs of education for students and their families to skyrocket.
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As to asking when a candidate will start talking about a comprehensive program for that, may I point you to:
https://berniesanders.com/issues/creating-jobs-rebuilding-america/
https://berniesanders.com/issues/income-and-wealth-inequality/
https://berniesanders.com/issues/its-time-to-make-college-tuition-free-and-debt-free/
#37
the infrastructure proposal sounds exactly what needs to be done for rebuilding and job creation. that proposal is politically unassailable (well, at least for the well-intentioned).
my question, my complaint, and mybsuggestions for a relief policy was“ – when is any american politician going to propose a program to help individuals who have lost jobs and cannot find a replacement in the usual unemployment benefits time. not find them a job, but rather give them financial relief.
my belief and observation for some years is that no national politician of either party, sanders included, will do so because of the hard-hearted attitude of some of the electorate and virtually all of the republican party (and the political cowardice of some democrats) toward this rich nation lending a helping hand. the social rule these days seemsvto be “beggar thy neighbor”.
described generally, the problem i see is the fixity in terms of family and community of the suddenly disemployed factory worker vs the flexibility of the corporation.
for some employees suddenly divorced from their customary income by corporate flight, and located near an area of infrastructure work, or willing to move, infrastructure rebuilding work would probably be a blessing.
i hope some version of what senator sanders suggests gets passed in 2017; it is past time to get thisxwork done.
from #38
at all times, when considering such proposals as the paucity or failure of programs for infrastructure rebuilding, we must consider paul krugmans advice – his greatest service for the last 6 years at least – the repeated warning that “austerity”, an economically false, politicaly fake, concern, by republicans in the u. s. for “the national debt”, and for “inflation” in germany, excuse me, the european union, have kept both the u. s./north american union and the europan union growth rates far below what they would have been with a full keynesian set of government expenditures to cover business shortfall from 2006 thru 2012, at least.
name me one other public commentator, one other public intellectual, or shall i say “liberal elite” intellectual, who has so often warned the nation of the most serious threat to escaping from its most serious depression in nearly 80 years, than paul krugman.
krugman has repeatedly, publicly, warned of economic folly of “austerity”, or as it is called in the u. s. by reigning republican con artists, “the national debt problem” or the “balanced budget” problem.
we all owe paul krugman a debt of gratitude for using his intellectual training to speak publicly in the national interest on this foolish republican obsession with debt that may have cost the nation hundreds of billions in gdp.