Alan Blinder on International Trade

Alan Blinder, who has, in his own words, been "treated as a heretic by many of my fellow economists" for his prediction that offshoring of service jobs from rich countries to poor countries may cause problems for U.S. workers (see here)  has more to say about international trade:

Stop the World (and Avoid Reality), by Alan S. Blinder, Economic View, NY Times: In the early 1960s, a Broadway musical called “Stop the World, I Want to Get Off” was all the rage. But you hear the sentiment of that title a lot these days.

Opinion polls show that Americans are both weary with and wary of the rest of the world. It’s as if they wish it would all just go away. Naturally, this sentiment is reflected in the current presidential campaign. Among Democrats, it may manifest itself in attitudes toward international trade that range from lukewarm support to outright hostility. Among Republicans, it shows up in attitudes toward immigration — and most things foreign — that border on xenophobia.

Part of the Stop-the-World Syndrome clearly stems from despair over the Bush administration’s foreign policies, especially in Iraq and Afghanistan. But part of it seems to have economic origins. Increasingly, Americans seem to be losing faith in globalization. Why? [...continue reading...]

Comments

[evagrius]

For Binder's argument to be credible, it is necessary that the top income earners/ wealth accumulators have reduced income and influence.

I don't think that will happen.

[Bob Dobbs]

As globalization evolved, labor -- or no one speaking for workers in industrialized nations -- was not part of the working party. I'm sure that pro-globo economists, politicians, and industrialists thought in some indistinct way that somehow, it would all work out for the best for everyone. But then, it was in their interests to believe that, not to think critically.

Binder is proposing that globalization advocates bring working people to the table. They probably will not do so. But they should, for their own best interest in the long term. And yet we've seen lately that the economy -- national or global -- is not governed by long-term thinkers.

Eventually the middle and working classes will be pushed hard enough to push back. The way in which they push back may or may not be constructive. But it will happen.

Much has been written in liberal columns and blogs about Bush and company attempting to put into place an authoritarian, statist presidency. Down the line, those authoritarian controls and precedents might easily be coopted by a populist authoritarian. And if that happens, you can bet that American society will already have become pretty unsettled.

[ken melvin]

I've seen interviews of both Dick Cheney and Bill Clinton where each said that no one knew what the outcome of globalization would be, and, besides, it was inevitable anyway. Clinton spoke to the need for getting the best deal possible for the US ... It was a huge gamble; one that should have been taken in smaller increments with periodic evaluations. I am quite sure that American workers have suffered tremendous losses, and that America is in a weakened position. It needs be reworked, maybe redone. If nothing is done, I think people will rise up, perhaps for reasons giving it a different name, but it is not working for most Americans.

[S Brennan]

http://www.usnews.com/articles/business/best-careers/2007/12/19/best-careers-for-a-changing-job-landscape.html

Consider a career's resistance to offshoring. Well-publicized failures of offshoring may have led the public to think that companies are reducing its use. In fact, companies are quietly increasing offshoring efforts, even jobs previously considered to be better left in the United States: innovation and marketing research, for example. So, we have added offshore resistance to the criteria we used in selecting the Best Careers. Offshore resistance was one of the factors that led to adding these careers to this year's list: curriculum/training specialist, genetic counselor, ghostwriter, investment banker, mediator, and usability/user experience specialist.

Even college grads might want to consider blue-collar careers. Last year, because U.S. News readers tend to be college educated, we included only careers that typically require at least a bachelor's degree. This year we've added four careers that don't. Why? More and more students are graduating from college at the same time that employers are offshoring more professional jobs. So, many holders of a bachelor's degree are having trouble finding jobs that require college-graduate skills. Meanwhile, society has been telling high school students that college is the way, so there's an accelerating shortage of skilled people in jobs that don't require college. (Why else do you think you have to pay $100 an hour for a plumber?)

The four noncollege careers we added would be rewarding even to many college graduates, especially because college grads are likely to stand out against the competition. Those added careers are: biomedical equipment technician, firefighter, hairstylist/cosmetologist, and locksmith/security system technician. Other skilled blue-collar careers that scored well on our selection criteria: machinist (manufacturers report a shortage), nuclear plant technician (few people are entering the field, yet plans are on the books for building more plants), and electrician/electronics tech (above-average pay, and it's easier on the body than many other blue-collar careers). The takeaway: Many college graduates should consider skilled-trade careers.

[robertdfeinman]

The history of people "rising up" is not a very good one. Most revolutions end up with power being seized by a new band of oligarchs and the "people" are lucky if they end up as well as they were before.

The classic case was the French Revolution, but, more recently, there have been dozens of examples in Africa which haven't worked out well either. In case that isn't enough I suggest looking at Pakistan and many of the former Soviet Republics. Only a couple have anything that looks like a passable form of democracy. Even Russia is a cautionary tale.

The US is the last place where people will "rise up". I suggest reading about the Palmer raids if you want to see what happened the last time there was a serious attempt for labor to gain some political power.

[PBGC Inflation Adjust]

A good start would be adjusting PBGC pensions for inflation. If a company stays in business, pensions tend to be periodically renegotiated to account for inflation. If a company pension plan goes under due to trade, the PBGC takes over the pension and freezes it in place. Inflation erodes the pension over time.

Along with national health care, and retraining for younger workers, this package would protect people.

[save_the_rustbelt]

PBGC:

Interesting idea.

If I remember correctly PBGC only pays about 40% of the accrued pension benefits, so adjusting for inflation doesn't heal the hurt.

Second, unless the displaced worker is very near age 65, the loss of wages and health care are devastating until the magic age of 65 and Medicare.

[save_the_rustbelt]

The common working salt-of-the-earth folks who keep this country running probably don't understand everything Blinder is saying.

They DO UNDERSTAND cash flow, what comes in and what goes out.

And they have a pretty good sense they are getting screwed, especially those who finished work by packing up a factory for shipment to Mexico or China (or traded a bit of severance for training the replacements).

[dissent]

The Blinder column brings into focus just how exhausted and empty the conventional wisdom is.

Listen up: we've been losing good jobs for the working class for a generation. Income for men in their 30's is down 12% since the 70's - and one should include in the impact, increased health and education expenses, and declining benefits across the board.

Voters to governing elites: THIS IS A PROBLEM.

The top 4 American I.T. companies have hired 150,000 people in India, even as they are cutting at home. THIS IS A PROBLEM.

Retraining runs into the issue of: 'retraining for what'? I just find it hilarious that once the offshore boat has stolen one's career, we are supposed to be able to 'retrain' - but no one proposes stopping the mortgage, college etc payments while middle age folks hustle to respond to the latest corporate fashion. Oh, no. We 'retrain' for jobs that don't exist while the bills keep coming. Hah hah hah hah...

The truth is the globalized corporations have withdrawn from the American social compact. And now they want more globalization? I think the real answer is, no, they won't get it, because their golden opportunity has been blown: they used it to trash the American middle class.

The tide is turning and it is just a matter of time.

If you think globalization is 'inevitable', you will learn otherwise.

[Noni Mausa]

Blinder (not Binder) said: One part of the task involves using the presidential bully pulpit — not to bully, but to explain why globalization is both (a) inevitable and (b) more an opportunity than a threat.

Oh, those explainers. I think whoever ends up in the bully pulpit is going to have their work cut out for them, since both of these lines of argument -- the one about inevitability, and the one about opportunity -- has been preached from shore to shore for the past 20 years, generally as a smokescreen for increasing responsibilities, freezing or lowering income, and trying to persuade people to behave as though they were mice in a maze, desperately searching for cheese. Frankly Scarlett, most of the people I know hear that little disingenuous phrase above and begin to roll their eyes. In fact experimentation has proved that people who are asleep will roll their eyes when they hear that phrase.

The truth is, only some of the flat household income can be laid at the door of outsourcing and globalization. Almost all of it is the fault of US legislation, ineffective regulation, and changes in the tax structure, plus what Blinder calls the "decline" of the union movement, which did not fall but was pushed.

" O who hath caused this?
O who can answer at the throne of God?
The Kings and Nobles of the Land have done it!
Hear it not, Heaven, thy Ministers have done it!"

Noni

[dissent]

One more comment:

The problem the elites have, in trying to use the bully pulpit (and 'bully' is appropriate here) to sell voters on
the proposition that "globalization is both (a) inevitable and (b) more an opportunity than a threat" is that their credibility is shot.

Their. Credibility. Is. Shot.

Get used to it. I suggest y'all start earning respect instead of simply expecting it.

[James Killus]

One might also consider the extent to which globalization and immigration are being used as scapegoats to divert attention away from those who are systematically stealing the U.S.'s working capital while everyone else is looking for enemies abroad.

One might do that, but I doubt that many people will. It's so easy to ... look! there's an illegal immigrant.

[PBGC Inflation Adjust]

STRB..."If I remember correctly PBGC only pays about 40% of the accrued pension benefits, so adjusting for inflation doesn't heal the hurt."

Good point. I remember the USWA lobbying for full benefits for their members when steel companies went under. It didn't happen. Paying workers what they were being paid before the PBGC took over, and inflation adjusting the benefits might be better.

STRB..."Second, unless the displaced worker is very near age 65, the loss of wages and health care are devastating until the magic age of 65 and Medicare."

National health care would solve the medical part. Many workers get pensions at 30 years service or so, even if they are not 65. These pensions tend to be paid through the PBGC, but the lack of inflation adjust is devastating over time. Paying only part of the pension, as you mentioned, is another problem. Paying workers who earned a pension the full pension, with purchasing power preserved, would seem to be only fair.

[Lafayette]

Article: Alan Blinder, who has, in his own words, been "treated as a heretic by many of my fellow economists"

All that counts ...

What pettiness. Not that MT should make this remark, but that Alan Binder should feel that he has been "badly treated".

It sometimes appears that academia has a Peter Pan quality to it. It's for people who just "don' wanna grow up". Especially those who have gained a media notoriety. Like boys in a pissing contest, they just gotta piss the furthest of anyone.

We are all in an arena of thoughts and ideas and if we sense that "right" or "wrong" is the ultimate and only metric, then we have missed an all-important notion.

It is that the theory of political economy advances in just that manner. The debate between ideas pushes it forwards, develops it, matures the notions we have of how an economy works and, from there, how it should work better.

The beauty of forums, if there is one, is the use of pseudonyms. We can say pretty much what we like and be ... dead wrong. There is no reflection upon our public persona.

That's goodness; because all that counts, finally, is the debate. (But, true enough, one needs to participate with a fairly tough carapace.)

Does anyone think that Malthus is rolling over interminably in his grave because he did not get the relationship between food supply and total population all that right? I doubt it. His was nonetheless an important contribution to the construction of the philosophy of political economics. And, who knows, maybe he wasn't that wrong ... just far too advanced for his time?

Sic transit gloria mundi.

[wjd123]

On the trade front, a number of agreements, starting with Nafta but notably also those with Jordan and Peru, have demonstrated that it is possible to design reasonable safeguards for the environment and labor without interfering much with trade. These precedents point to what could become a bipartisan compromise on trade that would enable America to regain its accustomed leadership position.--Alan S. Blinder

In order to give himself political cover for his support of NAFTA, Clinton had side agreements on the environment and labor negotiated with Mexico. Unfortunately, they are toothless. They came without any means to enforce them. Jordan appears to be bringing in workers from third world countries and paying them little to produce products for export. What impartial institution protects these export workers if they are treated badly. And, although I have searched the Internet, I can find nothing on any enforcement mechanism for our labor agreements with Peru. To what reasonable safeguards is Blinder referring?

Is the reality that Blinder refers to in the title, "Stop the World (and Avoid Reality)" merely the reality of what is, instead of a reality that actually works. Who is avoiding reality, Blinder or those who want to stop signing any more free trade agreement until we have examined how the ones we've passed are actually working?

[zinc]

Let's Focus on the man behind the curtain

but in 2006 imports exceeded exports by a whopping 5.5 percent of real gross domestic product. Because jobs are roughly proportional to real G.D.P., it is tempting to conclude that trade “destroyed” 5.5 percent of all American jobs. Yet the unemployment rate in 2006 averaged 4.6 percent.

1) 4.6 ( now 5 %) percent not a believable number. The measurement is likely 3 - 4 percent low as a result of measurement error and political facilitation.
2) The true effect of globalization has been masked by the largest debt bubble in history, leading to an unsustainable increase in demand and support of two parallel supply chains, the old and the new.
3) Wages and benefits for the "majority" of americans have stagnated or declined.
4) Net on net, real cost of living increases have probably negated any consumer savings from "trade".
5) The current level of the trade imbalance is unprecedented and has occurred in such a short period of time that the true effects are not measureable and have no historical precedence. Our economists are blowing smoke in their claims on the beneficial effects just like their dogmatic support of innovative financial products. People instinctively know that the economists are making most of this shit up and really have no visibility of the long term effects.
6) The $US currency has been decimated, destroying the purchasing power of American consumers for goods and services from outside the US.

Let's wait a few more years and see how the full cycle plays out before we take to the bully pulpit, shall we. In the meantime, let's slow the train enough to get a good reading.

[hari]

I think, if you read the whole lot he's written and consider its merit and demerit, with a dispassionate objective mind, the conclusion is very simple and clear: The man is speaking Truth to Power! He's not pulling any punches whatsoever, from my thirty years experience in global trade policy matters.

But there's apparently a serious domestic problem? What's the real problem? Protectionism?

The real problem is that serious students of "comparative advantage" in international trade policy are sinking their head in the sand! And that includes, I'm afraid to add, Bhagwati and the rest. They're simply NOT responsible or intellectually credible - using principally the same trade data base.

How in the world are you going to expect the uninitiated to understand the facts when the most educated lot are shirking from their intellectual/professional responsibility?

I admit some of us didn't see this coming when GATT Trade Rounds were coming to an end, and WTO mandate was negotiated and approved under tremendous political pressure from Clinton/Rubin policy framework to "open up" the 7/24 financial markets for US banking without national frontiers....

Let's recall, previous GATT Trade Rounds were under a policy framework which was not mandatory, in the sense that negotiations could last indefinitely for one or other consideration.

Nation-States were the centre of the negotiations process which implied the concept of national sovereignty in international trade policy implementation-namely, one could refuse to implement the terms and conditions of the general agreement based on domestic considerations.

Under WTO regulations, with its mandatory arbitration/conflict resolution measures, the Clinton/Rubinomics ideology changed the global trade policy paradigm., by including extraneous and non-trade issues (eg.environment and health) under the new mandate of the WTO, they not only undermined the slow but proven process under the GATT Trade Rounds but created an international jaggernaut of a bureaucracy to implement their vision of the 21st century!

That's one simple reason why the Doha Rounds will most likely fail!

One must salut Blinder for having the intellectual gumption to speak truth to power - specially during an election year when half-cooked experts are raising the flag of "protectionism". The OECD has always argued that international trade follows the tried and tested formula of "comparative advantage".

May be it's time to invoke an OECD based country-specific study of what's wrong with US competitiveness?

Neither China (which was grudgingly admitted rather late to WTO membership) nor India could have imagined (at the time!) the global transformation of the international trade under WTO!

[EE]

"(Why else do you think you have to pay $100 an hour for a plumber?)"

"It's so easy to ... look! there's an illegal immigrant."

What illegal alien makes $100/hr?

"May be it's time to invoke an OECD based country-specific study of what's wrong with US competitiveness?"

What's wrong is that the cost of producing goods in the US is too high as compared to the cost of producing goods in the third world--next question.

[save_the_rustbelt]

"Many Americans are justifiably distressed about rising income inequality, but foreign competition gets far too much of the blame."

Blinder may be an eminent economist, and he may be stirring up an important discussion, but he is wrong.

So who am I to challenge a famous economist? Someone who works with labor markets in the "real world."

Lafayette hits it with his Peter Pan comment.

[wjd123]

The man is speaking Truth to Power! He's not pulling any punches whatsoever, from my thirty years experience in global trade policy matters.

But there's apparently a serious domestic problem? What's the real problem? Protectionism?--Hari

Hari,

I would say that Blinder believes that protectionism is a problem because people misconceive the dangers of free trade. The danger is all in their minds. Job losses only seems more "salient" because jobs destroyed are easier to see than jobs created. He believes, that unemployment and income inequality have little to do with free trade per se and that strengthening the social safety net is more a matter of assuaging the anxiety of change than the reality of change.

It's this message, "It's all in your minds" which seems to be the one Blinder wants politicians to preach from the bully-pulpit. How is this a matter of speaking truth to power? For Blinder, as a matter of economics, isn't this more of a matter of speaking truth to the frightened and huddled masses, but doing so in very soothing tones, than speaking truth to power.

Under WTO regulations, with its mandatory arbitration/conflict resolution measures, the Clinton/Rubinomics ideology changed the global trade policy paradigm., by including extraneous and non-trade issues (eg.environment and health) under the new mandate of the WTO, they not only undermined the slow but proven process under the GATT Trade Rounds but created an international jaggernaut of a bureaucracy to implement their vision of the 21st century!--Hari

I don't understand this. Isn't the problem with trade under the WTO that it didn't include a mechinism to resolve non-trade issues. That the WTO has taken it upon itself to bring in such matters through it's disbute rulings hardly creates an international juggernaut. It's the weakness of the WTO in resolving such matters that is showing and not it's strength as an international organization.

[Cynthia]

Bhagwati says,

"...in highly skilled fields such as medicine, law and accounting,...I have no doubt we're creating far more jobs than we're losing."

Granted I'm no John Maynard Keynes, but something tells me that an economy consisting mostly of doctors, lawyers and accountants can't be all that healthy, much less safe.;~)

Serious (though only slightly), Bhagwati is perhaps right; these so-called "highly skilled fields" won't fall victim to Stop-the-World Syndrome. Yet IMO, as services (skilled or not) become more and more virtual, requiring less and less human contact, I'm afraid that even "medicine, law and accounting" will no longer be immune to this syndrome...

Not to paint a dystopian picture (or a utopian one, depending how you look at this ), but it's getting to the point where, say, physicians will no longer be needed at the bedside to diagnose. Nor will there be a need for surgeons in the OR to operate. And no matter how bad lawyers and accountants wanna believe otherwise, they aren't above the fray! Their fate will be similar to the one that doctors will face.

On the product side the spectrum, though, things actually might perk up a bit. As energy cost become a bigger and bigger part of the cost of producing goods, the product sector, in general, will gradually shift from being abroad to being back onshore.

[dissent]

"Free trade" has its strongest supporters among those who are skeptical of government and favor "the market". But "free trade" raises thorny issues of labor and environmental standards, among others. It makes the need for something like a world government more pressing, even as, politically, it is against strong government regulation on a national basis.

This contradiction is fundamental and highlights that globalization is not yet ready for prime time.

[hari]

wjd123-

Let me say how much I enjoyed your comments when I first encountered you on Dani's blog - on a similar problem.

My point is that under UN System we already have an Environmental Agency based in Nairobi (Kenya) with a mandate to deal with all the relevant problems. They've the team of experts and why should we start a new set of staff under a follow-up organ to UNCTAD/GATT?

I suspect Rubinomics had this all planned and wanted no intervention in implementation of the intergration of NTBs under WTO. That's the way I read it, at the time.

US must address its own national manpower defects in retraining redundant labour (like Germany does under Federal law!) because under WTO terms globalization is now inevitable irrespective of job dislocations in US or Italy!
Govs must put programs in place, like they do here in EU, to get the workforce back into productive jobs again.

In Germany, for example, its a Federal Law to require a firm to retrain their workforce if they become redundant.
There's a budget and implementation procedure for such nation-wide training of redundant workforce.

The real question is why is such a policy framework not realistic in America's socalled "free market"?

[Lafayette]

Hari: the global transformation of the international trade under WTO!

Globalisation, shmoebilisation

You seem to have this "thing" about Rubinomics and the WTO. There is nothing in common between the two. (See footnote below.)

International banking did not go 7/24 under GATT -- it was that way a lonnngggg time before GATT, in the mid-1990s. GATT had no effect whatsoever on financial transactions or the Finance Industry in general. (GATT -- General Agreement on TRADE and Tariffs.)

GATT profited the western developed countries MUCH more than Third World, since it brought about a uniform reduction of tariffs in goods that developed countries were efficient at producing.

In fact, China and India, with their extremely low cost labor did not need GATT at all. Price alone made their products sufficiently cheap to get in under the pre-GATT tariff barriers and remain highly competitive.

Gllobalisation was being practices for a donkeys age before some smart economist coined the phrase. Pre-globalisation it was called multinational commerce. And, the largest American companies profited from it handsomely throughout the postwar period up to and including the 1990s. If they are being displaced now by the Chinese or the Indians, I'd would very much like to see where and how.

The latter countries are exporting a product set that has very little competition with that of the developed world. And, when they do (for instance, Lenovo's line of PCs) the technology has largely come from abroad, the only value-added is component assembly.

Just because China/Taiwan are the largest producers of PC-technology today does not mean that the next version of Windows or Intel technology is being developed there. No, it is being developed on the West coast of the US.

This "globalisation thing" is a muddle employed by people who have never left American / European soil, but are looking for a handy scapegoat to explain the dislocation of un- and semi-skilled jobs.

Globalisation, shmoebilisation. America and Europe have been cocooning for the past thirty years in the blind assumption that the economic paradigm wouldn't change.

Which is what was was happening, precisely, when the global manufacturing labor pool doubled suddenly beginning in the early 1990s ... and this factor happened to coincide with GATT-derived reduction in trade barriers. The two events are and remain completely disconnected, but were concurrent.

And, gave rise, lo and behold, to .... "globalisation". Which is nothing more than people taking their rightful place in the economic game of World Trade & Commerce.

NB: Rubinomics:

Rubinomics emphasizes the effect that balancing the government budget has on long term interest rates. Taxes should match government spending in the long run, and deficit-financed tax cuts are an ineffective way to increase growth.

Rubinomics has never rejected Keynesian approaches to economics, which call for the government to run a deficit in times of recession. But it worries about the long-term effect that deficits, especially structural deficits, have on inflation.

[hari]

Lafayette - you name always remind me of my first American
home across from the Berkeley Hills!

Wikepedia definition of Rubinomics doesn't do any justice to the man's achievements in liberalizing international trade policy under WTO. Don't be misled by what they're able to put together to define him (Rubin)!

You've to take the whole policy framework of Clinton/Rubin to recognize what they wanted to create as a new frontier of international "free trade" market for US banking system and whatnot, as far as Rubin was concerned.

If you quote from one part of Wikepedia - why not add the critical economic policy comments which follow?

No! Wait until the official records become available then we shall get to know how it was all organized and planned and, of course, its raison d'etre!

[save_the_rustbelt]

BEST QUIP OF THE WEEK:

"People are looking for a presidential candidate who reminds them more of the guy they work with that the guy that laid them off."

Mike Huckabee on the Tonight Show, probably taking a well-aimed slap at Mitt Romney.

[save_the_rustbelt]

"...in highly skilled fields such as medicine, law and accounting,...I have no doubt we're creating far more jobs than we're losing."

Actually, this has already started.

Proctor and Gamble has much of its accounting work done in Costa Rica, which is apparently preparing itself to be a destination of choice for offshored accounting.

Many large accounting firms have US income tax returns prepared in India, transmitting back and forth via the Internet (some day their will be a massive privacy breech and the crap will hit the fan). Ask your tax preparer before handing over your info.

Can't offshore?

Some health care lobbyists have been front and center in the push for amnesty for illegals, grandma can be cared for by someone who doesn't speak English.

[save_the_rustbelt]

......it just gets worse..........

Chinese Employers Accused of Goon Hiring
Sunday January 6, 2:01 pm ET
By William Foreman, Associated Press Writer
Chinese Employers Accused of Hiring Hoodlums to Attack, Cow Labor Organizers

SHENZHEN, China (AP) -- Huang Qingnan lifts his hospital sheets and shows a long scar below his left hip. His right thigh needed stitches and surgeons fought to mend muscle and tendon gashed in his calf.

The 34-year-old labor activist was stabbed repeatedly by knife-wielding thugs, one in a series of attacks that experts and workers' rights advocates fear may signal a worrying new trend -- privatized intimidation.

Once it would have been the communist government going after activists such as Huang. Today, he's less worried about the government and more about gangsters he believes are being hired by China's rough new capitalists to cow troublesome workers............................

[Lafayette]

hari: If you quote from one part of Wikepedia - why not add the critical economic policy comments which follow?

Because I happen to agree with the Wikipedia explanation.

Rubin was Secretary of the Treasury, and that department has nothing/little to do with trade matters. GATT was/is negotiated by the Trade Representative, nominated by the PotUS and a member of the Cabinet.

And finally, the WTO has never got around to discussing service industry liberalization, namely because it contains highly profitable businesses (banks, investment banks, insurance, equity markets) and both the EU and the US simply do not want to touch that sector just yet.

More so, however, they consider financial matters as intrinsic to national sovereignty ... and they may be right. Both governments want to maintain the prerogative of ruling on possible acquisitions within the Finance Industry.

[wjd123]

Hari,

Thanks for the kind mention. Coming from you, someone who has hands on experience, it is much appreciated that you find my efforts interesting.

Looking over my comments about Blinder I should point out that they are about what I can glean from this essay only and not as you had in mind "the whole lot he's written."

Since I know so little about Blinder it's probably presumptuous of me to extract so much from one essay. Nevertheless, I have to deal with the essay at hand and I think what I've gleaned about his views from it, I've gleaned fairly, if perhaps, not correctly.

[wjd123]

Hari,

From Dani Rodrik's remarks today on "Trade and wages."

I have often read or heard the assertion that there is no respectable work by economists that attributes an important part of rising inequality in the U.S. to international trade, with the implication being that it's all (or mostly) due to skill-biased technological change. Greg Mankiw has made this argument in the past, and Alan Blinder implies as much in his recent NYT article.--Dani Rodrik

http://rodrik.typepad.com/dani_rodriks_weblog/2008/01/trade-and-wages.html

[Lafayette]

Rodrick: I have often read or heard the assertion that there is no respectable work by economists that attributes an important part of rising inequality in the U.S. to international trade, with the implication being that it's all (or mostly) due to skill-biased technological change.

Reflections of the body politic

Take the word "technological" out of the above, and Rodrick would be about right. Technology has not had much to do with the larger part of job dislocation. The quality of the workforce skills base has, however, been the major culprit.

What has happened in the past decade and a half is the doubling of the supply of manpower in low- and unskilled labor, that has allowed the Far East (and the Near East somewhat for Europeans, that is, the old Soviet block) to compete in certain manufactures that are semi-skilled labor intensive (such as textiles and plastics and wood).

America has allowed several generations to move up the lifestyle-escalator to a middle-class existence. But, it has never done enough, really, for the poor and unskilled. They are still there and in abundance. Just look in any town.

It has mesmerized them by a couple of relatively long boom cycles before the bust took all their savings away (into consumption simply to survive). The American Dream started to crumble. The middle-class took note and started worrying like hell. We are in the midst of such a crisis of faith in the American Dream.

The greatest boondoggle ever was to get people to invest massively their savings in the dot.com boom, convince them that "the equity market is long-term" -- and then promptly pull the plug on it. (After a couple of juicy Internet IPO's for their "friends".)

This sort of "savage capitalism" is an American icon. It personifies the American way-of-life -- that of survival of the individual who is the fittest, the luckiest and/or the richest. And, then, foolishly, stupidly, we elect them to almost total power in Congress and the White House. (With a nod of thanks to Ossama for a boost at just the right moment.)

Some will say that such is not enough. But, that "some" are not sufficient to change the status quo. Fundamental reform is not yet a notion that Americans are prepared to abide with.

Not yet. Patience ... they still think that the Happy Face of an Edwards, Clinton or an Obama is going to "change things". Wrong. Dead wrong.

Just because we change the inhabitants of the White House doesn't mean we reform fundamentally the economy or the moral values that would spawn a more just and equitable society.

We have met the enemy and he is us. We need to change ourselves. Then we can change our leaders. After all, democracy assures that they are simply reflections of the body politic.

[hari]

I'm with Lafayette because you've to recognize that his comments are originating from IT - may be few decades ago!-in which creative destruction was normal, as technology revolutionized the sector within a generation!

I was donkeys years lost with my MS-DOS failures and whatnots - losing data and time!

The important thing is to maintain a perspective which is in sync with changing technology and comparative advantage in trade not only across the Atlantic but world-wide.

US-Centric perspective is the formula to technological standstill in understanding the type of even marginal comparative advantage which China and India - under exisitg WTO rules - introduced into global trade flows.

What follows hence will most likely be even more dislocating to labour in OECD countries as emerging economies begin to copy the former habits of the US/EU trade behavior, as comparative advantage dictates!