You Economists Don't Get It, Do You?

"Economists suck."

"I hear that a lot. What'd we do to you?"

"Globalization. Outsourcing. Immigration. You guys don't get it. You told us go to college, get a good education, do something technical, computer science, engineering, become an accountant, go to law school..."

"I think that might have been your mom telling you that . . . sorry, go ahead"

"Well I did all that and more and you were right - for awhile it worked out great. Then one day it all changed. My job was outsourced. One day I had a job, the next day I didn't. I did everything I was supposed to do and it didn't help, not one bit. Sure, there are people out there getting rich of this but it's the same old fat cats who have always profited forever."

"But, economists ..."

"And it's not just me, it's all the people I worked with too, same thing. You economists tell us it helps end world poverty and all that, and that's great, but why should we care about people in some foreign country when we're struggling to make ends meet here? My concern right now is with one thing, and one thing only, and that's my family. I really don't want to hear about how we need to be concerned with the poor in some other country, how I'm selfish if I want to do more for my own kids. I mean I'm concerned and care and all that, but why does the money to help the poor in other countries have to come out of my pocket and not the pockets of the people getting rich off this?"

"Can I ask you a question?"

"You're supposed to be the one with the answers, but yeah, what?"

"Overall, have we gained or lost from globalization?"

"If I say anything but gained you'll disagree since economists always support globalization."

"You're right, I and almost all other economists think there have been gains. We debate the size of the gains, but not their existence. So it turns out that globalization has, overall, increased the amount of goods and services that we have. If we distribute the gains right, then everybody, every single person, could have more today than they had in in the past."

"Who cares what everyone could have. I could have a yacht if Bill Gates gives me one, but that ain't gonna happen. I don't live in your imaginary world."

"But here's the point, the costs of globalization that have fallen on you and others don't have to be so large, but somehow we have to redistribute..."

"Yeah, yeah, whatever, I've heard all that before. Take from the winners, give to the losers. You guys ever actually look at who owns the politicians? What were economists thinking in the 1990s when they were pushing this stuff?"

"When we looked forward with our crystal balls using theory and empirical evidence in the 1990s, we didn't anticipate the kinds of costs and adjustments that actually occurred. We knew there would be winners and losers, but our very best estimates said the costs wouldn't be that high - we didn't think there would be huge adjustment costs for workers to absorb. We understood we'd need to help some workers through transitions, but it could be a targeted approach where workers in those industries that were harmed could be helped as needed. That's what economists advocated, open the doors and reap the benefits of globalization, then use some of the benefits to help displaced workers in the specific industries that were harmed."

"But your stupid models were wrong. Thanks for that."

"It wasn't the models so much, though they aren't perfect, instead it was the assumptions that went into them. We missed at least two things. The rise of China and India is the first, and the extent of the growth in digital technology is the second. And those were big things to miss - both had large impacts on labor markets."

"Yeah, but that stuff's been going on for a long time now. Ya blind or what?"

"True, and economists have been saying these things for several years, but it did take economists a few years to start seeing what was happening, and then to realize and understand the consequences. By the time that happened, by the time we started to figure out that these changes were bigger than anticipated, the political landscape was far different than during the Clinton years of the 1990s. That made changes in the social safety net in response to the larger than expected changes difficult to implement."

"But even after it became clear that things might not turn out the way you thought, economists were still pushing globalization."

"Yes, and we probably always will. But if you listen closely, we've always said that there are winners and losers from trade, and that it's possible to compensate the losers and still leave the winners better off. Whether that happens or not is a political choice. In the 1990s we didn't think the compensation would need to be all that large, and it also appeared that it could be targeted at very specific classes of workers. But as globalization progressed we began to realize that the costs were going to be much larger and broader based than we thought. At the same time, however, the political landscape had changed as I just noted. Pushing through broad based programs to enhance the social safety net wasn't going to happen with conservatives firmly in control of government."

"So you just gave up, left those hurt by globalization to fend for themselves? Why weren't you guys standing up for workers who were being harmed?"

"We could have been more vocal, and I suppose we could have caught on faster, but we didn't and that wouldn't have changed the politics much anyway. Besides, there were other pressing issues - Iraq, Social Security, tax cuts, that sort of thing - where economists could be more productive. Many economists, rationally I think, turned their efforts to those issues instead."

"Way to let economists off the hook."

"I don't think I have. But look at what's happening now that Democrats back in power and we finally have a chance to do something - the inclusion of a labor standards provision in the recent trade agreement in congress is a good example - economists are speaking out. Just yesterday, there were articles on this very issue in the New York Times, The Financial Times, Project Syndicate, on blogs, and elsewhere, and that's just a small part of the recent contributions on this issue. There's a fairly unified call to strengthen the social safety net, even from those with a more conservative disposition."

"If you say so, but so what. Call for whatever you want. Talk is cheap."

"Well, the labor standards deal I just mentioned is a sign it may be more than talk for once, but let me save you the trouble and admit that we are a bit murky on this point."

"Murky? How about clueless?"

"Here's what I mean. We say we need to use some of the gains from trade to help workers hurt by globalization, but beyond the broad acknowledgment of that point, we don't have much specific to offer. There's the usual list, unemployment insurance, wage insurance, job retraining, help with relocation, food stamps, minimum wage, EITC, etc., etc., but most of these have been around for awhile and don't generate much excitement or interest."

"That's because things like job retraining don't work, though they seem to make people who still have jobs feel better, and the rest of the things on the list just help you put off taking a worse job than you had before."

"Most of the ways we've dealt with this in the past have, as I talked about before, been targeted at groups of people demonstrably hurt by globalization. That has two advantages. First, when you can point your finger at a particular person it draws sympathy and support. Help is easier to get when there's an identifiable victim. But when the effect is, say, to lower the wages of low-skilled workers generally by, say, 5% or 10%, it's harder to find that particular group or person to single out as an example of the harm from globalization. The politics behind the problem are very different. In addition, there is a second advantage to targeted help. When help is given to specific groups of individuals, those getting the help understand what the help is for and those giving the help can see that it is going to the affected parties. This is different from, say, increasing taxes to transfer money from higher to lower income individuals. The reason for the income transfer may be to compensate the losers from globalization, but the disconnection between the income transfer policy and the reasons for it - compensation for the costs of globalization - will make such a policy difficult to implement and sustain."

"Let's get to the bottom line since I have to get going, so what do we do?

"I don't have the answer. As I said, when costs were concentrated on small groups of individuals it was easier to help. Now, with the costs so widespread and the benefits so concentrated at the top of the income distribution, there will be more resistance."

"So that's it? The rich will be unhappy so we can't do it? Figures."

"We have to keep articulating to politicians and the public that the costs are different now, they are widespread, and that the gains are concentrated at the top. We're used to thinking of the costs in terms of worker displacement, not in terms of generally lower wages, loss of health benefits, etc., though that message seems to be finally getting through. From there Democrats will have to do what they've done in the past, find a way to implement progressive reform and to strengthen the social safety net. I think the details matter, and matter a lot, but I also think that doing something, anything, that is clearly and demonstrably a response to the problem of compensating the losers from globalization will have large political advantages no matter what the policy is, within reason anyway.  It seems to me that many workers feel that politicians have lost sight of them, that they've been focused on other things while globalization has been pulling the rug out from under them, and they feel abandoned. I also think there's an impression that economists don't care, or don't really understand, and haven't tried all that hard to help (I think we have tried hard to help, we do care, etc., but perceptions matter). Implementing a policy designed to help workers would also help them to believe that both groups are finally starting to get it, and are trying to help. That would at least give workers the feeling that somebody finally cares. The inclusion of labor standards in the trade deal between Democrats and the White House had this effect. It's unlikely to make a huge difference for U.S. workers, but it's  strong signal that somebody is finally paying attention."

"Economists still suck."

Comments

[Farrar Richardson]

Excellent, Mark !

[jonfernquest]

Excellent!

It's not so clear that job retraining hasn't worked. To be sure, the older you get, the less likely you are to become a hyped up nerd computer programmer, but I've seem people retrain, for instance, as teachers (demand often greater than supply), real estate (favors age, maturity, and trust). Construction and carpentry, if you happen to have these skills like one friend I know, translate very quickly into entrepreneurial opportunities. IMHO college curiculae should include cross-training to diversify skillsets, perhaps combining the manual with the intellectual.

[Al Buono]

Jon, are you suggesting that economists seek more pragmatic and useful employment?

[b]

Wonderful post!

Redistributive policies "don't generate excitement" because it's been unfashionable to talk about these policies with the moral conviction they deserve.

"The executives have rewritten the rules, and they've been taking more than their fair share of what ordinary Americans earn" gets a lot of attention, if a major officeholder says it and seems to mean it. But for twenty-five years, no serious politician has dared talk that way.

After the 1970s stagflation and Reagan's success in the 1980s, Bill Clinton and other Democratic politicians shied away from saying bad things about executives or corporations.

But in recent years, we've gotten a much more convincing set of cases and statistics to let us make two key points:

(1) ordinary workers are not getting the quality of social insurance nor the share of economic gains that they did forty years ago;

(2) government policies like more-progressive taxation and publicly-funded health insurance can substantially alleviate these problems without harm to the economy.

Or, to put it more crudely:

What's really now stopping American workers from getting the fair deal they were promised? A gang of right-wing politicians, who think a hundred-million-dollar executive should count for more than our hundred million American families.

As soon as Democratic politicians recover the courage of their economic advisers' convictions, progressive tax reform and public funding for health insurance will have all the excitement they need.

What economists need to do is start saying, loudly and plainly, "redistributive tax policy can make peoples' lives better, and won't harm the economy!", and "publically funded health insurance can make peoples' lives better, and won't harm the economy!", and all the rest...

...until everyone accepts that yes, Virginia, many redistributive and social-insurance policies ARE consistent with economic growth.

[Christine]

The public's problem isn't with economists, it's with lying political weasels masquerading as economists. These can be difficult to spot, since some of them before they sold themselves to the devil (Krugman) were actually respected in their field.

says...

Let the backpeddling begin!

I don't think they'll be able to peddle fast enough!

""When we looked forward with our crystal balls using theory and empirical evidence in the 1990s, we didn't anticipate the kinds of costs and adjustments that actually occurred."

How come the rest of us knew this would happen? The rest of us without degrees in economics, the rest of us not protected by tenure.

[James Kroeger]

I'm sorry, Mark, but "you economists" deserve the criticism. (Actually, I don't include the Republican economists when I say that; they have their agenda which has ensured them a special place in Dante's Hell.) What makes me crazy is the economists who profess to care about the disadvantaged. I am utterly baffled by their failure to both properly understand the problem and see what should be the obvious solution.

What is the problem with outsourcing and globalization? It threatens the poor/working-class/middle-class in exactly the same way that mechanization threatened earlier generations. It eliminates jobs and creates labor surplus conditions that drive down wages.

The economic benefits of outsourcing/globalization could also be similar to those that mechanization/technology can offer. People who are no longer needed to produce the things we consume are available to produce other things of value. The only problem in both cases is that the marketplace does not automatically create those jobs at a pace that will sustain wages.

The answer to this problem should be supremely obvious to "you economists." Private sector entrepreneurs are not the only producers of wealth or jobs. Contrary to the claims of the Republican economists, the Government is a major producer of Real Wealth. Government expenditures on infrastructure and human capital are real economic investments that produce real long-run and short-run economic benefits. If the private sector needs less domestic labor to produce the products it sells, then that means more is available for the government to employ in the production of public wealth.

This is why outsourcing/globalization actually provides an opportunity to improve the quality of life of the American people. If the government were to increase its spending on public investments enough at the same time that all the outsourcing is taking place, the decline in real wages that Krugman, et al., lament would be reversed and real gains could be made. Create a modest labor shortage through increased government spending and most of the complaints that are currently being leveled at "you economists" would be silenced.

The poor/working-class/middle-class would be able to enjoy the best of all economic worlds---lower prices due to outsourcing AND healthy wage gains. The anxiety that families suffer through when their jobs disappear would be greatly diminished. I know that "you economists" know that this approach is the solution to the problem. You cannot possibly be oblivious to the realities of supply and demand in the labor market. That is why all of the shoulder-shrugging and hand-wringing over declining wages brought on by outsourcing and immigration is so infuriating. It may not be easy to muster up a consensus within the community of academic economists on the desirability of this kind of solution, but at least speak out and state courageously that it is the solution.

I even know why "you economists" are reluctant to advocate this solution. When your Republican friends start scraming about the horrors of inflation that such a solution would visit upon all of us, try responding with something other than, "Yes, that's true..." Consider referring, instead, to the remarkable performance of the Chinese monetary authorities, who were able in the 1990's to successfully 'slow down' their economy's 24% inflation rate until it again reached single-digit levels without bringing their economy's annual growth rate down below 7.2%. Have they not shown us that intelligently designed credit controls can put an absolute limit on the growth of the money supply? If banks are only allowed to lend a fixed quantity of money in particular loan categories, then---all else equal---hyperinflation becomes an absolute impossibility.

Our country's poor, working class, and middle class continue to suffer needlessly because our country's money managers are dedicated to minimizing unemployment only so long as the effort to do so does not threaten to allow inflation to grow beyond a certain absolute minimum. What people who work for a living need more than anything else in this country is a monetary authority that is dedicated to minimizing inflation only so long as the effort to do so does not threaten to allow unemployment to grow beyond a certain absolute minimum.

If "you economists" could start lobbying for such changes, I'm quite sure that you would no longer suck in the eyes of the disadvantaged class. You might even come to be seen as their heroes...

says...

""I think that might have been your mom telling you that . . . sorry, go ahead""

Mark, should I even bother quoting the MANY MANY MANY MANY MANY MANY MANY time you and Paul Krugman have prescribed "education" for displaced workers?

Oh wait, did you hear the one about how if only the government would spend more on roads, bridges, and give free internet to everyone that we'll suddenly "feel" the positive effects of globalization? It's a real hoot.

[mayo]

Economics is extremely useful as a form of employment for economists.
- John Kenneth Galbraith

Ford Motor Company has been building factories in China since the Clinton era and the digital revolution was clear to anyone who stopped to think about why computers were invented in the first place! Shame on you for offering such poor excuses in order to rationalize glib economic advise.

[Ted]

@James Kroger:

Thanks for that thoughtful comment -- from those of us untenured and affected on a daily basis by globalization, outsourcing and labor surplus (in highly technical fields).

[DB]

so, Kaldor-Hicks = bait and switch?

[real person from the real world]

It's nice that the professional economists 'feel the pain" of those hit by globalization, but in a few years when things still don't pan out well, just like you point out that economists miscalculated technology, China, and India coming into the picture, there will be some other rational as to why things did not work as expected in the *model*. OK, I agree, globalization is not going away. At my age, I am screwed. And a lot of these foreigners are not delightfully different, just different in sometimes not very ethical and appealing ways, once you get to know them well, still, common humanity is something all of us can build on.

[dblwyo]

Excellent post and very revealing. My own personal argument has been for some 4-5 years that we were under-estimating the displacement of resources (classic theory and empirics assume that the displacment is small and absorbable) because we under-estimated the huge structural shifts of the BRICs (especially China & India). Which btw is just beginning so this problem ain't goin away. However, despite the acknowledgement here Blinder and Mankiw are still having a mainstream vs slightly modified mainstream debate and the policy world is confused. The time to come up with crisp clear policy recommendations is now insomuch as some will be made and implemented post the elections by somebody - think of it as the 3rd best way forward. If you all wait to long...

On those lines consider we need two things: growth of new industries to generate new job demand in areas where we do have comparative advantages and the ability to cushion and transition displaced workers and other resources into those new jobs. In other words significant efforts in, for example, new energy and biologically based industries coupled with training and education initiatives might be a start.

[Bruce Webb]

"Besides, there were other pressing issues - Iraq, Social Security, tax cuts, that sort of thing - where economists could be more productive."

Well someone did a bang-up job on Iraq and tax cuts. It is swell for economists to step up to the plate and take credit/blame, it sure must be a relief for the Bushies. But if that is the excuse for dropping the trade ball, well lets just say 'try again'. We could have used a lot less of that product.

As for Social Security while Baker, Weisbrot and Sawicky laid the foundation and Krugman weighed in once in a while, economists not named Duncan were not exactly real visible on this issue, and much like trade all too willing to argue within the paradigm of Intermediate Cost, unwilling to this day to challenge the distorted economic and demographic assumptions built into the model.

So while I would not go so far as to say 'economists suck', mainly because it would not be polite to do so in an economist's home, I might venture that they do blow a little wind from time to time.

[wjd123]

On his blog Dani Rodrik tells a different story.

http://rodrik.typepad.com/dani_rodriks_weblog/2007/04/trade_and_proce.html

Barbarians, barbarians everywhere

Some ten years ago, I remember sending a draft of my book Has Globalization Gone Too Far? to a very well known and outspoken economist (and no knee-jerk free trader) whose views I admired greatly. He told me he had no quarrel with my economics, but that I should not be "providing ammunition to the barbarians"--that is, I should not give comfort to all those protectionists who stand ready to hijack any argument that seems to provide intellectual respectability to their positions.

The arguments being made against Alan Blinder's views on outsourcing have very much the same feel. It seems no critique of them is complete these days without also a complaint that it empowers economic populists. In other words, you cannot go public with your view if it looks like it will be misunderstood/misused by "barbarians" for their own narrow, selfish ends.

I appreciate Marc Thoma making this spirited defense of economist but I'm not buying it for economist in general. I'll explain why below. But for now let me say this about what he wrote. It seems like he is trying to sell free trade critics on keeping democrats in power. He has a strange way of pleading. First he downplays the recent Bush/Palosi agreement and then he tries to sell it as a hopeful sign. Why do I feel as if I walked into the office to get some answers and walked out with a show job.

Here is what I wrote after reading Dani Rodrik's blog.

I think the economic profession has a lot to answer for. For instance, most economist supported NAFTA. Seven years later they were still supporting it and I was still hearing about the benefits of comparative advantage. In that time I never heard about factor-price equalization. That would have been an economic reason for not signing NAFTA. It should have been part of the economic argument before NAFTA was signed. I'm sure it would have been important to American workers.

Years later I heard about it by accident. I woke up in the middle of the night with the television on to C-span. Some economist were discussing free trade and one happened to mention factor-price equalization. I fumbled around to find a pen to write it down so I would remember it in the morning. The next day I looked it up in an economic glossary.

Factor-Price Equalization

The fourth major theorem that arises out of the Heckscher-Ohlin model is called the factor-price equalization theorem. Simply stated the theorem says that when the prices of the output goods are equalized between countries as they move to free trade, then the prices of the factors (capital and labor) will also be equalized between countries.

Now I'm hearing that free trade economist pressure their colleges not to give any ammunition to free trade opponents. All this has done is confirm by suspicion that I can't trust economists to be honest.

Economist had two big economic concepts, one that supported free trade and one that didn't. They chose to talk about the former, comparative advantage, and forget about the latter, price-factor equalization.

If economist are afraid to bring up concepts that might tip the argument against free trade, I suggest they say nothing to the general public and go back to arguing with other economists in some obscure economic journal.

Economists believe that the more information you have the more rational your decision. Yet they hold back information they don't want the ignorant to know. So they are not interested in a rational conversation but one where they can best influence policy.

Ok, I didn't hear about factor-price equalization, big deal. Well what about our representatives in Congress. My guess is they never heard of it either. If some did know, they forgot to mention it.

My experience tells me that non-economists should trust their own gut instincts about free trade rather than trust what professional economists say.

When members of Congress lie to me I can always vote them out of office. When members of the economic profession conspire to hold back informantion, I can discount it's members advise.

[Barry]

Mark: ""But here's the point, the costs of globalization that have fallen on you and others don't have to be so large, but somehow we have to redistribute..."

The day that I see as many economists writing op-eds in favor of 'government redistribution' as I see them writing in favor of 'free trade', your statement will be other than a bait and switch.

And that's important. People have seen the displacement, and they don't see the efforts to cushion it. Probably because the displacement is 100x any government effort.

[ken melvin]

Oh dear.

[Bruce Webb]

Actually Mark let the cat out of the bag the other day.

He suggested that economics is the study of efficiency and not equity. Which is to say that it wasn't that they didn't care, it just was that was not the question they were asked to answer.

Which fact is actually more damning, because economists allowed non-economists to argue that free trade by growing the pie would give everyone more pie slice while not pointing out that their models didn't even address the pie slicing. Guilt by omission. Kind of like those six guys who stood by while the 91 year old guy got beat up and car-jacked.

By and large there has just been a little (lot) too much professional courtesy being extended to colleagues who really didn't deserve it.

says...

"There's a fairly unified call to strengthen the social safety net, even from those with a more conservative disposition."

I say fuck you, and fuck your charity. This profit-centered economic paradigm has resulted in a lot of living wage jobs being replaced by chinese and indian non-living-wage, no-environmental-restriction jobs, and a lot of americans working at Walmart, telemarketing, and at temp jobs. You can't replace decent jobs with indecent jobs plus a safety net.

Unless we are talking about making free a lot of necessary things that are currently profit-driven, such as health care, education, and transportation.

says...

Oh Yes - Economists believe in supply and demand except when it comes to immigration, as Professor Thoma has defended the millions of illegal Mexicans as they do not drive wages down.

[robertdfeinman]

I realize the hot button topic is trade/globalization, but let's also consider how useful economic advice has been in other areas.

What is the record of economic analysis in dealing with the health industry, or social security or the diversion of funds from investment into speculation?

It seems that where ever one looks political ideology has debased economic analysis. Perhaps economists need to come up with a code of conduct similar to those in other fields. When one uses their (implicit) authority as an academic to pontificate about public policy they are abusing the trust placed in them.

I also think the press is too easy on those who pretend to be economists but hide out in private think tanks where the academic standards are low and the political agenda (and funding) is not transparent.

[evagrius]

From a review of Beyond Establishment Economics; No Thank You Mankiw by Bruce Anderson and Philip McShane.

Beyond Establishment Economics: No Thank-You Mankiw
Journal article by Stephen Martin; Review of Social Economy, Vol. 63, 2005.

"Contrary to the mainstream economic doctrine of "comparative advantage," neither the "developed" countries nor the "underdeveloped" countries benefit from free trade. Indeed, Beyond Establishment Economics compellingly shows how the doctrine of comparative advantage is at the root of the international debt crisis. Among "equal" trading partners, it can only be advantageous if done in such a way that does not drain the basic (surplus) circuit in favor of the surplus (basic).

Overall, the authors provide an excellent presentation and discussion of Lonergan's economics and its advantages over establishment economics. It will also provide clarity to those few who are already familiar with Lonergan's economics. While no work should be said to be a good substitute for reading Macroeconomic Dynamics and For a New Political Economy, Beyond Establishment Economics not only points out the value of Lonergan's economics, but also makes its analysis more urgent when set in relief against Mankiw's text. One minor criticism I have with the book is that it underplays the moral issues involved in Lonergan's economics. While the authors are correct when they say he "is zeroing in on the elements that are purely economic, elements that can be distinguished from personal, philosophical, cultural, political, moral or religious factors," Lonergan also stressed the need for an enlightenment of enlightened self-interest of the agents involved in the economy in order for it to function correctly. This necessary concern for the common good is another element that distinguishes it from mainstream economics and brings it into the realm of social economics.

On the other hand, the "original" Paul Samuelson has been quoted as saying, "In economics, it takes a theory to kill a theory; facts can only dent a theoretician's hide." Along with other types of alternative economics (i.e. Post-Keynesian), social economics has been effective at pointing out both moral, empirical and methodological critiques of "establishment economics." But these critiques have only "dented" mainstream economics. Social economics has not succeeded yet at providing a full-blown macroeconomic paradigm to rival that of neoclassical economics. I believe the particular value of Lonergan's macroeconomics and Beyond Establishment Economics is that it provides a theory capable of "killing," or in kinder, gentler terms, someday providing a macroeconomics on sounder ethical, methodological and economic grounds than does mainstream economics. While Lonergan's contribution may be viewed suspiciously because he was not a trained economist, of course neither were Adam Smith and Karl Marx."

Lonergan was a theologian, a rather well-known one, who
developed and applied insights from Aquinas to modern problems.

[Paul Krugman]

Just a thought: please do "bother quoting" the MANY MANY times I've said that education for displaced workers is the answer - because I've never thought that, and I don't think I've ever said it. It's OK to attack me - but please attack me for who I am, not some caricature of a Panglossian economist.

[Hokie]

Any debate on Globalization is a breath of fresh air. If only it were more public and included all stakeholders. If there was such a debate when this scheme was born, perhaps the concept would be in the scrap heap of dopey ideas by academic elites instead of a current nightmare. And will you next foist the North American Union on America?

Consider:

Nobody wants globalization except the academic elites, politiks, and global corporations. To the rest of us (citizens of both developing and developed countries), it does not feel right, and is moving so fast as to be a train wreck in the making.

Short term effects of cheap goods are like cocaine to the user. We have been on a spending spree and are approaching the limits on credit. Already we see prices rise as the means of production have consolidated in a communist country with little competition. What happens if demand actually grows in the developing world? Where will the competition come from to keep that lid on prices? Will our currency be further deflated? Can you say “Stagflation” out loud?

Politicians tout the economy (GDP) that soars on the back of consumer and government debt and spending, while the only investments made are in other countries. And this is a good thing? For whom?

Free Trade is the mantra, but what a deal you have for us. We give away our means of production, eating the goose that has laid all the golden eggs for the last 50 years, and in turn we get more debt. But wait, the capitalist hunger is not yet satisfied: Now Bill Gates et al want unlimited green cards for tech workers as he invests heavily in India! Who needs slavery when you have an unlimited supply of cheap labor in a world without borders?

Greenspan, Bernanke and dopey Democrats tout education and retraining as the cure-all. What jobs? Where are these jobs? Will they be there after graduation? And how many years will it take to recoup the investment?

We have 19th century data collection and analysis technology in the DOL. Politicians and economists are more than happy to spin the labor and economic reports to rationalize the current state. Headline tell it all. Job creation is touted, even though the growth is in industries known to be destinations for hords of illegal migrants. Many of these jobs are typically day labor engagements. I wonder how they count them. The disenfranchised are excluded from the statistics. Information technology has the ability to provide more granular data to better understand the health of the economy, but we are stuck with a dysfunctional economic measurement system.

Joe Economist now says that we need to soak the rich, print helicopter money, deflate the currency and the poor displaced souls will feel better. What people really want and need is to live in a relatively stable society where they can raise a family and leave a legacy. This requires jobs. And we export those, while we import drugs. Joe, get a grip: it will be a looong time before the pendulum swings back to new deal style policy and for now, Capitalism rules. It’s the jobs, dummy. And just who would decide who gets help anyway?

Bottom line: this is an ugly baby and always will be. Economists are feckless, clueless and politicized. The U.S citizens have had their country hijacked by an unholy alliance of elite academics, politicians and global corporations and their global investment class. Without a vote cast, the wealth of the middle class is soaked and redistributed, while the cash reserves of multinationals and the global investor class soars. In the meantime, our society is undermined as any hope for the underclass is erased.

Nice work, Joe.

[James Kroeger]

Joe Economist now says that we need to soak the rich, print helicopter money, deflate the currency and the poor displaced souls will feel better. What people really want and need is to live in a relatively stable society where they can raise a family and leave a legacy. This requires jobs. And we export those, while we import drugs. Joe, get a grip: it will be a looong time before the pendulum swings back to new deal style policy and for now, Capitalism rules. It’s the jobs, dummy. And just who would decide who gets help anyway?

Who the hell is Joe Economist and who in this thread recommended anything like helicopter money and deflating the currency?

[kharris]

At the same time that there is increased competition from abroad and increased productivity gains in the factory sector, where low educational attainment and modest skills could once be translated into a very good income, there has been a political shift toward electing more Republicans to national office and toward a more business-friendly Democratic party. These things did not have to happen simultaneously, but they did. Education was a reasonable prescription for those caught up in the transition to higher-skilled manufacturing employment and reduced factory employment due to productivity gains. It is also pretty well documented that pay goes up with educational attainment.

Business (and upper-income/high-wealth) friendly policies may overlap to some extent with policies that favor greater global competition, but they are not identical. It has always been possible to enjoy the benefits of greater competition while attending to issues of domestic income inequality and fairness of opportunity. We simply have not done so.

The imagined exchange presented here shows Joe Public blaming economists as marketing agents for "globalization" (whatever that may be). Joe Public chose to elect Republicans, for reasons that have been debated at length. Joe Public needs to recognize that what is called "class warfare" by the apologists of the rich is practiced every day by the rich. Self interest is the fuel of politics, just as it is the fuel of capitalism. Why we should be embarassed about that is not clear.

Joe Public has let fake populism and a more aggressive brand of political salesmanship distract him from his own interests. That is not the fault of economists, except in the sense that economic arguments have been part of the fake populism and aggressive political salesmanship. Blame economists for the marketing, but not for the policies. Joe needs to blame his choice at the polls for the policies. Blaming economists may feel good, and may be justified, but doing so will simply put off the day of political realignment. The grasping rich will simply hire another batch of messengers and set about tricking Joe Public into compliance for a while longer.

[ken melvin]

This convergence of automation, global labor and right wing ideology has been too much for society to cope with. I am not sure that the latter isn't consequent the first two that alone would have been too much. Isn't the trade/growth game is a bit of a pyramid scheme? If the goal is to lift the third world, why not use a scheme that has worked such that used in Europe and Japan after WWII? Why not build plants there that manufacture the things they need; not what the US consumers, want/need?

[Bruce Webb]

"It is also pretty well documented that pay goes up with educational attainment."

Well it would be interesting to control that by discipline. Who gets paid more an MBA or a typical PhD in the humanities?

There is a huge category error in simply confusing credentialing with "educational attainment". Not only that there is a tremendous skewing effect due to some degrees drawing down outsized pay compared to what their training actually brought them. Was three years at Boalt Hall at Berkeley getting a JD really that much more rigorous than my three years in a Comparative Lit PhD program on the same campus? Well yes, a bit, but not enough to offset the fact that a JD from Boalt could get you right into a high five or low six salary at a SF law firm, while my MA wouldn't even qualify me as a junior lecturer at a community college.

The fact is that a JD from the most dubious law school (good morning Ms. Goodling) is more lucrative on average than a PhD in humanities from Harvard. The notion that pay flows to educational attainment is just another case of confusing correlation and causation, in the modern economy if you don't have the ticket you don't get to ride, it has little to do with skills or talent per se.

[bernard Yomtov]

"It wasn't the models so much, though they aren't perfect, instead it was the assumptions that went into them. We missed at least two things. The rise of China and India is the first, and the extent of the growth in digital technology is the second. And those were big things to miss - both had large impacts on labor markets."

if you listen closely, we've always said that there are winners and losers from trade, and that it's possible to compensate the losers and still leave the winners better off. Whether that happens or not is a political choice. ..... But as globalization progressed we began to realize that the costs were going to be much larger and broader based than we thought. At the same time, however, the political landscape had changed as I just noted. Pushing through broad based programs to enhance the social safety net wasn't going to happen with conservatives firmly in control of government."

It seems to me that this constitutes something of a confession that one type of criticism is deadly accurate - that economic models are often out of touch with real world complexities.

"The model was fine. It just left out the most important things going on."

"The operation was successful, but the patient died."

Some of this stems from a sort of inconsistency in the goals of the profession. If people want to build elegant rigorous models based on careful assumptions that's fine. But if they want to influence policy then they have to take the messiness and unpredictability of the political environment into account.

[bailey]

Sorry Mark, but it's just not that complicated. I recommend you start by demanding definitions of your field of study's most precious terms, i.e. money, inflation, productivity. (Of course these will change over time, that's an understood.) Then, demand all theories be supported by representative population surveys. That will earn you enough credibility to warrant being taken seriously.

[Ted]

Joe needs to blame his choice at the polls for the policies.

Are you really serious?

What choices do we have in this two party system (and what are their functional differences in this case)? What planet is your US of A on? The last time I looked it took about $500M for a party to run a campaign to conclusion and I wonder where that grease come from?

[M. Hodak]

Mark does a great job articulating the Democrat's intellectual position on trade, but the Democratic (and Republican) argument is fundamentally based on muscle, not intellect.

Democrats, especially though, like to pretend that anyone opposed to using state power to get "good" outcomes must be a moral midget. They like to pretend that the only people who want to let the market allocate our scarce resources must be the "fat cats." So they buy into, and heavily promote, crazy arguments like, "the benefits from globalization were concentrated on the rich," as if that provides moral cover for making "the rich" pay an even higher percentage of our taxes than they already do, and as if doing so won't have any detrimental economic effect on the rest of us, unevenly distributed.

I'm in favor of maintaining a clear distinction: economists should build the models and say "this gets you that," and leave policy to the policy makers. Policy makers should just do the right thing. Just kidding. Regardless of what you or I think they "should do," we should grow up and understand that they will continue to impose their will on the rest of us using the government's monopoly on violence based purely on political calculation. Our only choice, to the extent we really have one, is how much power do we want to give them.

And we should all stop whining about not ending up with what our mom or economic gurus promised us as an excuse to use state power against our fellow citizens, and claim their selfishness as the reason.

[ErwanB]

"Perhaps economists need to come up with a code of conduct similar to those in other fields. When one uses their (implicit) authority as an academic to pontificate about public policy they are abusing the trust placed in them."

I Laugh Out Loud.

Whatever's wrong, it's the fault of the Economist, no matter my 3 ipods, 2 laptops, the hummer in the parkway... its the economist, Stupid!

[Winslow R.]

But if you listen closely, we've always said that there are winners and losers from trade, and that it's possible to compensate the losers and still leave the winners better off. Whether that happens or not is a political choice.

A political choice? Really? Please clarify this line between economic and political choices.

Economics plays a part where ever there are dollar flows. The money flows do not end at the voting booth.

Economists are shirking their responsibility to analyze the macro consequences of fiscal policy as fiscal policy is not only driven by the political process (votes).

Where are the economic studies showing the effectiveness of money on confusing political outcomes?

Money plays too large a role to be ignored and I would argue plays a larger role than votes. By spending a few bucks per person on the MSM, lobbyists, think tanks etc., our system has been sold to the highest bidder.

The present political outcome has solid economic foundations in the market place which are being conveniently overlooked by economists. This is fast becoming one of my hobby horses.

[Chris]

Oh no! All the jobs are going to China and India!

Oh wait... unemployment's at 4.4%. I can understand if the general public or baffled politicians mistake anecdotes for empirical evidence, but one would think that economists shouldn't fall into the same trap.

I do not know one person whose job has been outsourced to India. Computer Science and Engineering are still two lucrative fields for college grads to go into. But hell, the media tells us that America's burning and we're exporting our employment to the Far East - so we HAVE to take them seriously.

I'm miffed by the arguments of Blinder, Thoma, Rodrik, et al.

[reason]

I'm hoping that Mark reads this passionate debate because I would like an answer to an important issue discussed in an earlier post (also mentioned by Bruce Web earlier):

http://economistsview.typepad.com/economistsview/2007/05/do_you_agree.html#c68990498

I think Mark here has done a good job discussing the debate. But there are still unanswered issues on what economics is about. It seems to me, much of economics has forgotten the fundamental questions and as a result has become rather circular (always looking to improve the "economy" but forgetting what the economy is for).

I also wonder about the value of equilibrium analysis in a clear case of massive disequilibrium (caused by half the world's population deciding to join what they had avoided). Has Keynes's rejoinder about the short term been forgotten?

[James Kroeger]

kharris:

Joe Public has let fake populism and a more aggressive brand of political salesmanship distract him from his own interests. That is not the fault of economists, except in the sense that economic arguments have been part of the fake populism...

Uhh...I think that is precisely the point.

The failure of 'Democrat economists' to put together a sound and compelling counter-argument in response to the economic mythology that the Republicans have been peddling for years been very costly to those who depend on educated advocates to represent them in the political forum.

While it may not be fair to blame the educated advocates for their failures to come up with The Answers, I am quite sure that it is thoroughly ridiculous to blame the sheep for their ignorance. If they knew that they were being lied to and manipulated with fantasy solutions to the problems they were facing, they wouldn't have voted for the wolves.

Even though it is not any more fair to blame "Democrat economists" for their ineffectiveness than it is to blame the sheep for their ignorance, it has still been frustrating to witness the ineptitude of those who would be our saviors/protectors. I hope and pray that they will some day summon up the courage to start questioning The Unquestionable, i.e., the assumption that we are all helpless before the power and might of The Credit Markets.

Please, "you economists", wake up to the fact that the Central Bank has compete and total control of interest rates at any time because it has (or can easily acquire) complete and total control over the supply of loanable funds. It can create them out of thin air or annihilate them just as easily. Savings levels are irrelevant. You've never dared to question that bit of received wisdom, have you?

Once you've absorbed that bit of truth, then perhaps you can see how it would be possible to (A) expose, once and for all, the illegitimacy of Republican economic mythology, and (B) pursue an economic agenda that optimizes the welfare of the poor and middle-class while at the same time optimizing the welfare of the rich (whether they realize it or not).

Why, oh why, oh why is it so difficult to get Democrat economists to question their masters?

[Farrar Richardson]

Wow!

I took this post as not so subtle satire on the impossibility of rational communication between Joe public and ivory tower economists - overall slightly self deprecatory on the economist's part

I guess the comments prove that this is no laughing matter

[dissent]

Part of the problem here - a large part - is that Joe Public is too stingy and anti-tax to fund elections with taxes. So our politicians don't represent us, but the CEO class. So, we get what we deserve: rich a*s to kiss. Face it: Americans are great at that.

Now the question is, after so much damage, can we actually get our democracy back?

[Dave Iverson]

J. Kroeger: "Even though it is not any more fair to blame 'Democrat economists' for their ineffectiveness than it is to blame the sheep for their ignorance, it has still been frustrating to witness the ineptitude of those who would be our saviors/protectors. I hope and pray that they will some day summon up the courage to start questioning The Unquestionable, i.e., the assumption that we are all helpless before the power and might of The Credit Markets."

My guess is that even the central bankers quake in awe of the Credit Markets, although they dare not say so (very often) in public. It will prove interesting to see what we economists make of political economy in the decades following the next great credit bubble implosion. Maybe then some of post-Keynesian and other heterodox economic theory/practice will be given its due.

[dissent]

Okay, 'nother post before I settle down to work.

Liberal economists are like other successful academics and intellectuals (and lawyers and dentists and such) - they live with a level of social segregation, for the most part. Some come from less privleged backgrounds, but most come from their own class. That means they have been separated from the destructive impacts of the decline of the unionized working classes.

Don't scream at them for this: most of you would have chosen the same. I grew up in a neighborhood impacted by white flight [didn't flee] and the impulse was incredibly wide spread.

So now we are at a different historical juncture. They came for the factory workers already. Now they're coming for the white collar professionals, the folks the liberal economists go to cocktail parties with. It's a different ball game. The betrayal is personal.

My main point is, yes I'm angry with the Dems, the economists, the Repubs, the DLC, the Clintonites, the right wing think tanks (yuck!) etc etc but it's also true that this swathe of destruction is not new. We just didn't think it was coming for us.

Part of our national character is to kiss rich a*s. Another part is to flee social disparities and choose safe, smug, segregation. The peaceful white suburbs are now being rocked by job flight. Message: You can't run from reality, you have got to deal with it.

[Michael Cain]

I'm in a grouchy mood this AM, so I've decided that I will no longer take seriously the arguments made by academic economists in favor of global competition and free trade unless they have published at least one paper arguing that tenure should be abolished. The negative effect on their salaries will, after all, be more than offset by the broad positive results realized by the universities and their students. They get brownie points if the paper has argued that the benefits will be even larger if we allow unlimited immigration by Indian and Chinese economists.

Somewhat more seriously, professional economists should not be surprised by the treatment they are receiving. Common sense says, "If you find yourself in a hole, stop digging." I don't hear many economists saying that since trade policies have led to a situation that looks, to many people, like a hole, that we should consider the idea that we stop digging until we've dealt with it. Instead, there are a lot of things that are the equivalent of "We're not really in a hole," and "Geologic uplift is raising the ground faster than we're digging," and "But our digging is helping to fill in the deeper hole that Chinese peasants are in."

[Jeremiah]

I liked the joke about "...now the Democrats are in power."

As if.

Here's a free clue: it's not just your models that are wrong, Economics Man.

[save_the_rustbelt]

Mark:

I hope I didn't trigger this....

Anyway, you still have the best economics blog focused on trade and inequality issues.

If economists take some heat it may be because they speak with such certainty when certainty may not be possible, maybe....?

[M. Hodak]

The conversation was fine until "but somehow we have to redistribute..." At that point, it went from an economic discussion to a political one. Joe Public's whine is not really about economics. It's about feeling betrayed by the egalitarian ideal that Thoma so desperately wishes to support.

A true economist, qua economist, wouldn't allow himself to get sucked into the policy discussion at all. Applied economics is hard enough when done right. Even the best models only hint at likely cause and effect. As soon as an economist decides to use her skills to support one political position versus another, the error of bias swamps the error of the data or models.

This conversation should have stopped when he said, "I did everything I was supposed to do and it didn't help, not one bit." Get over it. No economist worht his salt would tell you that you were guaranteed anything in life. Only a politician would say something like that. Politicians lie. Joe Public wants to believe them.

[save_the_rustbelt]

Hey folks:

Mark has been one of the more balanced voices in the economic blogosphere, so ask him tough questions but no personal attacks please, it is not fair or polite.

[donna]

Me to my econ teacher in my MBA program:

"Are we gonna talk about Austrian economics or can I just tune out for the rest of the semester?"

Econ teacher: "No"

Me: "OK, thanks - I'll just got o sleep here, then."

It's all bullshit as long as the government controls the interest rates and money supply....

[Lafayette]

jk: The poor/working-class/middle-class would be able to enjoy the best of all economic worlds---lower prices due to outsourcing AND healthy wage gains.

The outsourcing enhancement of purchasing power is evident. The wage gains less so.

Public services can reduces some costs that the poor must undergo or forgo for the moment. Health care is one, since those who do not work are not covered – but neither do they have this as a cost. Reducing pharmaceutical costs will mostly affect the retired population who have higher uses of medicines, and will therefore find some savings.

The great benefit of public services should be to permit people to take the escalator up to a better existence - not just richer, but also fulfilled.

To do so, it should work away the hassles of living: Working mothers who can find a free day nursery, for instance. Children who learn better at school such that a high school diploma means something (besides the fact that the showed up for classes). An effort to alarm Americans about obesity and its consequences (heart failure, emphysema, diabetes, lack of sex drive, etc.) and an effective program to teach both young and old that quality and NOT QUANTITY are the criteria of healthy foods.

Americans tend to justify just about anything in terms of monetary values. Such values are not even the primary criteria of a meaningful existence. The lack of money can break up a family, but so can too much. It’s lack can lead to the neglect of health care, but the rich also die of heart attacks brought on by poor diets. More money can bring you more material goods/personal services … but can it buy you happiness?

What is, then, “the pursuit of happiness”. Having set it forth as a fundamental right in the Declaration of Independence, I wonder to what extent Americans ever defined what it truly was.

The “conversation” that Thoma has scripted above mentions that all the solutions are already known. I agree. But the will to be bold and implement is wanting. And, for as long as money is the common denominator of a nation, the necessary courage will remain lacking given moeny's influence on politics.

Money, money, money … makes the world go round …(ABBA, 1976)

[save_the_rustbelt]

"...we thought the low-wage manufacturing exporters would, as their own education levels increased, place less pressure on low-education workers here...."

"...the wages of less-educated workers have to fall — in fact, they have to fall more than the price of imports, because other costs of import-competing production, namely the wages of highly educated workers, will actually rise. So if import prices fall, say, 10 percent, wages of less-educated workers will fall, say, 15 percent...."

I don't have the intellect or background to debate Paul Krugman on anything, let alone economics, but he has at least implied that education is a major factor in these issues.

I think he is correct that he has never trumpeted the "premium to education" as a magic cure.

Nice of Prof. Krugman to drop by, and he has it right about the shopping at Wal-Mart won't make up for wages losses issue. I stumbled into that conclusion, he did it with real intellect.

[James Kroeger]

My guess is that even the central bankers quake in awe of the Credit Markets, although they dare not say so (very often) in public.

Really? Actually, I think they show undue respect for the Credit Markets in order to encourage the educated public to show them more deference than they deserve. After all, they provide a good scapegoat whenever the central bankers want to plead their helplessness to stop a trend that they actually want to see continue.

Let me ask you a hypothetical question, if I may, Dave. If all the savers in the America were to withdraw all of their deposits from banks over the next week or so, do you deny that the Fed would be able to [roughly] maintain interest rates at whatever target it set at the last FOMC meeting?

The reality is that the Fed could easily maintain interest rates at any level it wishes in such an environment by simply buying up every debt instrument in town with money that it creates out of thin air. If there was not enough paper available for purchase, the Fed could just as easily buy buildings or land whatever else it might desire in order to maintain the interest rate it desires.

With the purchases of any of these assets, the Fed pumps loanable reserves into banks that were not saved by any saver. How, then, can it be said that the interest rate is dependent in any way on savings levels?

Based on this reasoning, would you say that I am correct or incorrect in claiming that one major flaw with most economic models is that they treat the interest rate as endogenous, when in fact it is actually exogenous?

Another Unquestionable Assumption that Democrat economists should start questioning is the widely promoted perception that is is crucial that the Central Bank be kept independent of the Executive Branch. Ask yourself why this is really so important. (I know the standard answer, but try expose that answer to some doubt.)

To the best of my knowledge, the PBOC is not independent of the executive branch of China's government, and yet they seem to have been able to avoid hyperinflation and have maintained a record of steady growth that is the envy of the world.

Perhaps I'll start to regain some hope when I hear a 'Democrat economist' like Paul Krugman dare to question some of these Unquestionable Assumptions...

[Travis]

Any haft-wit could have, and did, predict the imbalance free trade deals helped create between capital and labour and any half-wit could have predicted, and did, that those with a superior bargaining position would use it.

Sure some Liberal (non American usage) economists like Krugman talked about helping the losers but this was always where their prescriptions became vague and short.

Now it is getting hard for good liberal (american usage) economists like Krugman, DeLong et al to go out to dinner with their white collar professional friends.

It was all fun and games when it was the blue collars and poorly educated white collars that were taking it on the chin (sans any compensation of course). Now some educated white collars feel threatened and we are once again hearing talk of compensating the losers.

Get in line.

[ken melvin]

Economists, like Generals always fighting the last war, use models based on the past. Can we afford to await the forensics? The current economy is not that of the advanced industrial age where workers had a good bit parity. Much more like that of the early industrial age or the 1920 when tractors displaced the farmers. Are we to go the route of prisons and hangings, the Great Depression, afore we figure it out? Someone really needs to get ahead of the curve on this.

[Worker]

You university marxists should remove yourself from the government's teet for a minute and get yourself into a textile mill, metal bender, or one of the other jobs you proudly proclaim for the working class. Of course, you won't because most of these low skill jobs are not so appealing. Do the millions of low skill immigrants flooding this country indicate a shortage of opportunities for low skill workers?

So fine, stop paying attention to economists. But please start paying attention to common sense and history. Socialism doesn't work- not for workers, the middle class, the upper class, anybody with the possible exception of lifelong humanities students/ profs. Even so, your production of rhetoric and rationalization will not change the fundamental truth that a centrally planned socialist utopia is a proven failure.

[JRossi]

If the larger pie were redistributed better, we'd all be better off (neglecting externalities like pollution, of course). OK. And if lip-smacking junkies cut down on the heroin a little, they'd enjoy better health.
I don't blame economists for supporting globalization. They can't help themselves-professional tunnel vision. I don't blame cats for killing songbirds--it's their nature. I also don't blame the rest of us for not buying the theoretically correct but practically foolish ideas that economists sometimes advocate.

[James Kroeger]

Lafayette:

The outsourcing enhancement of purchasing power is evident. The wage gains less so.

What should be evident is that wage gains are assured IF aggregate spending increases enough---due to increases in government spending---to force both private sectors employers and the government to compete for relatively scarce labor.

Keep in mind that I am quite aware that nominal wage gains are not the most important thing we could hope to achieve through the agenda I'm proposing. I'm more focused on the real benefits we could all look forward to if we were to put all our idle human resources to work producing more Real Wealth, i.e., more goods/services that either expand our productive capacity or which improve the quality of our lives.

I'm frankly not so much interested in the public services (although they are not unimportant) as I am interested in improvements in the quality of our transporation system, the cleaning up of polluted rivers and lakes, the restoration of urban blight, state-of-the-art sewerage systems, smaller classroom sizes (double or triple the number of teachers), etc., etc.

All of these kinds of government expenditures will improve the quality of life of not just the poor and middle-class, but also that of the wealthy. At the same time, it will also provide wage earners with the kind of market power they need be able to win significant gains in their nominal incomes...

[James Kroeger]

worker:

Socialism doesn't work- not for workers, the middle class, the upper class, anybody with the possible exception of lifelong humanities students/ profs. Even so, your production of rhetoric and rationalization will not change the fundamental truth that a centrally planned socialist utopia is a proven failure.

Thanks for introducing this humorous Strawman into the discussion, "worker." I can say with great confidence that no one who has participated in this thread has advocated anything remotely similar to the "centrally planned socialist utopia" you referred to.

Speaking only for myself, I love markets and I love the market economy. I want to see all markets work idyllically, free of anti-competitive interference. Somehow, I think that if you knew what that meant, you wouldn't be so enthusiastic about it, yourself...

[billy]

"...the wages of less-educated workers have to fall — in fact, they have to fall more than the price of imports, because other costs of import-competing production, namely the wages of highly educated workers, will actually rise. So if import prices fall, say, 10 percent, wages of less-educated workers will fall, say, 15 percent...."

Why should the wages of highly educated workers remain high or rise?
But don't these workers gain from cheaper imports? Yes, but not enough. Imports are only part of what people consume, so while wages fall more than import prices, the overall cost of living falls less than import prices — say, 15 percent fall in wages, only 5 percent fall in the cost of living. Trade reduces the real wages of low-education workers.

So the educated worker gains from cheap imports, but does not have to give up anything in return.

If the wages of highly educated workers were also allowed to fall - by competition, immigration etc - wont the displaced worker be better off?

No. Then we will all be living on third world wages. Right?

There seems to be a fundamental dishonesty in the arguments being made. Almost all of them is about accumulating wealth by capturing rents - by chasing new rents or retaining existing rents, rather than through benefits of productivity increases being spread around.

So Microsoft wants low paying IT workers, but refuses to give up its rents via patents and IP. Bill wants MS software to still sell for the same price, even if MS's labor costs gets halved by low IT wages via immigration or outsourcing.

The IT worker/doctor wants to stop H1B/strict AMA barriers - but wants cheap manufactured goods and autos, and low wages for their hired services - gardener/maid/farm worker/ etc.

And even the economic profession gets into the act. They engage in advance exercises on how the economy and population of an _entire country_ can be converted to operate on rent-paying opportunities, extracting rents from other countries.

Bill Gates thinks he can collect rents from the rest of the world, the educated worker think he gets to collect it from the less-educated, economists think the entire US population can collect rents from the rest of the world.

[ken melvin]

Until now, everything came up from the bottom; from labor. That's not the future. Production is going to be dependent almost solely on capital. Before, the middle class derived income from servicing the professional needs of the masses. There's no mechanism for the middle class to 'skim' from the rich.

So far, the talk of doing something for America's displaced is more than empty. It's cynical to talk of helping the displaced while allowing more than twelve million undocs to work here. I assume the comments about Americans emigrating to China and India were made tongue firmly acheek.

[save_the_rustbelt]

If we can stop throwing mud afor a moment, the Cerebus-Chrsyler deal may be an indicator of things to come, good or bad.

If Cerebus guts the blue collar and/or white collar work forces and moves the work overseas and/or to cheap contractors we may have a vision of the future.

Or Cerebus may save the company and do what it can to save jobs.

Keep an eye on this.

[robertdfeinman]

Back to my sustainability hobby horse:

The idea that growth can be sustainable by dematerialisation is "nonsense", in Czech's opinion. Producing services requires use of natural resources like energy and the money generated will be used to buy something.

Can Capitalism Be Green?

PS. Can some one give me the citation to the (I think) MIT paper mentioned last week that dealt with the rise in inequality and the influence of education and organized labor (among other things) that has led to the present condition. I don't see how to scroll back to prior threads once they have left the front page. Thanks...

[reason]

Kevin Melvin's point is a pertinent one.

Development has in the past meant capital accumulation. We are a capital intensive society. Traditionally that meant ,however, that labour as the the relatively scarce factor of production of well rewarded. But the combination of IT enabling much capital to be productive with very little labour, and the vast new supply of labour from the ex-socialist world joining the international labour force has changed this around. If capital is the higher rewarded we have a problem. Capital is not evenly shared, and the higher the reward to capital, the less even this distribution will become (because money makes money). Really, we should be cutting working weeks to make labour scarce again - otherwise social mobility may well become a thing of the past. The threat should be taken seriously.

I keep saying, didn't anybody play monopoly when they were young? What happens at the end of the game?

[Winslow R.]

Hodak says
The conversation was fine until "but somehow we have to redistribute..." At that point, it went from an economic discussion to a political one. Joe Public's whine is not really about economics. It's about feeling betrayed by the egalitarian ideal that Thoma so desperately wishes to support.

Just as money is allowed to redistribute votes,
votes are allowed to redistribute money. Why would any 'true' economist favor one over the other?

A true economist, qua economist, wouldn't allow himself to get sucked into the policy discussion at all. Applied economics is hard enough when done right. Even the best models only hint at likely cause and effect. As soon as an economist decides to use her skills to support one political position versus another, the error of bias swamps the error of the data or models.

True economist? Only delusional economists ignore the political sphere. Your dividing line between economics and politics is blurred by market based money flows quite capable of influencing the political process.

This conversation should have stopped when he said, "I did everything I was supposed to do and it didn't help, not one bit." Get over it. No economist worht his salt would tell you that you were guaranteed anything in life. Only a politician would say something like that. Politicians lie. Joe Public wants to believe them.

I agree the public needs to hear the whole 'truth', not just the 'truth' that supports the lies, this is where too many economists have been complicit.

says...

But the combination of IT enabling much capital to be productive with very little labour, and the vast new supply of labour from the ex-socialist world joining the international labour force has changed this around. If capital is the higher rewarded we have a problem.

Another confounding factor is that IT has enabled vast innovation in financial markets. So, the "rewarding of capital" is occurring in very unclear ways.

Really, we should be cutting working weeks to make labour scarce again - otherwise social mobility may well become a thing of the past. The threat should be taken seriously.

They tried that in France and it didn't work very well. EITC-like subsidies and minimum-wage standards may be a better bet.

I keep saying, didn't anybody play monopoly when they were young? What happens at the end of the game?

< trivia > If you play the Single Taxer's version, the game goes on indefinitely. < /trivia >;

[evagrius]

Perhaps economists should rediscover their roots.

Wasn't economics at one time a branch of moral philosophy?

Shouldn't it reflect more on that rather some attempt on being a science which it can never be?

Isn't economics the study of how human beings interact economically. That interaction is between human beings who can be rational or irrational or both at once, moral or immoral or both at once etc;etc;.
Throughout all the discussions about globalization, its "winners and losers" and so forth, one rarely reads economists discussing at length, in depth, the moral, ethical aspects.

Oh, there's some hand-wringing about income inequality, economic and social disruption and so forth but very little discussion about the morality, the ethics of it all.

Are there moral. ethical, norms that are primary and should govern economic activity or is that concern just a private, "personal" concern, not to intrude on "objective" analysis?

[DRR]

Some general thoughts;

1. The trope that the "winners" of trade liberalization are disperse while the "losers" are concentrated should forever be put to bed. Ala Brad Setser, The Winners AND Losers of trade liberalization are BOTH disperse AND concentrated.

2. The "Pareto" solution of "We need to redistribute the gains that derive from liberalized trade to those who lose from it" also should be put to bed. Obviously this is true, but should no longer be an excuse to maintain status quo.

3. Liberalized Trade & Globalization are used interchangably and they shouldn't be. Free Trade is a policy that you could least choose not to pursue if you want. Unless you have grand plans that will nullify the ease with which information, people, goods & services can moved across borders & oceans while keeping people in developing countries in stagnated educational & economic situations, you can't avoid globalization. It's not something you can or can't choose to participate in. Even extremely isolated countries like North Korea can't shut out globalization.

4. Though it pains people to hear it, "Free Trade" is not a substantial factor in job loss. As even anti free-traders like Dean Baker admit, there haven't been that many job losses due to import competition. As Jamie Galbraith has explained, even the dreaded NAFTA didn't result in much of the way of job loss. To be fair, people like Dean Baker have said it's not the job loss, but the competition across borders between low-skilled workers that presses down on costs & subsequently, wages that is the problem. In which case someone should be devising a scheme to convince the globe to drop out of the labor pool, but "free-trade" is more boogeyman than culprit.

5. Ditto above to those whining about "White Collar workers" feeling the heat. That has almost nothing to do with free trade. At least with people in the manufacturing sector you could be lobbying for tariffs to insulate yourself from more efficient foreign competition. Computer programmers & call center employees don't produce tradeables. There is nothing to put a duty on to keep out. You could erect 100% tariffs on everything & yeah, you're going to make some countries poorer, but India & Bangladesh aren't going to lose their education. They, just like the rest of the world, are going to continue to develop educationally until more & more have the intelligence & skill neccessary to compete in the same job markets you will, and probably be better at it too. You could lobby for extensive immigration restrictions that will keep foreign invaders from stealing your job, or perhaps you can make it illegal for American born citizens to operate a business outside the U.S. Good luck, but none of this has anything to do with "job killing trade deals"

6. Finally, for all those complaining about the situation, what exactly is your suggestion? No, labor & environmental standards in trade deals with tinpot countries that don't amount to a popcorn fart's worth of our trade aren't going to help much.

[James Killus]

Interesting trolls on this comment thread.

I've noticed one good way of telling a real economist from a right-wing think tank economist is that the latter will argue that raising the minimum wage hurts black teenagers and makes it more difficult for them to get jobs. This in itself might not be notable, except that this is the only time that such economists say that any policy aids the employment prospects of black teenagers.

I've also noticed that only time when such economists show concern for the plight of workers in underdeveloped countries is in advancing the case for globalization. To be sure, non-right-wing think tank economists also sometimes make this case, but they also sometimes advocate other measures to benefit underdeveloped countries. It's just a pity they don't do so more often.

I remember reading somewhere, I think it was on Orcinus blog, that anti-immigration policy in the U.S. was deliberately linked to racial attitudes in the 1920s, with the passing of the National Origins Act (the Klan was pretty influential in the 20s, and not just in the South). I do understand that, unlike the post-WWII period, it's quite difficult now to find poor countries that aren't primarily inhabited by the "wrong" races, so it's just probably a coincidence that ire is directed at Mexican immigrants, trade with India and China, and Arab terrorists, just as it was a coincidence that Ronald Reagan launched his 1980 Presidential bid in Philadelphia, Mississippi.

But if the problem is really that all the globalization gains are accumulating in a few hands, at the expense of the many who nevertheless vote to keep politicians in power who not only fail to assist the globalization losers, but actively work to stuff more money into the pockets of the winners, I'm bound to wonder why.

Exactly what is it that "liberals" and "socialists" and "academics" did to draw all the ire from Joe Average? And the answer I get keeps coming up with words and phrases like "affirmative action," "school desegregation," and "political correctness."

Then I tell myself, don't be silly, it's all about "gay rights" (the "homosexual agenda")," "reproductive freedom" ("abortion on demand"), and "feminism." And that does not make me feel one bit better.

Otherwise, mostly what James Kroeger said.

[James Kroeger]

DDR:

Finally, for all those complaining about the situation, what exactly is your suggestion?

Here, upthread

More detail...

[voltaire]

Killus...

Good point on why the many vote on the side very few. Are they doing it on a pocketbook or emotional reason (red/white/blue GGG issues guns, god and gays). My thinking is emotional and one day wake up to realize they have (first three quintiles) have been robbed and indebted over the past 30 years like no others before them. A simple pocket book voting strategy should be over the definition of the word 'interest' all those who define it as something they pay should vote democratic, as something they receive, republican...so simple and beautiful. The adage 'a fool and their money are soon parted' applies to a goodly percentage of our population.