Paul Krugman: Trouble With Trade

The consequences of increased trade with countries that are much poorer than we are:

Trouble With Trade, by Paul Krugman, Commentary, NY Times: While the United States has long imported oil and other raw materials from the third world, we used to import manufactured goods mainly from other rich countries like Canada, European nations and Japan.

But recently we crossed an important watershed:... a majority of our industrial trade is now with countries that are much poorer than we are and that pay their workers much lower wages.

For the world economy as a whole — and especially for poorer nations — growing trade between high-wage and low-wage countries is a very good thing. Above all, it offers backward economies their best hope of moving up the income ladder.

But for American workers the story is much less positive. In fact, it’s hard to avoid the conclusion that growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country. And that reality makes the politics of trade very difficult.

Let’s talk for a moment about the economics.

Trade between high-wage countries tends to be a modest win for all, or almost all, concerned. ... By contrast, trade between countries at very different levels of economic development tends to create large classes of losers as well as winners.

Although the outsourcing of some high-tech jobs to India has made headlines, on balance, highly educated workers in the United States benefit from higher wages and expanded job opportunities because of trade. For example, ThinkPad notebook computers are now made by a Chinese company, Lenovo, but a lot of Lenovo’s research and development is conducted in North Carolina.

But workers with less formal education either see their jobs shipped overseas or find their wages driven down ... as other workers ... crowd into their industries and look for employment to replace the jobs they lost to foreign competition. And lower prices at Wal-Mart aren’t sufficient compensation.

All this is textbook international economics:... economic theory says that free trade normally makes a country richer, but it doesn’t say that it’s normally good for everyone. Still, when the effects of third-world exports on U.S. wages first became an issue in the 1990s, a number of economists — myself included — looked at the data and concluded that any negative effects on U.S. wages were modest.

The trouble now is that these effects may no longer be as modest ... because imports of manufactured goods from the third world have grown dramatically... And the biggest growth in imports has come from countries with very low wages. ...

So am I arguing for protectionism? No..., keeping world markets relatively open is crucial to the hopes of billions of people.

But I am arguing for an end to the finger-wagging, the accusation either of not understanding economics or of kowtowing to special interests that tends to be the editorial response to politicians who express skepticism about the benefits of free-trade agreements.

It’s often claimed that limits on trade benefit only a small number of Americans, while hurting the vast majority. That’s still true of things like the import quota on sugar. But when it comes to manufactured goods, it’s at least arguable that the reverse is true. The highly educated workers who clearly benefit from growing trade with third-world economies are a minority, greatly outnumbered by those who probably lose.

As I said, I’m not a protectionist. For the sake of the world as a whole, I hope that we respond to the trouble with trade not by shutting trade down, but by doing things like strengthening the social safety net. But those who are worried about trade have a point, and deserve some respect. ["Wonkish" follow up here.]

Comments

[Gegner]

As a 30 year manufacturing professional, I can attest to the fact that few here are taking up the trade...and the end result of this is it puts us at the 'mercy' of those who can.

When we can no longer produce what we need for ourselves, we will remain at the mercy of those who can.

Which is to ask, how will we prosper?

[Lafayette]

Article: For the sake of the world as a whole, I hope that we respond to the trouble with trade not by shutting trade down, but by doing things like strengthening the social safety net.

Again, much good sense in this article.

Still, I must underline the fact that "international trade" is doing what it does best for a great long time. At this moment, however, due to the relatively sudden doubling of the workforce available at low-wage rates (for labor intensive product manufacturing), international terms-of-trade (in this precise product area) have changed ... against the US and the EU and probably even Russia.

Both the US and Europe was unprepared for this quick a change in the terms-of-trade paradigm. Had that been the case, they could have instituted the measures that are necessary to progress low- and un-skilled workers up the competence ladder (to longer term job durability).

But, we had "other things on our mind". So, a very natural phenomenon will occur as a consequence. Those unprepared with the right skills will downgrade in both job prospects and therefore standard of living. This sounds bleak and, indeed, is worrisome.

But, we were resting on our laurels for far too long. It is time to pay the piper for our lack of foresight. It is a salutary lesson, so let's not forget it.

National education, whether primary, secondary or post-secondary does not "just happen". It is like a plant that must be placed in fertile soil, watered, weeded with plenty of sun before it bears its fruit/vegetables. It must be cultivated like a garden.

The government has its role to play to assure that EVERY citizen has the opportunity to better themselves by means of enhancing their skills. This starts with the awareness that the rules of the game have changed -- and skills enhancement is not just "a nice thing to do" but a "must thing to do" ... all one's life.

[anne]

http://krugman.blogs.nytimes.com/2007/12/27/wonkish-trade-blogging/

December 27, 2007

Wonkish Trade Blogging
By Paul Krugman

Trying to make sense of the huge volume of manufactured imports from the third world.

This figure looks at different US industries. * On the horizontal axis is the fraction of the work force that aren't production workers — a ratio widely used as a proxy for skill intensity. On the vertical axis is the share of imports from developing countries in total US imports in that industry. We'd expect a downward-sloping relationship — we buy labor-intensive products from the third world, but more sophisticated products from advanced countries.

The four dots at the upper left are the traditional labor-intensive industries — apparel, textiles, leather, and furniture. Almost all the imports come from the third world.

It looks pretty good, with one exception. Computers/electronics appears to be a skill-intensive sector where we import a lot from the third world.

It's pretty obvious what's going on: we're looking at multi-stage production, where the guts of your laptop or whatever come from Japan and other rich countries, but the final assembly takes place in China. And that partly explains how imports have gone up so much.

It also makes it very hard to estimate the net impact of these imports on wages …

* NAICS 3-digit, for the professionals.

[Figure]

[Callahan]

"But for American workers the story is much less positive. In fact, it’s hard to avoid the conclusion that growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country. And that reality makes the politics of trade very difficult".

Well said. Any non-believer should take a tour of Michigan.

[Don Quijote]

and skills enhancement is not just "a nice thing to do" but a "must thing to do" ... all one's life.

But workers with less formal education either see their jobs shipped overseas or find their wages driven down ... as other workers ... crowd into their industries and look for employment to replace the jobs they lost to foreign competition.

Translated in plain English, if all those displaced workers go out and get law degrees and medical degrees, doctors and lawyers are going to see their wages go down...

[Real Person from the Real World]

I generally agree with PK, but this time I am not so sure. There are plenty of well educated workers who are not doing well. When the car repair man can still demand his $90+/hrm and the doctor his $250+ per visit, and gas is $3+, and the only jobs are sales jobs for those who have to pay for those things are stuck at $8 to $10+/hr, telling someone that trade helps raise wages in some 3rd world country is not enough.

It used to be, that immigrants started out at the bottom and worked up, and while it was a tough climb, the next generation was better off. Not anymore. On the bottom in the trades like construction, you have those ranting about ILLEGALs. In hi-tech, you have thousands of little body shops vending some poor visa serf at the going rate for whatever, while the middleman vendor company produces nothing but a plane ticket then collects fees. But the real problem is the loss of the experience for an American grad.

An expanded Social Safety net will mitigate the pain, but is no substitute for a job that covers the bills. I think that has been documented in some European countries from things I've seen and read.

[anne]

http://www.nytimes.com/2007/12/27/world/americas/27migration.html

December 27, 2007

A Global Trek to Poor Nations, From Poorer Ones
By JASON DePARLE

JUAN GÓMEZ, Dominican Republic — The scrap-wood shanties on a muddy hillside are a poor man's promised land.

They have leaky roofs and dirt floors, with no lights or running water. But hundreds of Haitian migrants have risked their lives to come here and work the surrounding fields, and they are part of a global trend: migrants who move to poor countries from even poorer ones.

Among them is Anes Moises, 45, a dark-skinned man with flecks of gray hair, who has worked the Dominican banana fields for more than a decade, always illegally. Farm bosses pay him $5 a day and tell him that Haitians stink. Soldiers have called him a dark-skinned "devil" and deported him four times.

Still, with the average income in the Dominican Republic six times as much as in Haiti, Mr. Moises has answered each expulsion by hiring a smuggler to bribe the border guards and guide him back in.

"We are forced to come back here — not because we like it, but because we are poor," he said. "When we cross the border, we are a little better off. We are able to buy shoes and maybe a chicken."

Across the developing world, migrants move to other poor countries nearly as often as they move to rich ones. Yet their numbers and hardships are often overlooked.

They typically start poorer than migrants to rich countries, earn less money and are more likely to travel illegally, which raises the odds of abuse. They usually move to countries that offer migrants less legal protection and fewer services than wealthy nations do. Yet their earnings help sustain some of the poorest people on the globe.

There are 74 million "south to south" migrants, according to the World Bank, which uses the term to describe anyone moving from one developing country to another, regardless of geography. The bank estimates that they send home $18 billion to $55 billion a year. (The bank also estimates that 82 million migrants have moved "south to north," or from poor countries to rich ones.)

Nicaraguans build Costa Rican buildings. Paraguayans pick Argentine crops. Nepalis dig Indian mines. Indonesians clean Malaysian homes. Farm hands from Burkina Faso tend the fields in Ivory Coast. Some save for more expensive journeys north, while others find the move from one poor land to another all they will ever afford. With rich countries tightening their borders, migration within the developing world is likely to grow.

"South to south migration is not only huge, it reaches a different class of people," said Patricia Weiss Fagen, a researcher at Georgetown University. "These are very, very poor people sending money to even poorer people and they often reach very rural areas where most remittances don't go."

The Haitian migration to the Dominican Republic, its neighbor on the island of Hispaniola, has been large, longstanding and filled with strife. The Spanish-speaking Dominicans still refer angrily to a Haitian occupation that ended in 1844. The Creole-speaking Haitians point to 1937, when a Dominican massacre along the border is estimated to have taken the lives of tens of thousands of Haitians.

Haitian workers started coming in large numbers nearly a century ago, as seasonal help in sugar cane fields. But many now work year-round on farms or urban construction sites, which raises their visibility and the chance for conflict. Estimates vary greatly, but Dominican officials put Haitian migrants at one million, or 11 percent of the population.

As Haitians see it, the problems go beyond hard work and low pay to the systemic violation of their rights. Dominicans profit from their labor, they say, but deny them work papers, deport them at will and discriminate on the belief that Haitians have darker skin.

"There is no justice here," Mr. Moises said.

Dominicans often present themselves as generous neighbors of limited means, forced to bear the burden of Haiti's failed state, indigence and epidemic disease. They say they offer Haitians jobs and health care — 30 percent of the public health budget is spent on Haitians, government officials say — while enduring lectures about human rights from countries far from the fray....

[Callahan]

When/If this catches up to the upper middle, then we will hear some complaining. Til then, most probably don't give a rats behind.

What used to be a "good" wage, AIN'T anymore.

[2slugbaits]

Good to see that PK has returned to a subject that he knows about. This reminds me of a column he wrote several years ago when he argued that Bush's policies of undercutting the social safety net would ultimately undercut support for international trade. It was imperative to oppose Bush if you wanted to make the world safe for free trade.

[Frederico]

The problem with PK's article and many people like him isn't what he writes or says, it's what he's wrong about. Unfortunately, he et al only fess up when the damage is done. And then their mea culpas sound like they merely gave us wrong directions to get across town.

These guys always use the old saw that free trade is good because it helps poor nations. That's just a self-serving rationalization. Free trade helps those who already have the money.

We should protect our manufacturing jobs. We should get over the cheaper is better mentality. We should be worried about what is happening in the Rust Belt as much as we are about the poor in India.

And do any of you really think a stronger "social safety net" will ever happen?? And what exactly does that mean? Don't you think people would rather have decent wages than welfare? What an absurd and lazy piece of writing.

Oh, and he misses the whole scary point about Lenovo. The research facility in North Carolina isn't emblematic of an investment in high-skilled, knowledge-based industry in America. It's the last act before the end game. It too will go.

[save_the_rustbelt]

"But for American workers the story is much less positive. In fact, it’s hard to avoid the conclusion that growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country. And that reality makes the politics of trade very difficult."

Gee, many of us figured this out years ago, and we aren't even brilliant economists. But, credit to Krugman for the diagnosis and the clear writing.

Now about the cure.

Proud, hardworking people do not necessarily want a safety net, they want a quality job, you know, like the old days.

This is not likely to happen in the next generation or so.

I'm curious what this might do to politics, and certainly the Democrats have an opportunity here, but will they capitalize?

(One frequently recommended cure is the EITC, which likely does no good for a 55 year old manufacturing worker.)

[anne]

Remember, always remember, because Republicans are always destroying a remembrance of history, that New Deal policy did work and does work and would continue to work to create fine jobs. Republicans are forever destroying a memory of history that might help us understand this. Fiscal policy creates jobs, fine jobs, intended to do so rather than the reverse as now.

There is a reason an average of 225,000 jobs a month were created through the Presidency of Bill Clinton, while a month of 100,000 jobs created now is applauded.

[paine]

rusty in your wonderland
(i'll buy a ticket
to visit there
regardless btw )

who pays for
the hyper eitc ???

[ken melvin]

I said it afore and I'll say it again; They ain't coming back, ever. We've more workers than we need and will need less henceforth. The problem we face is not one of wealth, it's one of distribution of wealth. Speaking of distribution, as to education, better education of the work force only shifts the distribution of what jobs there are. Today, takes a Bachelors to drive a cab.

[anne]

"And do any of you really think a stronger 'social safety net' will ever happen?"

What is important is always to set down compassionless conservative Republican idiocy. Remember, there can be no universal health care protection, there can be no dramatic tuition reduction at public colleges and universities, there can be no green infrastructure development, there can be no public early childhood education, there can be no spending to improve public grade school education.

[anne]

"Speaking of distribution, as to education, better education of the work force only shifts the distribution of what jobs there are."

Nihilistic rubbish.

[save_the_rustbelt]

Based on a quick search, Michigan and Ohio are predicted to lose about 70,000 manufacturing jobs next year (rough predictions to be certain).

About half will be auto related, the rest in other products (we used to make toys, ladders, bicycles, tv components, toilets, etc., in the halcyon days before NAFTA, but the last of these are now being offshored).

Paine, don't you understand that if we could just cut taxes for the rich more we would get more revenue? :)

[robertdfeinman]

The US is now in the early stages of the post-manufacturing era. We are adapting in various ways. Some of them include:

1. Creating "service" jobs, especially for things people can do for themselves - personal hygiene, food preparation, simple household maintenance, etc.

2. Moving into intellectual property products instead of physical ones - movies, music, patents, copyrights, legal opinions, etc.

3. Adding layers of middlemen - insurance industry benefit consultants, hedge fund managers, consultants of all sorts, etc.

It is generally claimed that better skills training and education will shift factory workers to these new areas, but there is no real evidence. Many service jobs are quite routine and don't require advanced education. Many of them will also be at risk of being outsourced or are already moving. In general anything that doesn't require the laying on of hands to perform the service can be moved elsewhere.

So those who want to bring back the idealized past are wasting their time. The industrialized jobs are not coming back, education won't improve the prospects of those whose jobs don't require it, and over priced services will remain expensive as long as they are immune to foreign competition.

We need a national industrial (or economic) policy, but to discuss such things is anathema to those who think that "planning" is a code word for government control. In the meanwhile the country drifts on in an uncontrolled fashion with winners and losers showing up randomly. The losers want a return to the "good old days" while the winners don't want any change for fear the gravy train will end.

This is not a sane way to solve difficult social problems.

says...

"The losers want a return to the "good old days" while the winners don't want any change for fear the gravy train will end.

This is not a sane way to solve difficult social problems."

Two things.
1. The "good old days" only lasted approx. 20-30 years post WWII. Most of the economic history of America, per the average worker, falls within the "bad old days" or the "same as it ever was" days.

2. America has never sanely solved difficult social problems. We react to them. And we generally get what we deserve.

The day OP-ED writers, econ professors and TV bloviators (Reilly et al) see their jobs being outsourced is the day we'll see "national outrage." Until that day, we'll get the same platitudes.

[calmo]

Thanks for joining us Gegner, professional manufacturer, whatever this qualification might be...I'm sure I don't have it, but am here to find out: You writeI can attest to the fact that few here are taking up the trade...and the end result of this is it puts us at the 'mercy' of those who can. and I wonder how the professional managers can be so short-sighted not to provide for that continuing stream of qualified people "taking up the trade".
Why izit that the others (merciful and merciless) can and the domestics cannot?
Are we (beggars for mercy) overlooking the transnational might here which is always merciless?
In the swamp of the housing boom, was it just a losing proposition to try to compete with that level of remuneration...like trying to persuade someone to learn carpentry (and Spanish) for a fraction of the RE commission?
You figure "our" complacency with this arrangement was only the complicity of the managing professionals who had control of the communication taps...letting us know the economy was growing and the slave labor was helping real legal Americans do what they like to do?

[barry payne - economist]

The adage is true, that if too many people ride in the wagon rather than get out and push, the wagon will stop moving.

But it's also true that too much concentrated wealth is controlling the wagon from the top down. One CEO or hedge fund manager is considered equivalent to the "necessary" pushing power of several hundred others who also push the wagon.

While productivity is the root source of growth, the source of productivity itself is complex. It can be dominated by a multitude of factors such as natural resources, trade, market structure and education, or in contrast, well regulated private monopolies and efficient government goods and services. Just look at China.

The case of Dominican property owners hiring Haitian labor demonstrates the fungibility of unskilled labor enabled by a level of competition never tolerated by the professional class. In the U.S., the closest has been the new "under-professional" class - part time or full time with no full benefits, piecework or temporary work, many times under the guise of low-brow "consultants".

At the bottom of the income ladder in some places, like Haiti, one's productive capability in terms of added value is identical to what one receives as distribution from the system - as in $5 a day. But moving up the ladder in the U.S. to the higher rungs, the two factors separate widely and are heavily debated on whether amounts received are deserved for productivity or plundered for unwarranted redistribution.

Meanwhile, this is fundamentally different than say, an entire class of manufacturing workers from whom the economic base has shifted out from under it, which is like cutting off the ladder described above at a particular rung.

When PK talks about wagging fingers from those critical of the few special interests who would interfere with free trade at the expense of the many, he makes the salient point that the situation has shifted to the "many" who would interfere rather than the "few".

Further, many of these "many" are starting to question seriously the over-simplified lessons they have taught, say on talk radio, using parables like the wagon not moving unless enough people get out and push as "workers" versus "welfare recipients". It's become less clear to them just who's getting "welfare" all the way up to the top of the ladder.

It's starting to reveal itself instead as a ladder of privilege and heritage on the upper rungs and one of ruinous competition on the lower rungs. The wagon is still moving fine (growth with low unemployment) but the distance between the high and low rungs is spreading out way too much, and that's not even about distribution, just opportunity.

[hari]

A better or stronger social safety net is NOT the perennial answer to globalization...

International division of labor has (already) moved in favor of China and India...not only because of low unit labor cost (wage rates) but also due to FDI (mainly US/EU).

Technology transfer is making manufacturing giants out of China ( India follows!).\

The investment and focus on education in China/India is part and parcel of their culture(s) since there's no other way up in society. The Indian PM is already announcing no safety net for those who don't qualify - meaning that further technical education is the answer. Rural population is another problem for both Asian giants.

Instead of better safety net, I'd consider investment on technical education for school leavers one way to avoid the problems of social welfare - long term.

[save_the_rustbelt]

calmo:

I monitor the National Association of Manufactures website, and they have had some interesting material the past few years.

A crude paraphrase of a lot of material goes something like this:

"Sure, we have dumped 3.5 million jobs since Y2000, but we need a lot of new blood to replace retirees, so please become a manufacturing worker."

NAM of course wants workers under the age of 34 (they state this quite openly) and with no union history (they don't state this directly).

Some of the NAM experts seem to think that parents and guidance counselors are steering high school students away from manufacturing jobs, considering the probability that the jobs will likely be outsourced eventually.

Manufacturers have a chicken-and-egg problem, seems to me.

Should young people train for manufacturing jobs?

[2slugbaits]

I don't think the "social safety net" just means handing out more generous unemployment checks while armies of disgruntled workers pathetically wait for their old jobs to return. A social safety net means training programs, it means relocation assistance, it means decoupling healthcare from your current job, it means economic policies that encourage economic diversification rather than the kind of mono-manufacturing that you find in the rustbelt. Throwing up protectionist barriers might temporarily help workers in the protected industry, but it also means hurting other workers. The tricky part is that a rustbelt worker who loses a $60K/yr job and can now only find a $30K/yr job is a lot more politically vocal than three full-time Wal-Mart workers each making $20K/yr whose hours are cut to part time and $10K/yr. Objectively we ought to be more concerned about the three Wal-Mart workers, but politically it's the rustbelt worker who will get the political stroking.

[2slugbaits]

I don't think the "social safety net" just means handing out more generous unemployment checks while armies of disgruntled workers pathetically wait for their old jobs to return. A social safety net means education & training programs, it means relocation assistance, it means decoupling healthcare from your current job, it means economic policies that encourage economic diversification rather than the kind of mono-manufacturing that you find in the rustbelt. Throwing up protectionist barriers might temporarily help workers in the protected industry, but it also means hurting other workers. The tricky part is that a rustbelt worker who loses a $60K/yr job and can now only find a $30K/yr job is a lot more politically vocal than three full-time Wal-Mart workers each making $20K/yr whose hours are cut to part time and $10K/yr. Objectively we ought to be more concerned about the three Wal-Mart workers, but politically it's the rustbelt worker who will get the political stroking.

The economic model that Krugman is talking about basically sets up a 2x2 matrix with four cells:

(1) Developed country/High skill worker
(2) Developed country/Low skill worker
(3) Developing country/High skill worker
(4) Developing country/Low skill worker

The model says that trade will tend to improve things for those in categories (1) and (4) and hurt those in categories (2) and (3). The social safety net says that we should redirect some of the benfits that accrue to those in group (1). The practical reason is that if we don't, then protectionist political pressures will eventually make all four groups worse off. The moral reason is that the most economically vulnerable are in group (4) and trade is that group's ticket out of extreme poverty.

[wogie]

Short of an impact with dimensions equivalent to the Great Depression, just what would be the probability that a safety net of the sort proposed would be adopted? I suspect very low. Also, is the safety net approach a sort of a knee jerk reaction because nothing else is readily on the horizon -- and even if adopted how will that restore society to its former status? Some more creative thinking on this is needed in my view. If the current trend continues we may experience something like the "hollowing-out" of Japan's economy. Check the URL for a view of that experience

[wogie]

Well, the URL didn't show. Here it is:

http://www.project-syndicate.org/commentary/cowlingtomlinso

[Callahan]

If we must compete with the likes of a Criminalistic Mexico and Communistical China, and not starve, then seems to me (no ekonomist) that we must DEFLATE our wages/prices/savings/debts et al to those of say 1919.

[anne]

"If we must compete with the likes of a Criminalistic ------ and Communistical -----"

Remember to always use the language of prejudice to make an argument, because showing prejudice is what is really important.

[Callahan]

Anne,

Aw, I'm sorry if I hurt your feelings, but is not China a Communist country, and is not Mexico a place which seems to promote the illegal drug industry?

Let's get real.

[dd]

It is not "countries" that pay low wages but protectionist legal entities ie. corporations that pay low wages to generate greater profits. As protected legal entities corporations can inflict social harm for privatized profits without fear of any consequences as voters are unaware that incorporations laws can be amended the way they were when the "public good" requirement disappeared and was replaced by the private profits with no social responsibilities myth.
Just as Congress rediscovered the NFL's antitrust exemption that magically found the Patriots on free TV, so too legislatures everywhere might rediscover that corporations must serve a public benefit in return for their legal privileges.
That whole NFL thing has given me hope.

[Alex Tolley]

It5 is not clear to me that the proffered chart shows anything to really worry about. Firstly, it is only the electronics sector that is anomalous. As PK says, that may mean that the few, highly skilled get to benefit. He cites the case of Lenovo, and we have seen the breakdown of iPhone value added that mostly accrues to Apple. A couple of decades back, the same value added distribution was seen for Nike shoes.

The argument seems to be that the foreign competition for manufacturing pushes down US manufacturing wages. That may be, but so what? It just means that eventually US manufacturing must become more productive and possibly use less people. The lens that we see it is through the loss of highly paid union jobs, so we "see" the competition as destroying "good paying" manufacturing jobs. Unions could certainly play a role in ensuring that wages are not ridiculously low (and not just in manufacturing).

But the real solution is to ensure that a much larger fraction of US employment is independent and able to extract value directly. That means better education and more government support for entrepreneurial activity (e.g. universal healthcare).

Tom Peters once wrote a piece about the fact that employment in the US around 1900 was dominated by self-employment, but that this had completely reversed with the rise of large corporations. He felt that this state could reverse itself. Whilst this may take a long time, it is certainly a route that might work to reduce wage pressures.

[Dill]

anne says...
"Remember to always use the language of prejudice to make an argument, because showing prejudice is what is really important."

Will do, Anne. Thanks for the advice.

[Dill]

Alex Tolley please explain your statement:

But the real solution is to ensure that a much larger fraction of US employment is independent and able to extract value directly. That means better education and more government support for entrepreneurial activity (e.g. universal healthcare).

[Alex Tolley]

Dill:

I mean self-employed in entrepreneurial activity. I think the comment about government support is self explanatory - improve the ability of citizens to make their own jobs and to remove the impediments to taking those risks. Redistributive income policies would help too, so that the social landscape encourages risk taking, rather than resulting in the Darwinian one we have today.

The key is to allow people to create as many customized jobs as possible to reduce commoditization. This can be by creating novel products (we are still in the age of mass production, rather than mass customization) and services (custom, localized, relationship based). As globalization gets easier, and it has vastly so compared with 15 years ago, individuals and small groups can utilize this for their own benefit, not just the relatively few.

[Callahan]

I'm outta here.

Have a Happy and PROSPEROUS New Year. Anne too.

[Alex Tolley]

Let me append my comment with some possible social policy ideas.

background: I was watching "Seamless", a documentary following 3 small clothes design companies compete for a Vogue prize. It was pretty clear that each owner was working his/her tail off to build their business, but each had talent and vision of where they wanted to go.

So every so often we hear rumblings about getting school leavers to serve a term in the military or do community service, both coercive activities for little social benefit.

So what about offering those same people some basic support to get an idea they have, off-the-ground? That support could be financial (pay a basic stipend), resources (access to facilities and mentors), whatever works best. The support could be for 2 to 5 years, to remove most of the downside risk. Whilst many people wouldn't want to do that, a fraction of the population would, and at the margin , more than those who would today given the costs of failure.

[Don Quijote]

The key is to allow people to create as many customized jobs as possible to reduce commoditization.

And who is going to buy these products? The workers whose wages are going down?

[S Brennan]

Actually, when Paul says:

"...it’s hard to avoid the conclusion that growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country."

The reality is:

"it’s hard to avoid the conclusion that growing U.S. trade with third world countries reduces the [amount of] real wages [PAID to workers in this world]."

The result, fewer people have more money and more power. If that is the desired result...fine...if not, the predacious trade policies that fly under the "Free Trade" flag need to be deleted or altered to point where they encompass some shred of social consciousness.

Anybody who has read "The Wealth of Nations" knows that Smith's ideas of trade were laden with morality, which is completely at odds with today's "Free Trade" policies...NAFTA being one of the clearest cases of two nation's elites getting together to impoverish the peoples they rule.

Let me state clearly, I am for trade, but it must be a benefit to the majority of people in both nations in both the short, medium and long term. So far, our movement away from bilateral trade has been a disaster for this county's LONG TERM interests and trade agreements [in their current form] continue to despoil the earth as whole.

One other point:

People who talk about "retraining" have, almost without exception:

1] Have not been forced to give up a decent paying job.

2] Have not financed a career change.

3] Have not taken several years to retrain in mid-life and

4] Have not then returned to the workforce at reduced pay.

5] Have not faced more "retraining" as the newer "profession" is outsourced.

6] Have not faced further wage reductions as other seek refuge in the few remaining good jobs.

Which is what the majority of workers who "retrain" are coerced into doing. I have had the experience of this "retraining"...not all bad...but for those "retraining" advocates out there...how many of you have done US Army Basic at 31 y.o. to pay for University?

Not many, I bet.

[zinc]

The true fallacy of the trade debacle has been covered up with the greatest debt bubble in history. The great dismantling(looting) of American wealth has been made possible through an unholy alliance of dogmatic academics, following a flawed model, an avaricious, short term oriented business class, the re-emrgence of financial services as a major industry, and the domination of our government politic by two corrupt parties.

As much as I respect PK, I think he is just now glimpsing the awful truth of our flawed trade policy, which will not be fully revealed until the cycle is complete. Replacing the American base of family level wage jobs and benefits with near slave labor wage regimes of the third world is a short run harvest strategy that is eviscerating the great society. Truly the greatest American tragedy of our time.

The trade apologists point to the apparent economic growth of the last few years as related to trade. It is much more likely a result of the debt bubble that became necessary to escape the horrendous negative effects of our trade policies. The current trade debacle has nothing to do with trade as envisioned by Adam Smith. The perversion of Adam Smith's ideas is that the very monopolies that AS wanted to keep at bay through liberal trade have secured their monopoly positions by moving off-shore, masquerading as foreign competitors. The benefit of savings to consumers that AS saw have been over-whelmed by replacement of domestic labor with foreign labor, with a net loss of income, quality of life, and wealth. Hardly the goals of Adam Smith.

We should have adopted a measured approach to trade liberalization, insisting on a balance between imports and exports. It is not too late. We should begin a reversal, immediately. Ten percent per year reduction of trade imbalance, on a country by country basis, until trade is normalized. We buy manufactured goods from them, they buy an equivalent amount of goods or services from US.

[paine]

rf

"The US is now in the early stages of the post-manufacturing era"

lm

" said it afore and I'll say it again; They ain't coming back, ever"

if we aare talking about millions of operatives on assembly lines
i agree

but we still oughta produce the bulk of the tangible tradeable stuff we buy to use

trade is only inevitable across borders
when price ratios vary

the whole apparatus of trade theory
is based on
varying relative endowments
of certain "natural factors"
hours of sun light
frost free days
deposits of iron ore
coal
forest cover
flat well watered land
the list is as long as mother nature has made it
and then last but not least
theres the population itself
with its living cultural
and its marks apon the earth
ie
any durable improvements
in these natural factors
the collective efforts
of human toil and skill
have produced

these variations in endowment will produce trade across borders

but here's my proposition
most trade is not based on these classical factor variations
but on the spread of industrialization
ie
no comparative advantage in the
traditional ricardian sense
start with this:

a factory is a factory is a factory
training is training
standards are standards
all can be produced more or less
anywhere on earth

key caveats:

never confuse the reception
of
transfered technical advances
with the need to export
or import products

never confuse a factory
with a factor

like all artefacts
machines are not factors
buildings are not factors
not in a coherent model at any rate
they are conflated
with factors
to sow confusion

they
are the product
of natural and/or improved factors
plus
various grades and types of human labor

just as the theory of pure exchange is utterly revolutionized
by the introduction of production
the theory of production and exchange are revolutionized
by the introduction
if intermediate durable products
ie machines

if you keep this clearly b4 your mind's eye
you won't fall for the cosmopolite corporate line
"us industry must contract so china can progress"

only one thing is worsethen to fall for this false dilemma
and that is to think financing
is "a real" factor of production
that the global credit system
directly produces anything real
is reified nutcakery

china does not need our " money capital "
or over the long haul our machines
only
the know how to build the machines
and its own social division
of production between
household products
and more factories etc

all the rest

---the magnificent dynamics
of globalization as we know it--

is merely an ongoing demonstration
of the possiblities and limitations
of human development
under the piloting of one principle

by all means do it
so long as you do it
by all means most profitable
to ..... the earths state of the art
trans nat corporations

psprediction
despite its simplicity
there's more here
then a laff over
will gather in

[M Chambliss]

This is a good far reaching discussion. A quick pound on my old favorite drums: a) Training as a solution to wage arbitrage is elitist and short sighted because people everywhere can/will be trained and b) The metrics used to define a problem also define the solution. Economic social policy ultimately addresses “quality of life” and we have yet to develop actual working metrics for “quality of life”.

Two historical points:
The goal of free international markets, as initially envisioned during the Carter administration, was to integrate the under-developed world with the developed economies to avoid widespread social unrest due to massive inequality. That’s sound thinking. However, in the interest of domestic stability, it was also to be a 100+ year transformation. We lost sight of that.

President Madison recognized that a robust manufacturing base is essential for any nation to remain free and self-determining. As we loose the domestic capacity to manufacture critically important components (such as hard drives), we increasingly find ourselves in trade position analogous to the one of 200 years ago.

[Alex Tolley]

s brennan: People who talk about "retraining" have, almost without exception:

1] Have not been forced to give up a decent paying job.

2] Have not financed a career change.

3] Have not taken several years to retrain in mid-life and

4] Have not then returned to the workforce at reduced pay.

5] Have not faced more "retraining" as the newer "profession" is outsourced.

6] Have not faced further wage reductions as other seek refuge in the few remaining good jobs.

Arguing that people without experience of something is an old rhetorical device and wrongheaded.

OTOH, if experience confers authority, I will trump your experience with:

1. Having my UK degrees from major universities considered junk in the US.
2. Having to retrain in a new career (computers) during the fairly deep California recession of 1990-1995?
3. Self financing further education to overcome the 2000 dot bomb bust.

So yes I am aware of the pain and distress that this causes. I also am aware that 'retraining' by itself is not that useful and that fads create over supply in some industries. However, we live in a time of change and we cannot assume that the old static models will work.

If you want real wrenching change, look to Russia after the fall of communism. Doctors jobs paid less than more commercially useful ones, so imagine physicians retraining.

[mrrunangun]

Prof. Krugman sometimes lets his politics overcome his econ training and this is one of them. In business competition, productivity supremacy lead to victory. America retains its commercial leadership because of its labor productivity. The low wage, low skill sectors of the American economy that were able to export in the postwar era are no longer able to do so now that the other industrial economies have recovered and the "developing" countries in several cases have actually developed. Their low prevailing wage compensates for their lower productiviey.Neither redistributionist tax and welfare policy mixes nor protectionism can solve the problems of our domestic losers in the productivity contest without hobbling the productivity winners. There are many more such winners than losers. New Deal type productivity-enhancing public works programs and education reform seem to me to be more constructive ways of dealing with the problem of the unskilled. I do not believe the increase in education spending over the past 40 years has resulted in better educated or trained people here, so organizational and management reform rather than more money is my thought

[Icarus]

Why Save the Rustbelt...

So, we know that 700,000 jobs or so will be lost in Michigan. Realizing why is not exactly a mystery. There is no good reason to build a car with expensive, remedially trained american labour. Anyone working in that industry should know this. These jobs are not being lost suddenly...the signs are all over, and have been for years.

A financially responsible person in that situation would already begin planning their transition to a new career. If they dont plan that tranisition, they will be in a fragile state once the lay offs come.

What we need to encourage isnt protectionism, or govt handouts. We need to instill a culture of responsibility where that auto worker is aware of their precarious situation, and plans accordingly.

[paine]

tolley wood sunset

"Tom Peters once wrote a piece about the fact that employment in the US around 1900 was dominated by self-employment, but that this had completely reversed with the rise of large corporations. He felt that this state could reverse itself. Whilst this may take a long time, it is certainly a route that might work to reduce wage pressures"

you introduce a basic topic
we all
need a stronger grounding
why " firms " not only exist but
take on more and more of the activities
of an industrial economy
and why in a post industrial economy
the board rooms might not
each decide t'is best for viability
to take their one big firm to pieces
mirc em
(multiple independent re invented corpor-ettes )

coase back in the late 30's asked ..why do firms exist??
why not we all just individually
trade stuff among ourselves

gooooood question

of course
as they say in court

asked and answered your honor

[paine]

"Training as a solution to wage arbitrage is elitist and short sighted because people everywhere can/will be trained ... "

quite right.... eh ???

"The goal of free international markets, as initially envisioned during the Carter administration, was to integrate the under-developed world with the developed economies to avoid widespread social unrest due to massive inequality"

at the best
in the event
this policy
appears now
to play off
two different types of inequality
against each other
that between nations vs that inside nations

[Lord]

Lower wage workers generally work in non-import competing industries and generally benefit from trade, but not immigration. Middle wage workers in import competing industries such as manufacturing suffer greatly. Higher wage workers frequently compete head on and suffer the most from it. The highest wage workers, like CEOs, profit the most from it. So everyone gambles, 'trains', for a job as CEO, with most ending up as low wage workers.

[lonesome moderate]

Callahan: Aw, I'm sorry if I hurt your feelings, but is not China a Communist country, and is not Mexico a place which seems to promote the illegal drug industry?

There has been a savage drug war going on in Mexico for the past year. The effort to break the power of the exican drug cartels has been the prime initiative of Calderon's presidency so far and a lot of Mexicans have been hurt by it. Not just in their feelings either.

[barry payne - economist]

Paine, I'm listening, trying to interpret it but it's still slippery.

It sounds Marxian, that ultimate value arises from natural resources, including labor, and manifests itself in the form of machines and buildings as the true "factor" of production.

Consequently, in regard to the production of real tangibles, trade is not particularly beneficial in terms of comparative advantage because most of the "capital factor inputs" are uniform in a commodity-like fashion regardless of which country produces them.

Only technology, the know-how to put it together, is needed by one country from the other. The relative price ratio to justify any trade at all in the first place is driven by that technology difference plus a multitude of complementary differences in natural resources, including labor.

The multi-national superstructure, including finance, is an artificial overlay designed to extract the real value of labor and other natural resources directly via wage rates and other prices, but particularly indirectly through the employment of durable machine goods.

Therefore, production of the same tangibles could be accomplished on a stand-alone basis within the borders of each country, except for the necessary transfer of technology for one of them.

Result: Total production across both countries is about the same whether trade occurs or not (absent technology transfer), but without trade, the vast redistribution of labor value to corporate profit does not occur (value of technology subtracted out?), remaining instead with the labor that produced it. Relative production between the countries is determined by same thing that determines real relative price differences - natural resources and labor.

In one interesting case, if the positive value of the technology transfered offsets exactly the negative value of a real wage decline in the developed country had trade occurred absent participation of a multinational , then the developed country is indifferent to trade or no trade while the developing country can only benefit if the technology transfer occurs.

[lonesome moderate]

M Chambliss:President Madison recognized that a robust manufacturing base is essential for any nation to remain free and self-determining. As we loose the domestic capacity to manufacture critically important components (such as hard drives), we increasingly find ourselves in trade position analogous to the one of 200 years ago.

This strikes me as very much the position that almost the entire rest of the world is already in, with the exception of a few oddballs like North Korea.

Frankly, after the last seven years I have to say that some kind of functioning world government has become a necessity, and the main reason is to restrain behavior of the kind that we ourselves have been engaging in.

[gordon]

Alex Tolley, I fear that creating a whole lot of small "entrepreneurial" businesses will just reduce productivity. I know in Australia the figures don't look good for small businesses when you compare their value-added per employee with larger businesses, and I have read that the US is similar, though I can't find the numbers (I suspect somewhere on the Bureau of Census website) offhand.

[save_the_rustbelt]

Icarus:

All the cliches are nice, but when a worker has a family, kids to educate, a mortgage to pay off, and etc., all the Horatio Alger boot-strap crap is easily said and more difficult to accomplish.

And then there is the investment problem, if I have 28 years into a 30 year pension it is tough to walk away. What would your decision be.

And just what career should these folks have trained for? Wal-Mart greeter? Wandering hired hand? I am so tired of the training-solves-everything line.

Talk is cheap.

[ken melvin]

STR - Very small minded Icky never had an original idea in his/her life; even the blame the victim shtick is borrowed. Reality is that a whole hell a lot of Americans are hurting through no fault of their own and have been for a long time. Icky's solutions have no basis in reality and about as good a chance in working as fairy dust.

[paine]

bp

"...ultimate value arises from natural resources, including labor,"

"ultimate value " ????

use or exchange ???

"...and manifests itself in the form of machines and buildings as the true "factor" of production "

"itself " ????
meaning nature and labor ???

"in the form of" ???

as in thru ???

"capital factor inputs"

a very twisted surprise
lies hidden in that phrase
like a cobra in a basket
i assume" capital "
here is used as in physical "capital"
ie factories and such
a very conflationary result is had
by throwing in factor AND input
on top of this use of capital

fixed durable multi period intermediate product input
is a mouth full but unlikely to confuse any one
by using the same word for very different things

whether the words factor or capital make sense
in demotic use
they still lead to crossed wires

the particular economic system
obviously shapes the production system
in many system specific ways

share crop produced cotton
versus slave plantation produced cotton
but
simply looking at a bale of cotton by itself
you couldn't tell
in fact in terms of its use at least
you wouldn't care
by which system it was produced
unlike the plows or even the fields
which an informed observer
could use as clues
to the system slave or share crop
that utilized them

[gordon]

Krugman says: "...economic theory says that free trade normally makes a country richer, but it doesn’t say that it’s normally good for everyone".

Once again it's necessary to confront the issue of who "we" are. I suspect that many Americans have been living in a Depression for years, but phrases which refer to big aggregate numbers (like "rich country") don't reflect that. Simultaneously, many other Americans have also been living through a terrific boom which has increased their personal wealth many times over.

(I will at this point refrain from launching into a rant about how economists are prisoners of their aggregated datasets, and how much of the data is actually pretty ropy).

It is nice to see Krugman try to break this down just a little with an attempt to differentiate between educated and uneducated workers, and 2slugbaits taking it a bit further with his matrix. We need to go very much further, until we meet, as it were, the anecdotalists (like Ehrenreich) coming the other way. Maybe somebody is doing this sort of microanalysis of very small (city or neighbourhood) labour markets and the factors which are really important to them. If so, I would like to hear more about their work. I really doubt whether anything useful in regard to handling the effects of trade is going to emerge without it.

[paine]

"The relative price ratio to justify any trade at all in the first place
is driven by
that technology difference plus a multitude of complementary differences in natural resources, including labor"

"..plus a multitude "

i'd want to change
'plus a '
to
'that swamp--- in determining ultimate exchange value---
the multitude of etc etc

[paine]

"The multi-national superstructure, including finance, is an artificial overlay designed to extract the real value of labor and other natural resources ..."

not the "real value " of labor etc

but

the maximum share possible
of the exchange value of labor etc

"directly via wage rates and other prices"

cross border wage rate
regulation and tax rate arbitrage
exchange rate fiddles
and global market place
pricing power
(ie
competitive imperfections
that allow the TNC
to retain some "consumer surplus value "
as firm profit
ie
extracted producer surplus value )

[paine]

bp

thank you
for the paraphrase
and
the clear grasp of my point

[paine]

" a whole hell a lot of Americans are hurting through no fault of their own"

bingo

[paine]

"the developing country can only benefit if the technology transfer occurs"
in my books
all the emerging market firm "owes"
any TNC with a cutting edge technical capacity
is the cost of training
the rest is using marshall's expression
" quasi rent " extraction
by the TNC thru its claimed right to
IP payments

[paine]

mrrunangun
"Neither redistributionist tax and welfare policy mixes nor protectionism can solve the problems of our domestic losers in the productivity contest without hobbling the productivity winners."

this is not self evident

"There are many more such winners than losers."

really ???

"New Deal type productivity-enhancing public works programs "

infra structure ???

"... education reform seem(s) to me to be (a) more constructive ways of dealing with the problem of the unskilled".

okay.....
but then you cross that out with this

"I do not believe the increase in education spending over the past 40 years has resulted in better educated or trained people here"

which i happen to agree with but
you throw me with this ....

"so organizational and management reform rather than more money is my thought "

[anne]

Thoughtfully well done as usual, Paine.

[anne]

Paine, there is never a time when I do not learn from you and I am especially grateful when you extend a position.

[Don Quijote]

" a whole hell a lot of Americans are hurting through no fault of their own"

Bull, they spent thirty years voting for the people who have put our current economic policies in effect. Union Busting policies under Reagan, Bush & Clinton were accepted, Clinton's crappy trade deals(NAFTA, WTO) were accepted. As long as they were not the ones getting a hair cut, they didn't care.

[GMG]

The trade deficit is killing this country. We can no longer carry these deficits on the backs of working people and small business. Yet, our government allows and enables these enormous deficits with our trading partners. We have no energy policy, so the result of this is that the Middle East has vast FX reserves. The reserves get recycled over here in the form of ownership of US corportations, ala Citigroup. Meet the new owners. The same is true with Japan, Singapore, China, and even Europe. Why is it that they can have a mercantilist economy and we can't? Where is our Sovereign Wealth Fund? That's what I'd like to know. The sad thing is that we let this happen, all under the guise of "free" trade. To me, free looks pretty expensive if you ask me. Brother can you spare a dime.

GMG

[Bruce Wilder]

66 comments and counting. I confess I haven't read them all, though I see a number of the usual suspects reciting the usual whatever.

I came to complain about the quality of reasoning. Not the quality of the reasoning, by commenters, but by Krugman. I know Krugman has, by his own account, thought deeply about trade, and I know he's much smarter than I. But, when I think critically about trade, and compare my musings with his, I am left unsatisfied that he's helping me think through the issues.

Like many of the commenters, I raise a skeptical eyebrow at the pious cant about higher skills/education. What Paine said, is certainly true: trade is not about Ricardian factor endowments, at least not the trade we care about; that trade is about sunk cost investments in knowledge and machines and ways of doing things. It is driven by luck, and external economies and increasing returns to scale, and involves no particular reward for virtue or vice (I'm looking at you, Icarus).

I don't think Krugman is being particular helpful. Of course, if you question "free trade", the mind is quick-marched to "protectionism", because the economists have given us no other path through the maze.

We need better, truer thinking, and better data. Gordon is right -- the theory and the empiricism has to get much, much more realistic, much more plausibly close to anecdote. It is one has a smooth path from theory to anecdote, that sensible policy comes within reach.

[paine]

bruce gone wild
"It is driven by luck, and external economies and increasing returns to scale, and involves no particular reward for virtue or vice "

with my usual one note ....charm
i'll add ..and left to itself
trade will be guided across wide open and or gated doors
by ...those cross boundary " gain huskers"
that have ....an interest in rig ups that work
nicely for them
ie regs rates and where abouts that max their gain
preserve their max and increase their potential max
needless to say a broader purpose will not prevail
if not motivated informed organized mobilized
and ready to rumble
this btw requires not a party but a just a civil association ready to assemble and petition
a set of possible acts
afforded us by our bill of rights
and sundry other laws and traditions
on the forex /credit question
we need a whole ammalgamation
of updated guilded age type popular movements
all the highly conflicting currents of back then
have their avatars today
green back-free silver industrial tariff
open/shut immigration
menacing monopoles
all there all in need of an update
and a fresh set of mass movements

then and only then
will our binary party system .... respond

[paine]

lets make pluralism work for the little folks too

[Real Person from the Real World]

GREAT THOUGHTS GLEANED FROM ABOVE:
*************
We need a national industrial (or economic) policy, but to discuss such things is anathema to those who think that "planning" is a code word for government control.
ROBERT FEINMAN
***************
The adage is true, that if too many people ride in the wagon rather than get out and push, the wagon will stop moving.
But it's also true that too much concentrated wealth is controlling the wagon from the top down. One CEO or hedge fund manager is considered equivalent to the "necessary" pushing power of several hundred others who also push the wagon.
The case of Dominican property owners hiring Haitian labor demonstrates the fungibility of unskilled labor enabled by a level of competition never tolerated by the professional class. In the U.S., the closest has been the new "under-professional" class - part time or full time with no full benefits, piecework or temporary work, many times under the guise of low-brow "consultants".
It's starting to reveal itself instead as a ladder of privilege and heritage on the upper rungs and one of ruinous competition on the lower rungs. The wagon is still moving fine (growth with low unemployment) but the distance between the high and low rungs is spreading out way too much, and that's not even about distribution, just opportunity.
BARRY PAYNE
*************************
self-employed in entrepreneurial activity
The key is to allow people to create as many customized jobs as possible to reduce commoditization. This can be by creating novel products (we are still in the age of mass production, rather than mass customization) and services (custom, localized, relationship based). As globalization gets easier, and it has vastly so compared with 15 years ago, individuals and small groups can utilize this for their own benefit, not just the relatively few.
ALEX TOLLEY
****************************
The great dismantling(looting) of American wealth has been made possible through an unholy alliance of dogmatic academics, following a flawed model, an avaricious, short term oriented business class, the re-emrgence of financial services as a major industry, and the domination of our government politic by two corrupt parties.
As much as I respect PK, I think he is just now glimpsing the awful truth of our flawed trade policy, which will not be fully revealed until the cycle is complete. Replacing the American base of family level wage jobs and benefits with near slave labor wage regimes of the third world is a short run harvest strategy that is eviscerating the great society. Truly the greatest American tragedy of our time.
We should have adopted a measured approach to trade liberalization, insisting on a balance between imports and exports. It is not too late. We should begin a reversal, immediately. Ten percent per year reduction of trade imbalance, on a country by country basis, until trade is normalized. We buy manufactured goods from them, they buy an equivalent amount of goods or services from US.
ZINC

[Real Person from the Real World]

About ALEX TOLLEY's IDEA:
"self-employed in entrepreneurial activity"

I was recently reading "Richestan" by Robert Frank, and he documents all the oddball ideas that have made a lot of wealthy entrepreneurs. But ultimately, entreprenuerial activity is very risky. New ideas are risky, many entrepreneurs stick to the tried and true. I know, I work for a 3rd World Entrepreneur, now US Citizen, his brialliant stuff doesn't make money, his body shop does.

Ultimately, working for yourself is more appealing except when it comes to paying the bills, unless your idea happens to hit it big. Entrepreneurial activity is not for everyone, and it is a big majority of people who are suffering by seeing their jobs farmed out overseas, to someone who is paid less and LIVES IN AN ECONOMY WHERE IT COSTS LESS TO LIVE!

ALSO, as I said, and many have said here, SOCIAL SAFETY NETS, whatever they may be, are NO SUBSTITUTE for a decent paying job.

[hari]

If PK doesn't believe in protectionism (his academic work on international economics will alone atone him!), however, he's given vent to a disparate school of thinking here - among mostly well educated lot! - that something is WRONG with current disposition of US international trade balance, etc.

In the final analysis, one must always keep in mind that international trade is a basic function of supply and demand, more so now because of Globalization which was initiated under Rubin/Clinton regime and WTO.

Sometimes you've to take the bad with the good, and as they say in accounting, the book eventually gets balanced.

[ken melvin]

Yes RP, as Casey might've said, it's amazing that a thought to be intelligent species would ever so gladly cast its lot with such ephemerals as free markets and entrepreneurs; course Casey might've believed in the little folk himself.

Thinking not about arks but better models: Each and every having half onshore would have brought down prices, increased production and made some of eldrers feel better about the lost capacity to make anything.

[save_the_rustbelt]

Paine:

you are

in rare form

prolific

thoughtful

thank you

[hari]

PaulKrugman, I presume, will not discredit us for mixing his ideas on globalization and protectionism with what Reich/Judt are debating about on "SuperCapitalism"!

[Paine - I suggest you also take a good look at Judt's rebuttal of Reich's book]

Supercapitalism!

Reich/Judt debate (it's NOT an exchange!) on the political consequences of present-day globalization, and the role of the State.

My sympathy, I must admit, falls more on the thoughtful analysis presented by Judt. I've a keen understanding of the history of ideas (!) in which Judt seems, to me, to come out more of a master than Reich. Reich appears to be unable or unwilling intellectually to take on Judt - may be it's not good for tenure Professor @ Berkeley!

However, there's no question that globalization has literally un-leached the end of nation-state, as we've known it. By codifying WTO and its mandatory instruments for arbitration, in case of trade disputes, Clinton not only nullified the role of State in relationship to other States, but enforced the notion that in future the nation-state will NOT be able to interfere in the development and facilitation of what Reich dubiously (in my view) calls Supercapitalism.

I'm also confident Dani Rodrik's many distractors are more or less from the same school of thinking as Reich.

This subject is too serious to be categorized as "left" or "right" deviation in intellectual discourse. What we need is a full and forthright debate and exchange of views on what's the role of the state in future - now that we've witnessed the consequences of unfettered Globalization - a la Clinton/Rubin!

[wjd123]

Still, when the effects of third-world exports on U.S. wages first became an issue in the 1990s, a number of economists — myself included — looked at the data and concluded that any negative effects on U.S. wages were modest.

"The trouble now is that these effects may no longer be as modest as they were, because imports of manufactured goods from the third world have grown dramatically — from just 2.5 percent of G.D.P. in 1990 to 6 percent in 2006.--Paul Krugman

I don't understand Krugman. In the 1990s he couldn't reason that third world exports would increase and would become a problem for first world workers wages? Of course he could. Reasoning thus, wouldn't the proper response be to look at the way free trade is practiced.

Krugman seems to be saying that we should give those those candidates who want to reconsider our free trade practices a hearing, yet the type of advice he offers is a stronger social safety net. That advice doesn't pertain to the practice of free trade per se. Just where is the change Krugman indicates that he is open to now that the majority of Americans are becoming free trade loosers when it comes to decent paying jobs?

I don't see anything new here except a recognition that enough chickens has come home to roost that free trade is in trouble.

[lonesome moderate]

I found this column rather content-free, for much the same reasons as Bruce Wilder and others. In fairness to Krugman, however, this was obviously written as an introduction to a series of columns about trade. I seem to remember a number of other columns like this--"I've been thinking a lot about topic X and will be laying out my conclusions for my readers in the coming weeks. That's all I've really got to say right now but I've still got a twice-weekly deadline to meet, so blah blah blah blah." I look forward to what he has to say about this topic in the coming weeks.

[Peter Schaeffer]

Hasn't someone by the name of Lou Dobbs been saying pretty much the same thing for some time now... And getting trashed by the "right thinking" people (on the left and right).

Perhaps some humility might be in order here.

[mrrunangun]

Paine,
Sorry to be late to the party, but I will try to clarify. In regard to the opinion that more people benefit than not from current trade arrangements, as this is still a democracy if most were harmed the policy would not last long. The policy mix on trade now in force harms the private unionized workforce terribly. The nonunionized low skilled workers have their wages limited by opening them to low wage competition from foreign factories or the policy of allowing unlimited immigration of low skilled workers from abroad. The skilled workforce benefits from the cheap imported goods and the cheap imported labor. So incidentally does the group of low skilled government workers who are insulated from low wage competition to a far greater degree than the private low skilled workers. A smaller fraction of their incomes goes to such goods and services than it otherwise would. I believe that this winning group is larger than the losers. As for my education opinion, it is colored by the fact that I am losing two valuable employees who have retrained as healthcare technicians and will be moving on to bigger and better things. They completed associates degrees at public jucos. In my limited experience observing these things, school management is generally of low quality, as is that of small nonprofit hospitals and for the same reason-lack of effective accountability to its "customers". This may not be true in the large urban centers, but most Americans don't live there. Most live in small towns and sprawling suburbs where the local public school and local hospital have effective monopolies. The boards of both types of institutions generally lack the necessary expertise to effectively oversee their management or to independently understand the causes of difficulties when encountered. Professional nonpolitical govenmental inspection services could do the job IMHO. If such cannot be arranged, the profit motive seems to work in the hospital world and might in the education world as well. In schools with which I am familiar, the quality of the principal is key. A good one makes the most of the resources available just as any good manager does. High performers are rare. Why?

[lonesome moderate]

Peter Schaeffer: Krugman has yet to say that we should avoid trading with a country because they are too small and poor. http://www.usnews.com/usnews/opinion/articles/050404/4dobbs.htm

[lonesome moderate]

Krugman made a posting in his blog which expanded on some of what he wrote here: http://krugman.blogs.nytimes.com/2007/12/28/a-bit-of-background-on-todays-column/

[Peter Schaeffer]

All,

Dani Rodrik has some useful comments on this topic (perhaps he is more acceptable than Lou Dobbs). See "The NYT doesn't get it on trade" (http://rodrik.typepad.com/dani_rodriks_weblog/2007/12/the-nyt-doesnt.html). A few quotes

"It follows up this statement with "There is abundant evidence that it has contributed substantially to America’s overall economic growth," ignoring what every student of trade learns, which is that large gains from trade are possible only of there are also large amounts of income redistribution."

and

"And as a consequence, rather than accept the need to rethink the existing rules of the game, the editorial takes refuge in the same stale recommendations that every trade liberalizer has been offering for the last quarter century at least--more safety nets, better training, and more progressive income taxation."

The bolding is mine. I suggest reading the entire post. By the way he describes Krugman as “much more restrained” (in making the same arguments).

[cm]

Real person: "SOCIAL SAFETY NETS, whatever they may be, are NO SUBSTITUTE for a decent paying job."

They may be a good substitute for a good number of the many low-paying, low-value-add jobs that have been hailed as the ladder to prosperity, considering the overhead in resources consumed to enable and sustain those activities.

[General Public]

Do we have any Economists with a Brain?
========================================

Present International trade is like if USA measures length in INCHES and Chinese measure length in CENTIMETERS and then they both trade as if 1 INCH = 1 CENTIMETER.

Obviously the party using the CENTIMETER scale will lose!