NAFTA Isn't the Problem in Ohio

Brad DeLong provides a follow-up to the "Reactionary, Populist, Xenophobic and Just Plain Silly" Roundup:

Stagnant Wages and Ohio: NAFTA Isn't the Problem: An excellent column by David Leonhardt:

The Politics of Trade in Ohio: Now come Mr. Obama and Mrs. Clinton... tough talk about foreign trade... you'd have to conclude that they believe that Nafta and other trade agreements have caused Ohio's huge economic problems.

"She says speeches don't put food on the table," Mr. Obama said in Youngstown. "You know what? Nafta didn't put food on the table, either." Later, he went further, claiming that Ohio's workers have "watched job after job after job disappear because of bad trade deals like Nafta."

Mrs. Clinton's advisers, meanwhile, have been putting out the word that she tried to persuade her husband not to support Nafta -- which liberalized trade with Mexico and Canada -- when he was running for president....

[However, n]either candidate calls for a repeal of Nafta, or anything close to it. Both instead want to tinker with the bureaucratic innards of the agreement.... They call the country's trade policy a disaster, and yet their plan to fix it starts with, um, cracking down on Mexican pollution....

The first problem with what the candidates have been saying is that Ohio's troubles haven't really been caused by trade agreements. When Nafta took effect on Jan. 1, 1994, Ohio had 990,000 manufacturing jobs. Two years later, it had 1.03 million. The number remained above one million for the rest of the 1990s, before plummeting in this decade to just 775,000 today. It's hard to look at this history and conclude Nafta is the villain. In fact, Nafta did little to reduce tariffs on Mexican manufacturers, notes Matthew Slaughter, a Dartmouth economist. Those tariffs were already low before the agreement was signed.

A more important cause of Ohio's jobs exodus is the rise of China, India and the old Soviet bloc, which has brought hundreds of millions of workers into the global economy.... [Y]our credit card's customer service center isn't in Ireland because of a new trade deal. All this global competition has brought some big benefits, too. Consider that cars, furniture, clothing, computers and televisions -- which are all subject to global competition -- have become more affordable, relative to everything else. Medical care, movie tickets and college tuition -- all protected from such competition -- have become more expensive.

So what can be done for Ohio?

There is actually a fair amount of agreement among economists on this question. The solution should involve more government investment in infrastructure, the medical sciences, alternative energy and other areas that could produce good new jobs. A more strategic approach to investment, one less based on the whims of individual members of Congress, would also help....

Over the last week, the candidates' talk has, at times, been silly and even inaccurate. And Ohio's problems would certainly be easier to solve if, as Luis Proenza, president of the University of Akron put it, the candidates were "more true to reality and less prone to invective." But the larger problem is that Ohio's voters have good reason to be angry. For years, they have been promised that globalization was making the United States a richer country. They're still waiting for their share of the bounty.

This is from a previous post:

I want to highlight an important distinction [Olivier] Blanchard makes between protecting jobs and protecting workers:

...It is one thing to say that labor market institutions matter, and another to know exactly which ones and how. Humility is needed here... Nevertheless, even if one cannot pretend to have much confidence about the optimal overall architecture, much has been learned... We know much more about the incentive aspects of unemployment insurance on search intensity and unemployment duration... We know more about the effects of decreasing social contributions on low wages ... We know more about the effects of employment protection, ... From both the macro evidence and this body of micro–economic work, a large consensus—right or wrong—has emerged:

• It holds that modern economies need to constantly reallocate resources, including labor, from old to new products, from bad to good firms.
• At the same time, workers value security and insurance against major adverse professional events, job loss in particular. While there is a trade-off between efficiency and insurance, the experience of the successful European countries suggests it need not be very steep.
• What is important in essence is to protect workers, not jobs.
• This means providing unemployment insurance, generous in level, but conditional on the willingness of the unemployed to train for and accept jobs if available.
• This means employment protection, but in the form of financial costs to firms to make them internalize the social costs of unemployment, including unemployment insurance, rather than through a complex administrative and judicial process.
• This means dealing with the need to decrease the cost of low skilled labor through lower social contributions paid by firms at the low wage end, and the need to make work attractive to low skill workers through a negative income tax rather than a minimum wage.

This consensus underlies most recent reforms or reform proposals ... These measures are probably all desirable...

The point is, if you go along with the idea that we should use social insurance programs to protect workers but not jobs, then this gives a means of evaluating candidate's trade proposals that doesn't depend upon whether the changes are driven by technology, globalization, or some other shock. To what extent does a particular proposal protect jobs and hence inhibit needed flexibility of the labor market? To what extent do the proposals compensate for job flexibility and the insecurity that comes along with it by protecting workers who have been displaced? Do the proposals cause firms to fully internalize the costs of their employment decisions? What types of incentives are built into worker protection programs, i.e. do workers still retain the incentive to seek out and accept new employment?

Workers in Ohio and elsewhere are feeling the effects of something - I think the story above is basically correct but does not place enough emphasis on technological innovation as a cause of recent labor displacing change - but debate over the cause of their troubles shouldn't delay the implementation of policies that could help now.

Comments

[benny lava]

not related to the point you are making about this silliness, but don't think your nafta friends aren't paying attention to this noise --

Oil would be on table if NAFTA reopened: Emerson hints

JULIAN BELTRAME
Wednesday, February 27, 2008
Ottawa — Trade Minister David Emerson suggested the United States has a sweet deal over access to Canada's oil under the North American Free Trade Agreement, saying the two Democratic presidential candidates calling for renegotiations may not know just how good the U.S. has it under the deal.

Mr. Emerson said Wednesday that reopening the three-country trade deal would not be a one way street and that Canada also has its list of concessions it would seek if the continental pact was renegotiated.

“There's no doubt if NAFTA were to be reopened we would want to have our list of priorities,” Mr. Emerson said.

“Knowledgeable observers would have to take note of the fact that we are the largest supplier of energy to the U.S. and NAFTA has been the foundation for integrating the North American energy market. When people get below the rhetoric and pick away at the details, they are going to find it's not such a slam dunk proposition.”

http://www.globeinvestor.com/servlet/story/RTGAM.20080227.wemerson0227/GIStory/

[Ken Moyes]

The piece is a good one and reiterates what I have said in a few web log pieces in recent days. Two supposedly intelligent and ready to be President candidates could not distinguish between NAFTA and the problems of the fierce competition from the rest of the world. Canada and Mexico are not stealing our manufacturing jobs, we have let them go by not being proactive in doing what we can to remain competitive in world trade.

[Gegner]

It seems Mr. Leonhardt has certainly missed the 'point'...and what point would that be?

That ALL economies are LOCAL! The 'purpose' of commerce is not to enrich it's owners but to serve the needs of the society that founds it!

The public isn't stupid...we know the only way to create pools of cheaper labor is through currency manipulation!

On the same theme, does anyone think we're stupid enough to believe for even a second that anything like 'alternative energy' programs will create 'good jobs' here?

This is nearly as idiotic as the arguing that tax cuts for the wealthy spurs investment 'here' in the US!

Admittedly, neither(actually none) of the candidates are willing to do a thing about our crumbling economy...and it's going to cost whoever wins big time!

[marcello]

Ken Moyes said ...
>Canada and Mexico are not stealing our manufacturing jobs,

no kidding, especially since Canada has bled _hundreds of thousands_ of manufacturing jobs since the FTA and NAFTA came into play. Ontario is in dire manufacturing straights, with politicians bickering about what to do as I type.

note that many Canadians would welcome NAFTA being reopened (me among them) since they feel we got royally screwed in the deal, whcih was 'free trade' in name only.

* Who would allow foreign companies to sue governments for 'potential lost revenue' ? The previous government was so spooked by an American company suing them over potential lost revenue from the proposed ban of MBTA (sp?), a contorversial gasoline additive, that they backed off. Canada Post was sued by UPS fer chrissakes (http://www.ups.com/content/ca/en/about/news/2002_news/20021122engtribunal_n.html)
they ultimately lost, but that is friggin insane !

* Canada's enabling legislation made NAFTA supercede current Canadian law. The US did not do that.
what gov't in their right mind would do that when the partner didn't ?

* NAFTA requires that Canada CANNOT lower petroleum exports even in times of domestic crisis, and that current levels must be maintained, or increase. once increased, they can't decline. huh ? can you imagine the US agreeing to something like that ? There are arguments going back and forth about whether this is also true for water.

and there are many other examples.

Many on our side of the fence would welcome killing NAFTA, and negotiating something along the lines of, uh, a FREE TRADE treaty, not this trojan horse-like travesty the feds agreed to. Sadly, Emerson't threat, if genuine (open to cynical debate) will likely mean that it will never happen.

[DOR]

Here's a bit of off-topic tariff news: yesterday, Hong Kong eliminated all taxes on wine and beer. We never had a sales tax, and the new budget killed off the 40% (previously 80%) import duty.

Cheers!

[ddt]

Benny Lava,

You left out an interesting part of that article:

But Mr. Obama's rhetoric on the subject may be just that, CTV News reported last night. Citing Canadian sources, the network said that a senior member of Mr. Obama's campaign team called Canada's U.S. ambassador, Michael Wilson, within the past month, warning him that Mr. Obama would be taking some "heavy swings" at NAFTA in the campaign.

"Don't worry, ... it's just campaign rhetoric, ... it's not serious," CTV reported the campaign official as saying.

Late last night, a spokesperson for the Obama campaign said the staff member's warning to Mr. Wilson sounded implausible, but did not deny that contact had been made. "Senator Obama does not make promises he doesn't intend to keep," the spokesperson told CTV.

[Xennady]

Marcello,
Interesting viewpoint. I believe that NAFTA also supersedes US law. For example, Mexican trucks are now allowed on US roads despite their likely lack of English comprehension and likely non-compliance with US safety regulations. I live in Michigan and I drove through Ontario a couple years ago and it looked freakishly prosperous compared to my state. I drive by at least three abandoned factories on my short way to work and I know of a bunch more. If politicians in Ontario are bickering about what to do- well, you folks are doing much better than us because most American politicians don't even pretend to care anymore. So if you think you got screwed just be thankful you don't live here.

says...

ddt,
That sounds typical. Politicians make noises about dealing with the problems the American people face but always forget about them as soon as they can. Obama is just quicker than most.

[ddt]

NAFTA should be shredded. For one thing, it has nothing to do with free trade. It is a transparent attempt to seize Canadian resources and an abominable affront to Canadian sovereignty. Marcello has already highlighted a few of the absurdities it contains, but the list is practically endless. If the country who benefits from the exploitative agreement wants to get rid of it, I say that is fantastic news.

[anne]

The mean-spirited suggestion that Barack Obama will not keep promises is nonsense. We can only hope that any candidate running for office will set down policy ideas in detail and clearly, and assume there will be an attempt to carry through the ideas when elected. Obama has been detailed and clear, and remarkably decisive. That Obama has been honest through campaigns and time in office, is evident.

We are electing an American President rather than a Canadian Prime Minister, and there will be fine relations between Canada and America should Obama become President.

[ddt]

anne,

I'm sure there will be. From what I can tell, Obama seems to be quite well liked north of the border. Any president would be an improvement over George "I want to thank the Canadian people who came out to wave - with all five fingers - for their hospitality" Bush. Unfortunately it will take a while to get rid of the anti-keynesian, pro-cyclical conservatives who are currently bungling our economic policy.

[Xennady]

ddt,
Oh. So you think Canada gets exploited by the US? Have you heard of the Auto Pact? This was gifted upon you by Lyndon Johnson in the 1960s and is why Ontario produces as many vehicles as Michigan. When Canada abolishes the abominable NAFTA don't forget to ditch that trade agreement too. I know tar sand derived oil pretty much ends up in the US but are you saying that the US does not pay market prices? If not, you have a point. If so, oil is fungible and selling it elsewhere won't get you more money. That is, you aren't getting exploited. You know this, right? Pardon my rudeness but I was born in Canada and I used to hear what Canadians said about America when they thought no Americans were around. Frankly, I'm pretty effing tired of Canada and other US "allies" whining that we've done them wrong. Eff off, eh? I'd be thrilled if you could saw North America apart and sail away to be China's neighbor- I'm sure they would treat you much better- but so far you can't do that. More briefly, I have different idea about who gets screwed by NAFTA, and it ain't you.

[anne]

We are immensely fortunate in having Canada for a neighbor, and sorely need to recognize just how much Canada offers. Trade issues however are always contentious between the socially and economically closest of countries and will remain so as the conditions of trade change. Looking to improve the conditions of trade relations having understood the effects of a pact over time, should not be treatening though contentious.

What we could gain immensely from Canada is an understanding of the benefits that have come from a universal health care system, along with a more affordable college-university system....

[ddt]

"Oh. So you think Canada gets exploited by the US? Have you heard of the Auto Pact? This was gifted upon you by Lyndon Johnson in the 1960s and is why Ontario produces as many vehicles as Michigan. When Canada abolishes the abominable NAFTA don't forget to ditch that trade agreement too. "

A) I never said that Canada gets systematically exploited by the US. I said that NAFTA is exploitative with regard to resource rights and I stand by that. I am all in favor of having free trade with America, but NAFTA is not free trade, it's managed and has clauses that have barely anything to do with the concept of free trade.

NAFTA doesn't give cheaper energy prices to America. What it does do is force us to sell to America. even if there are extreme shortages we would be unable to control the amount of oil being exported or the price. The point is that we lose the right to NOT sell the oil, which could be very important 20 years from now.

B) buddy, the Auto Pact ended 7 years ago. Get your facts straight.

"By 1996, discussions had begun about tariffs on vehicles imported by non-Auto Pact members. Non-Auto Pact members viewed these tariffs as creating a two-tiered policy. As a result, a complaint was launched with t he World Trade Organization (WTO) by the European Union and Japan. The challenge involved a section of the Pact allowing DaimlerChrysler, Ford and General Motors to import vehicles into Canada from anywhere in the world duty free. Based on a decision by the WTO dispute panel in 2001, the Auto Pact was abolished as the panel ruled that parts of the Canada–United States Auto Pact broke global trade rules by favoring some countries over others. This ended the 35-year-old centrepiece of Canada’s automotive policy."

http://www.canadianeconomy.gc.ca/english/economy/1965canada_us_auto_pact.html

"Frankly, I'm pretty effing tired of Canada and other US "allies" whining that we've done them wrong. Eff off, eh? I'd be thrilled if you could saw North America apart and sail away to be China's neighbor- I'm sure they would treat you much better- but so far you can't do that. More briefly, I have different idea about who gets screwed by NAFTA, and it ain't you"

Most of the world is already in the process of "effing off", so I wouldn't worry yourself.

Look, in all seriousness, I'm a pretty pro-American compared to the average Canadian, and I'm pro free trade. In short, I support North American free trade, but that's not what NAFTA is.

[wjd123]

I put up this comment last night on the "Reactionary, populist...." post. That was before Mark posted David Leonhardt's essay. I copied my comment to this post because I think it's a better fit.

I also have some things to say about Blanchards' distinction between protecting workers and protecting jobs when I get a chance later today--I don't think it's as easy a distinction as he makes it out to be, and making the distinction has consequences of it own for how we practice free trade.

My post from last night:

Tonight I wanted to see if any of the news analysis about yesterday's debate had anything to say about Clinton and Obama's remarks about opting out of NAFTA. I found nothing.

If pundits mentioned NAFTA at all it was to laugh and deride the candidates for pandering. To them NAFTA was a done deal and that was the end of the story.

I see these pundits at best as unwitting corporate shills who, whether deliberately or not, help to insure that workers never have permission to say "Yes we can." Can't these pundits see any other ways free trade can be approached?

Economist do the same to hope and imagination when using such words as protectionist and xenophobic.

Oh the shock, that anyone can't see how wonderful free trade is. How ignorant these economic illiterates are.

Some economist skip the horror and innuendos and make their case for free trade. David Leonhardt made his argument in the New York Times today for free trade in "The Politics of Trade in Ohio." However, I think he missed the point of withdrawing from NAFTA when he claimed that before NAFTA, tariffs with Mexico were already low.

It's hard to look at this history and conclude Nafta is the villain. In fact, Nafta did little to reduce tariffs on Mexican manufacturers, notes Matthew Slaughter, a Dartmouth economist. Those tariffs were already low before the agreement was signed.--David Leonhardt

The reason for withdrawing from NAFTA isn't low tariffs but the possibility of higher tariffs. Once the ability to raise tariffs is restored, international corporations and repressive governments will no longer have the freedom to act as they please. Tariffs are a disciplinary tool for those who would put profits over the needs of society.

I also don't think Leonhardt is allowing the candidates to speak for themselves when he claims that "Neither candidate calls for a repeal of Nafta, or anything close to it."

.... Neither candidate calls for a repeal of Nafta, or anything close to it. Both instead want to tinker with the bureaucratic innards of the agreement. They want stronger “labor and environmental standards” and better “enforcement mechanisms.”--David Leonhardt

I disagree that the candidates didn't come close to calls for repeal of NAFTA in Tuesday night's debate.

The candidates made it permissible to hope that we could withdraw from NAFTA and Leonhardt is smothering that hope by refusing to let the candidates speak for themselves.

http://www.nytimes.com/2008/02/27/business/27leonhardt.html?ref=politics

Here are the hopeful parts of what the candidates actually said. Neither ruled out the possibility that they would repeal NAFTA. People were given the permission to hope. With hope comes the motivation to press on. Leonhardt does his best to kill all hope.

MR.RUSSERT:....Al Gore said the following: "If you don't like NAFTA and what it's done, we can get out of it in six months.
The president can say to Canada and Mexico, we are out. This has not been a good agreement." Will U.S. president say we are out of NAFTA in six months?

SEN. CLINTON: I have said that I will renegotiate NAFTA, so obviously, you'd have to say to Canada and Mexico that that's exactly what we're going to do. But you know, in fairness --

MR. RUSSERT: Just because -- maybe Clinton --

SEN. CLINTON: Yes, I am serious.

MR. RUSSERT: You will get out. You will notify Mexico and Canada, NAFTA is gone in six months.

SEN. CLINTON: No, I will say we will opt out of NAFTA unless we renegotiate it, and we renegotiate on terms that are favorable to all of America....

SEN. CLINTON: ...But let's talk about what we're going to do. It is not enough just to criticize NAFTA, which I have, and for some years now. I have put forward a very specific plan about what I would do, and it does include telling Canada and Mexico that we will opt out unless we renegotiate the core labor and environmental standards -- not side agreements, but core agreements; that we will enhance the enforcement mechanism; and that we will have a very clear view of how we're going to review NAFTA going forward to make sure it works, and we're going to take out the ability of foreign companies to sue us because of what we do to protect our workers....

MR. RUSSERT: But let me button this up. Absent the change that you're suggesting, you are willing to opt out of NAFTA in six months?

SEN. CLINTON: I'm confident that as president, when I say we will opt out unless we renegotiate, we will be able to renegotiate.

MR. RUSSERT: Senator Obama, .... Simple question: Will you, as president, say to Canada and Mexico, "This has not worked for us; we are out"?

SEN. OBAMA: I will make sure that we renegotiate, in the same way that Senator Clinton talked about. And I think actually Senator Clinton's answer on this one is right. I think we should use the hammer of a potential opt-out as leverage to ensure that we actually get labor and environmental standards that are enforced. And that is not what has been happening so far.

[ken melvin]

US labor can never compete with Chinese.

says...

ddt - one of the purposes of free trade was to supercede the auto pact with an agreement for all of Canada. there is also a regional component of energy trade that would be difficult to sell or implement in bc/ab/sask as the previous made in canada policy was discriminatory in nature.

if you get your wish and want to stop the oil and gas exports, then you also need to force quebec to sell electricity to ontario - and force quebec to transmit nfld electricity to the us.

by going backwards in policy you might just end up with a canada consisting of "upper canada"

says...

Anne - "The mean-spirited suggestion that Barack Obama will not keep promises" is being reported as fact. it is also being reported as a good thing, meant to keep goodwill to obama in canada. it looks llike it will suceed

don't worry - your average american who gets news from FOX will unlikely see this. and only idiot politicians anywhere get involved in other peoples elections.

[Publius Agricola]

If Hillary does not get the nomination, will Brad apply for a position at CNBC?

[Gerard MacDonell]

I get the case for trade. I get that not seeing it is a sign of incomepetence. I too am worried that that Obama is not on the right track here.

But why do economists get all virgin-ears over marginally suboptimal trade policies, while largely ignoring the MASSIVE economic damage caused by the war in Iraq and the turning of a billion muslims against the USA.

The owner of this site seems sensible on this issue. But what is up with Willem Buiter and why does Greg Mankiw think his points on trade are so relevant? It seems very weird, almost like a religious doctrine or something.

[reason]

Gerard MacDonnell,
I crossed swords with you the other day, but well put. I even got your name right this time. Read Krugman and Dean Baker if you want to read some economists with a sense of proportion. But you are right, some economists forget just how weak the evidence for their view of the world actually is. They forget that the map is not the territory.

[reason]

That should read Paul Krugman and particularly Dean Baker.

says...

marcello said: Many on our side of the fence would welcome killing NAFTA, and negotiating something along the lines of, uh, a FREE TRADE...

Yep. Another problem has to do with US refusal to honour existing pacts. If you want to tick off a Canadian, begin a discussion on softwood lumber exports, for example.

Of course, US business honours most pacts and treaties, but not all. The states bizarrely drive trade actions in areas originally governed by nation to nation agreements. And in many cases logic and common sense have no chair at the table (viz. the 2003 US ban on cattle imports)

This lends an arbitrary element to trade negotiations which does not paint the US as an especially stable business partner.

Noni

[TigerPaw]

Something that needs to be kept in mind by us here on this side of the border is that last time around Mulroney gave away control of our oil to the US to get the agreement. Now that Bush-lite is running things in Ottawa, one has to wonder what he'd cave in on if the US does reopen the agreement. Does anyone seriously think that we'd be allowed to take back the unfettered access to energy that's in the current agreement? I submit that is unlikely as various big sticks would be waved about to ensure that we behaved. Note the resolution to the soft-wood issue for example, Canada was doing well in the courts and Harper caved just to sweep the issue under the carpet.

Control over resources is likely lost permanently and will remain that way.

[bakho]

Russert is a terrible questioner because he keeps interjecting blatant untruths into the discussion that take way too much time to refute. There is no way the candidates can educate the public when people like Russert (who get far more air time than the candidates) keeps repeating the mantra that NAFTA is the problem. A problem for any politician is that the voters absolutely believe that NAFTA is the problem.

NAFTA coincides with a large increase in productivity that is responsible for much of the mfg job loss.

Then there was the steel tariff fiasco that stimulated off shore steel parts mfg.

[paine]

since no one seems to disagree
why the endless yammer
about better safety nets
and more generous job loss
programs ???

i'll mark "agreed"
to the list in the post
and move on to this bit:

"The solution .."
which
"..should involve
more government investment
in infrastructure,
the medical sciences,
alternative energy ..."

okay job net increase from same ...please ???
oh ya
"and other areas ..."

goal:

".. produce good new jobs."

nice to know uncle oughta
"produce " more "good new jobs"
not bad new jobs
net new meme content = zero

mark however makes a point
worth more reps
lets not argue about sources of job loss
after all in a actual fully interconnected
set of markets
with inter connected "moving parts "
that display wildly diverse
"rates and sizes of adjustment "

whether anything causes anything
is arbitrary
often its just about where
your assumptions by implication
"order you to stop "

so lets focus on new job creation
numbers location type and wage rate
and value added potential

no only should uncle foster
"A more strategic approach to investment "

he needs to close by macro policy
two gaps

the chronic
if variable domestic output gap
and
the acute but persistent
product trade gap

ie
we need a balanced trade policy
and a way to stamp out
profit wage price spirals
notice neither of these issues
involves border issues
or technical miracles
and are well within
our immediate range
of possible steps

btw the policy based on these consensus findings
is either
apple pie
or horse apples
neither of which gets to the systems
structural failures
or for that matter
inter class share
of value added politics

intra class transfers
or even inter class transfers
is no threat to the system
been there done that
okay so we gotta do it again
but that sounds like cycles to me
not basic transfomation
is it just more help
and a fair opportunity
to up their hu cap's va
wage folks need ???if borders are to remain open
something about
the cost of producing hu caps
here vs over there
needs addressing too

[paine]

the anabolic catabolic
metabolic job balance

[paine]

km

"US labor can never compete with Chinese."

if changes in relative currency values were
allowed to rapidly change and rebalance
trade between and among nations this point now so true would disappear
as the planets actual product markets
morphed into something similar
to a
ricardian rel-comp-advantage
dreamscape full of single value factor exchange systems

[Cynthia]

I'm all in favor of outsourcing CEOs, or even better, turning them over to the department of robotics.

[reason]

"Free" trade depends in order to function properly on an international finance system, that actively adjusts to persistant trade imbalances (both positive and negative). Our current inernational finance system, doesn't. It just doesn't work. Until that is fixed, I maintain it makes sense for currency blocks to adopt an "arms length" attitude to the rest of world. Instability costs. Somehow, economists don't ever treat the cost of adjustment as anything but either addition to GDP, or as a temporary imbalance. But just try continually moving home. It costs. Really!

[anne]

Being perfectly clear, other than hockey and the attending absence of style which has always frightened me, I think Canada is simply wonderful.

[paine]

"I'm all in favor of outsourcing CEOs, or even better, turning them over to the department of robotics"

grand idea
i'd prefer a robot fire me anytime

[TigerPaw]

Anne - Hockey isn't what it used to be. It's more of a WWF event now sadly. And a lot of us still can't wrap our minds around the idea of places like Florida having a team.

says...

"Free" trade depends in order to function properly on an international finance system, that actively adjusts to persistant trade imbalances (both positive and negative). Our current inernational finance system, doesn't. It just doesn't work. "

dead right on babe

[ddt]

"other than hockey and the attending absence of style which has always frightened me"

Evidently you are familiar with Don Cherry. Frightening, I know.

[paine]

"NAFTA coincides with a large increase in productivity that is responsible for much of the mfg job loss."

hey no one needs to work in these production plants
they just need to be located ...here

thus necessarily built here
and jack pot extra
run safe and clean and green here ..

and as we build more and more
greened robotized plants here
over time
trade gaps will reduce here

more open isn't a pure good
if we import high pollution over seas products
the globe is that much worse off

[paine]

don cherry
symbol of no helmet nationalism

[ken melvin]

Bakho,

One can but wonder how dysfunctional the whole beltway scene. I, for one, don’t think people like Russert, Matthews, … or Broder are quite normal let alone sane. Even Jim Lehrer is obviously vested some mind set involving his perception of the status quo.

Paine,

Ah oui, the old level playing field thingee. The model, premised on forensics, will surely tell us how/why the patient died; … if only the general could refight the last war. ‘Tis a new economy, and it’ll probably bring a new world order. C’est depends. The winner will probably be the one with the natural advantage. Could be the one(s) who figure it all out without waiting for the autopsy.

[Callahan]

As we lose our homes and move into tents, and learn to like roots and berries, and good garbage, we will be better able to compete in a SHAFTA, whoops, ... NAFTA world.

Yes-sireeeeeeeeeeeee!!!!

[paine]

"The model, premised on forensics, will surely tell us how/why the patient died"

scientific
rear view mirror driving is for us rubes

[sglover]

It's always delightful to watch tenured economists like DeLong et al yammer on about the wonders of flexible labor markets. Plainly their lofty perches only give them a better view.

[Bruce Wilder]

Over the last week, the candidates' talk has, at times, been silly and even inaccurate. And Ohio's problems would certainly be easier to solve if, as Luis Proenza, president of the University of Akron put it, the candidates were "more true to reality and less prone to invective." But the larger problem is that Ohio's voters have good reason to be angry. For years, they have been promised that globalization was making the United States a richer country. They're still waiting for their share of the bounty.

The condescending tone is unmistakeable, the concession to the legitimacy of Ohio voter anger notwithstanding.

Economists define the alternative to their ideologically-drenched laissez-faire approach as a stupid protectionism. No one (other than a Bush voter) wants to be stupid, or silly. And, yet I don't see economists offering any alternative.

Not to pick on our esteemed host, but this does not inspire confidence in economists as engineers of our future: Workers in Ohio and elsewhere are feeling the effects of something - I think the story above is basically correct but does not place enough emphasis on technological innovation as a cause of recent labor displacing change - but debate over the cause of their troubles shouldn't delay the implementation of policies that could help now.

And, I am sorry, but this simply horrifies me: This means dealing with the need to decrease the cost of low skilled labor through lower social contributions paid by firms at the low wage end, and the need to make work attractive to low skill workers through a negative income tax rather than a minimum wage.

If the economic consensus about how to deal with declining real wages is to subsidize low-wage, low-skill, low-productivity work . . . well I want a new economist, because these guys forming the consensus are stupid, and, right now, we are stocked up with stupid -- we don't need anymore.

[Holly W.]

A post about both Ohio and NAFTA, and Save the Rustbelt seems to have the day off! :-)

[paine]

bw:

are we in agreement ???

a balanced trade what be proof agin
the first level of horrors

and that
fully nullify
the righteous class threat behind
the present
domestic decent wage/job protection racket
will require
corporate wage agrrement deciders
to either " be forced " or " allow"
real middle 60% wage rates
to resume their tandem climb
along side middle 60 % VA

a climb abandoned 30 odd years ago
---without overly noticeable class struggle ----
as part of thenation's
new white guy visionary dawn

ie
the reagan-wicked witch of the sunbelt
contract on cast iron amerika

[paine]

Holly W

rusty must be retooling

always a dime too high and a day too late

a typical midwest production

[dissent]

A topic shift:

As China and others gallop into global warming catastrophe, even as the industrialized west begins to seriously look at changes of policy to back away from this, we see a serious conflict beginning to emerge.

I think in the relatively near future, tariffs and trade sanctions will be applied to polluting nations.

You can talk carbon tax and cap and trade all you want, but I don't believe China for example will sign up for such in the foreseeable future.

[Bruce Wilder]

dissent: "I think in the relatively near future, tariffs and trade sanctions will be applied to polluting nations."

That's obviously coming. For a Democrat, it is obvious log-rolling. Combine an obviously necessary measure to address ecology and global-warming, with trade-protection.

Conservatives have used the free-trade mantra to do their own log-rolling, to use trade agreements to disarm labor unions and to de-regulate shamelessly -- why shouldn't progressives do a similar turn?

[benny lava]

"Yep. Another problem has to do with US refusal to honour existing pacts. If you want to tick off a Canadian, begin a discussion on softwood lumber exports, for example."

hey, did we ever get our 4 billion dollars (or whaterver it was) back?

You ^%#$^#$^ing &%$^&$%^ing protectionist #%$^#$^#$^ing illegal duty imposing #$%#$^%#$^ckers!

Phew. That's better.

I think free trade would be a good thing, if it ever came into being.

On the other hand, I just bought a new car in the US and imported it back to Canada duty free -- thanks to the plummeting greenback, a substantial savings! A mutual benefit, I would say, no?

says...

noni - softwood was never on the table in the FTA. Never. Never. So you and benny, please stop using this as an example as it has no basis in fact. The softwood issue is a reason to be in favour of broad sweeping free trade agreements.

anne - the attending absence of style is a bit mean but we are trying to overcome this. U

[ddt]

"anne - the attending absence of style is a bit mean but we are trying to overcome this. U"

Yeah, in the aggregate, Canadian fashion sense is pretty terrible (especially Alberta). On the bright side, we do have the perhaps the hippest, best dressed city in North America: Montreal.

[Tech versus Imports]

"...emphasis on technological innovation as a cause of recent labor displacing change..."

This is so. Bar mills were replaced by more efficient mini mills. Old line integrated steel mills automated, so fewer employees could produce the same amount of steel each year. All this would have taken place regardless of imports. Imports did speed up the process via increased competition (including competition from subsidized foreign mills, that were inefficient but kept active for political purposes). Rapid automation became mandatory for survival.

This resulted in many companies attempting to support more retirees than active workers. National health care would have considerably helped here. Trying to provide health care for 3 retirees (plus retiree family members) for every active worker is an unsustainable burden for a company in this competitive world. Especially when lack of competition in the domestic health care sector prevents prices there from becoming similarly competitive.

[Bruce Wilder]

paine: "are we in agreement ???"

If I be the bw, then probably not.

I come to the conclusion that the country, like a dead fish, is rotting from the head, compelled by empirical evidence, not by my personal temperment. When I read Mother Jones magazine, I wonder about what kind of warped childhoods could unite the readership in wanting to imbibe such paranoid tripe on a regular basis. I wish some enterprising drug company would send psycho-tropic samples to the whole circulation.

It seems odd to me, as I am sure it will seem odd to others, who have read my comments on this blog, but, in temperment and outlook and habitual point-of-view, I am actually, probably, most akin, among the regulars, to Save-the-Rustbelt.

But, as Brad DeLong might put it, I've been driven into shrill, unholy madness, by the conduct of the Bush Administration and their supporters in Congress and their enablers in the Media, and their beneficiaries among the Corporate Elite and zillionaire plutocrats.

The public discourse has been polluted, and it is poisoning American democracy. That's what has me furious.

As far as the larger structures of economy and politics are concerned, over the long haul, I favor whiggish reform and muddling through: Complexity and evolution are our friends, and too much idealism is likely to make the perfect the enemy of the good . . . yada yada.

But, we don't live in the long haul, we live in the moment, and in this moment, it is time to storm the Bastille, throw bricks, mount the barricades -- viva le Revolution!

Much of what economists say about trade is nothing, but empty, nearly meaningless cant. It is dictated by ideology, tribalism and endemic corruption within the profession. Very little of the best of theory or evidence is distilled into anything said in the public discourse about trade. Among the poisons and pollution dumped into the public discourse, economists-on-trade is pretty mild stuff. The most serious failing, is actually the sin of omission -- the fact that Obama and Clinton are not able to draw from the profession some appreciation of reality with an analytical foundation and and some policy prescriptions with some hope of being effective. Even a sympathetic economist like Mark Thoma has to fall back on, "Ohio suffers from something . . ." Yeah, something. Great. Oh, yeah, and the great, magic black box of economics, "technology," has something to do with it. That was sure helpful.

But, by all means, let's belittle the candidates for sounding silly, as if they have not been left, as the citizens of Ohio have been left, abandoned and unsupported by the economics profession. When Keynes complained that politicians were often the unwitting slaves of the doctrines of long-dead economists, he had no idea of just how impotent politicians could be made by a manumission, that leaves them utterly without anything sensible to offer.

[paine]

Tech versus Imports
you miss tanother key point

are we importing more industrial products
despite automation
because of over priced dollar exchange rates
its not just
a matter
of are we exporting industrial jobs
but whole industries
we ought to retain here in norte america
keep em bring em back
and make em clean and green
even if totally automated

if in fact
the entire manufacturing sector contained not one
job for skill free operatives
formerly paid a high union wage
i'd say so what
so long as the products were still produced here
given the size of the NA market
there are few products with a technical reason
for importation (size economies )

to hell with ricardo
the products we consume here
oughta be overwhelmingly
produced here

unless there are serious natural economies

now its cheap wages no regs etc
purely forex frigged scams

[Xennady]

ddt,
I'm thrilled to hear that the auto pact went away and I stand corrected. But while it was in effect it vastly benefited the Canadian economy at the expense of the US, especially Michigan. Typical of US trade policy that it went away because of foreign action and not because US politicians noticed that it was not in the interests of the US. If you're unhappy that NAFTA prevents Canada from selling onto the world market, fine. So how do you think the US will enforce that provision if Canada stops abiding? Invasion? If nothing else you can give notice and leave NAFTA. Oil is fungible. You won't get more money selling to China. Pardon me if I think this complaint is mainly for effect. When Europe, Japan, South Korea, and various other countries tell US troops to go home and stop currency manipulation to maintain access to the US market, then I'll say they have told us to eff off. Hasn't happened yet. My belief is that US politicians should pull out US troops from the rest of the world and stop making idiotic trade deals that benefit our so-called allies much more than they benefit America. Of course if we let the rest of the world screw that's our mistake and not theirs. Thanks for being relatively pro-American! I'm sure I didn't help that cause with you but my experience with Canadians and Canadian media make me think it's already a lost cause.

[paine]

as to raising skill free wage rates
as the high pay skill less
industrial jobs evaporate
that's up to the jobblers themselves
a pro high wage macro policy
and the political process that would produce that
oughta be possible given
the interests of the jobbled
are interests
of the majority

ps
obviously the service and commercial sectors
are the new low wage target sites for unionization
but lets recall
b4 the cio org victory parade
in the late 30's and war 40's
industrial operatives
despite a half century of productivity gains
were still paid more or less
guilded age shit wages
in our factories and mines

[ken melvin]

"the products we consume here
oughta be overwhelmingly
produced here"

Heavy, loaded, ...
Quaint.
Goes for all?

[benny lava]

"noni - softwood was never on the table in the FTA. Never. Never. So you and benny, please stop using this as an example as it has no basis in fact."

?? What were all those FTA and NAFTA panels ruling on the dispute up to, I wonder.

says...

bw

fine roll out to the far horizon

but
i meant only
do we agree
on the policy agenda for today

as in trade gaps and production gaps and forex fiddles
are all ready and ripe for "fixin' "

they only await
the proper popular mandate
and consequent
policy actions

as to economists able to concert these policy runs

i suspect leagues of em
are silently mobilizing in academia
they need only to here
the progressive call to arms

[paine]

km

we need to turn inward as a nation
keep our borders open
but turn inward
let the world alone for a spell

won't happen of course

given our de facto since '46
ancient regime...

the dictatorship of
the limited liability trans nats

[paine]

"When I read Mother Jones magazine, I wonder about what kind of warped childhoods could unite the readership in wanting to imbibe such paranoid tripe on a regular basis"

an odd choice of a readership
for drug therapy bruce

my choice would be
the sunday new york times

says...

paranoids should be read figuratively

[Bruce Webb]

My take is that when most Americans think or say 'NAFTA' they are not focusing on the particular provisions of the North American Free Trade Agreement, instead it is a code word. It is not easy to express what it is code for, which largely explains why it is used so much.

Over the last couple of decades a frame has been established that the default position should always be an unregulated free-market without trade barriers with every effort of government to control that market representing a distortion of the natural order. This is generally coupled with some belief that the winners in the market are winners because they deserve to be, otherwise the market wouldn't have allocated the results the way it did. If this results in shuttered factories in Ohio and Ontario and ever bigger summer mansions in the Hamptons and villas in southern France, well tough, whining losers can just tell it to the Invisible Hand. Thus the insistence on calling any attempt to level the gains as 'redistribution' with the built in assumption the original distribution was in fact equitable.

The second part of this isn't new, economic elites always find some way to justify the outsized share they grab, but rarely have they bothered to deny that at the fundamental level they have enforced this by the exercise of force, whether that be in pricing power or actual application of state police powers, this is the 'Let them eat cake' thing. The first part though has taken on a new twist, in this Brave New World the losers are simply expected to accept that this inequality is just the natural order playing itself out and not the product of an economic and political structure that was consciously designed to produce outcomes tilted to the people with power, no instead they should just sit back satisfied with the understanding 'No poor man ever gave me a job'.

But I don't think that people fundamentally believe that life is fair, in their daily dealings they are constantly exposed to situations where power is exercised arbitrarily, people push and shove literally and figuratively all the time seeking to gain a competitive advantage, and winners and losers are not sorted out 100% of the time by the operation of the Invisible Hand. Instead they know of people who got the raise by sucking up to the boss or backstabbing a colleague. In a lot of cases the skill in the 'skill premium' is knowing the right people or mastering the right office tactics.

So when free-trade economists try to bamboozle us by insisting that efficiency trumps equity and that for the most part equity is delivered anyway some of us get angry. We may not understand exactly how the game is rigged but we clearly sense that it has been, the rich getting richer and the poor getting poorer. AGAIN.

When workers bitch about NAFTA I think what they are really expressing is the belief (true in my view) that 'Somewhere, somehow, I am getting screwed over by the Man'.

One of my last graduate papers was called 'Why Kill the Lawyers'. It examined the rather curious fact that in the course of the English Peasant Revolt of 1348, generally explained as a revolt of peasants against lords, most of the actual instances of peasant instigated violence was directed against lawyers. Rather than dismiss this as simple irrationality (the typical response by historians) I looked for an explanation and found one. And the short version is that starting in about 1100 English lawyers started using new concepts drawn from Roman Civil Law and Aristotelian logic to totally transform English land law in a way that privileged the rights of landlords (who were transformed into owners) over tenants (who were transformed into at will employees). A very complex economic and social structure comprised of serfs, small holding free peasants, large holding free peasants, knights, and lords all with varying levels of rights of usage over the same piece of ground was reduced to the binary opposition of owner/renter. To add insult to injury the landlord turned owner were often able to use the courts to broaden servile obligations to all their tenants, blurring or eliminating the distinction between serf and freemen.

So when the ball went up in 1348 the body of the peasantry knew that as a group they had been screwed out of their traditional rights by the Man and that that had been accomplished by the Man's lawyers. Thus inspiring that future Shakespearean line "First, lets kill all the lawyers"

I don't know that academic economists need to be looking over their shoulders for mobs with torches and pitchforks, but I don't think people are simply buying the bland assurances that "Under Free Trade everybody is a Winner, it says so right here in this book under Ricardian Advantage." Because those 13th and 14th century lawyers had books too, that was the problem. Everyone is not a winner in this economy and it is not material whether the precise source of that is in any particular treaty, the game is rigged and we know it. NAFTA is just the poster child for the entire system. Explaining that the actual proximate source of Ohio's pain is not NAFTA itself is to miss the entire point.

[paine]

When workers bitch about NAFTA I think what they are really expressing is the belief (true in my view) that 'Somewhere, somehow, I am getting screwed over by the Man'.

to cop from keats
and
that is all we
goobers
know
and all we need to know

errr besides
where the f do dah man live by nite

[James Killus]

Oh, my. I read through the first messages in this thread and thought, oh well, the usual knees jerking. Then I hit:
I want a new economist, because these guys forming the consensus are stupid, and, right now, we are stocked up with stupid -- we don't need anymore.
and my faith in the day was restored. Then the other Australian Philosopher, er, I mean, Bruce, gives his wonderful description of legal chicanery prior to the English peasant revolt, and the sun comes out, and I am a happy guy.

[Bruce Wilder]

Paine: "i meant only
do we agree
on the policy agenda for today"

Close enuf for gubmint work, I tink.

[piglet]

"Pardon my rudeness but I was born in Canada and I used to hear what Canadians said about America when they thought no Americans were around. Frankly, I'm pretty effing tired of Canada and other US "allies" whining that we've done them wrong."

Xennady, you are the one who's whining. You have to understand that other people, even Canadians, are not required to like the US. And by no means are Americans required to like Canada; if Canadians were as thinskinned as Americans about what Americans routinely say about Canada, they would be complaining all day.

[philip]

anne,
please move to canada.

[piglet]

Bruce, I'm with you today...

it is time to storm the Bastille, throw bricks, mount the barricades -- viva le Revolution!

[Bruce Wilder]

JK: "Bruce, gives his wonderful description of legal chicanery prior to the English peasant revolt, and the sun comes out, and I am a happy guy."

And, a lovely sun, it is. Thanks for that essay, other Bruce.

[Bruce Wilder]

piglet: "by no means are Americans required to like Canada"

Are you sure about that? 'cause that's not what they told me in Toronto.

[Cynthia]

Bruce Webb,

Thanks for sharing that medieval story about peasants and lords with lawyers thrown into the mix. In a strange and twisted way, it dovetails quite nicely with today's story about politicians being sandwiched between Ohioans and free-traders.

[dissent]

"in this Brave New World the losers are simply expected to accept that this inequality is just the natural order playing itself out and not the product of an economic and political structure that was consciously designed to produce outcomes tilted to the people with power, no instead they should just sit back satisfied with the understanding 'No poor man ever gave me a job'."

This is the sucker punch the Republican party has delivered to the working and middle classes. Well put, BW. But it also nails one shameful aspect: the cooperation of Americans in their own shabby and pitiful decline. In the harsh real world, voters get the democracy they deserve, and we Americans, at least the white middle and working classes (those who fell for Reagan's 'welfare queen' line and Bush's "ownership society"), are getting the fist in the mouth that we deserve.

To wit: the recent LA Times poll that McCain beats Obama by a large margin in who voters trust to fix the economy. OhMyGawd. McCain who walked into a meeting with WSJ editors saying, Aw shuck I dunno nothing bout no economy, but I shure plan to read this here book by Mister Greenspan.

Another all American dumbass. Get ready for a bumpy ride.

Or it might be time to abandon ship, folks.

[gordon]

I was lost in admiration of the subtlety with which David Leonhardt recommended an improved industrial policy for the US without actually using the words "industrial policy": "The solution should involve more government investment in infrastructure, the medical sciences, alternative energy and other areas that could produce good new jobs. A more strategic approach to investment, one less based on the whims of individual members of Congress, would also help....".

At that point I hoped that Prof. Thoma would pick up the disguised industrial policy theme, point to where it was going, and run with it. Unfortunately, we got shunted to the "take care of the workers not the jobs" theme, which looks the same as the safety net theme which has been discussed here more than once.

Why is industrial policy so hard to talk about? Is it a Communist Conspiracy? Is it a proprietary product of the Pro-Abortion lobby? Is there a danger of being tarred and feathered?

I am aware of the EPI's project called "Agenda for Shared Prosperity", which contains some very moderate industry policy proposals for the US. Maybe there are other US proposals around which I don't know about. I would be interested. In Australia, the biggest metalworking union commissioned a paper called "The State of Australian Manufacturing" on industrial policy from a Melbourne think-tank in 2006 (go here and click on "reports"). It might be useful reading.

Of course, the US has already got a de facto industrial policy, but it exists in the shadowlands of earmarks, subsidies, tax breaks and of course a huge military expenditure. It would be nice if US economists could haul its various and sometimes obscure components out into the daylight and maybe estimate its overall effects. Frankly, I doubt if they would be found beneficial to Ohio or to the US in general.

[ddt]

The best way I can describe being a Canadian living next to America would be something like this:

Take the movie Groundhog Day, substitute Paul Krugman for Bill Murray, and substitute a perpetual drunken National Review Christmas party for groundhog day.

Canada: "Hey America, you're a good friend, I admire you and I don't want to tell you how to run your affairs, but maybe invading Iraq isn't such a hot idea."

America: "Shut up, you commie loser. Don't hate me cause I'm beautiful. go f*ck yourself in the back of your igloo, eh."

Canada: "Ok, sorry to bother you. I'll work on trying to understand and appreciate our differences."

America: "Die slow, scumbag"

[billy]

Posted by: Bruce Webb | Link to comment | February 28, 2008 at 01:59 PM

Bravo!

This comment is worthy of it's own post

[paine]

"industrial policy"
by any other label
(apollo project
green milling )
is just encryption of
the inevitable sectoral planning
our domestic manufacturing sector
is headed into

prolly could work well
like the one "we"
put
"the farms and ranches "of america
on
at least as far back
as fdr's first new deal

[dirtyal]

Note to Phillip: Anne might not qualify to move to Canada. Actually, they don't want too many Americans to move up there.

I met some people last year who are American, definitely well off, and very nice, who were denied in their application for permanent residence because they did not meet the qualifications.

Apparently, they were "too old" and there was certainly the highly unlikely chance that the state would some day have to take care of them.

So, Anne, you have a reprieve. You don't have to move to Canada unless you want to and then only if you qualify.

[paine]

"the US has already got a de facto industrial policy, but it exists in the shadowlands of earmarks, subsidies, tax breaks and of course a huge military expenditure. It would be nice if US economists could haul its various and sometimes obscure components out into the daylight and maybe estimate its overall effects"
industrial policy ????

de facto ???

what we have here in north america today
is a long range crypto
de-industrial policy

imagine if bob rubin and larry summers
had stated out in the open in the late 90's
we are pursuing a high dollar policy
and this will export our industrial sector

or if the various treasury clowns of the chaney dispensation
had said

despite our weal dollar policy
vis a vis the euros
we are still
de industrializing
now its just targeted
towards the various asian peggers

[ken melvin]

BWebb,

Not too shabby. Wow.

[Bruce Wilder]

gordon: "Why is industrial policy so hard to talk about?"

In the movie, Amistad, John Quincy Adams shares what he has learned of courtroom litigation: "Whoever tells the best story wins."

No one in the 21st century has yet told a best story in favor of an industrial policy.

It is not enough to utter the words, "industrial policy" -- there's no cachet in that. And, it is certainly not enough to piously endorse education and non-specific investment in infrastructure.

A really good story is going to be fairly elaborate, it is going to have to go back to first principles and build up a hero and an heroic struggle. Only after the story has taken hold of imaginations, will we be able to settle back to (new) cliches, and get down to work.

I see a lot of people thinking about how the response to global warming might become the hook for such a story, the gimmick that gives coherance to a whole, massive shift in orientation to the American economy. The whole, cheap gas/suburban paradise model is clearly played out, and almost any response to global warming is going to have elements of that model's antithesis built into it.

For economists, although there are some big pluses for a revival of industrial policy proposals, in the intellectual recognition of increasing returns, network effects, external economies, and the like, a generation ago, mostly, the ethos and conventions of economics work against anyone proposing industrial policy. It sure isn't laissez faire, and doesn't fit neatly into the market failure framework. Everyone knows what happened to Robert Reich, the apostle of industrial policy a zillion years ago -- instead of becoming an economist, he became someone, who plays an economist on television -- a liberal counterpart to Ben Stein, squeaking at Larry Kudlow for its entertainment value -- clearly, a fate worse than death.

In a world of Markets and Hierarchies, where hierarchies clearly dominate the landscape, economists profess to know only about Markets. This gives everything economists say about markets and trade a tinge of unreality, because their stories scarcely feature the corporations, assigning them roles, at best, as background players -- extras. That lack of verisimiltude is a double whammy for any policy, which is not a "market" policy, per se. An "industrial policy" is about industry, not markets, which to most sentient beings, means, big companies, big organizations. It means that anyone attempting to develop a persuasive story to sell industrial policy has the additional burden of supplying, sui generis, an economics of hierarchies, while fending off critics, which critics come with fully synthesized cliches about market incentives and trade-offs, aged 60 years in tweed barrels in University cellars.

[paine]

"i see a lot of people thinking about how the response to global warming might become the hook for such a story, the gimmick that gives coherance to a whole, massive shift in orientation to the American economy. The whole, cheap gas/suburban paradise model is clearly played out, and almost any response to global warming is going to have elements of that model's antithesis built into it."

exactly
and that green snuffle-upicus
of
beast
is slouching towards the beltway
even as we type

[paine]

"An "industrial policy" is about industry, not markets, which to most sentient beings, means, big companies, big organizations"

given
the de facto
corporate hegemony
no one 'round here (so far)
has seen fit to gainsay
are "we" the citizen weebles
expecting to recruit the tower titans
as fdr recruited em for the arsenal of democracy
IndiPol with a vengence
or are they going to co opt us ???

[philip]

anne,
if Canada will have you, please take Paine also. The meds he needs are probably much cheaper there. ;-)

[ken melvin]

I see robotic factories and people busy restoring and taking care of the earth.

[philip]

Definitely NAFTA is not free trade, and neither Canada nor the U.S. seem to have approached it with any real intent to get free trade. As for jobs re-training, there is just no getting arouond the fact that the only person who can select a new career is the worker themselves. And when they abdicate that responsibility or accept a political bribe in lieu of work (i.e. a transfer payment) there is nothing that can or should be done for them. There are very few people in this country who cannot learn a useful occupation, but there are plenty who don't want to have to.

[wjd123]

Leave the lawyers alone. I need them to forge the chains of rules and regulations in which I would bind corporations, particularly those in financial services.

If you look at the law of the last century most of it has been regulatory law. Most of it has protected labor more than it has screwed labor.

That we have an executive in the White House that won't enforce the laws on the books and a Supreme Count that protects corporations over consumers is a political problem not a legal one.

If the peasants revolt against their lot today it won't be because of the machinations of the lawyers but the political parties, particularly the Republican party.

[wjd123]

I want to write more but this is the only coherent thought I can manage after my day in the real world and a big lunch. Time for the sofa and some mindless TV. Damn, I'm missing "Project Runway."

[Bruce Wilder]

It might seem a bit odd, but tanta at Calculated Risk: Fannie Mae New Rules for Appraisals has some interesting thoughts about the battle against the corporations.

The point that she makes, is that part of the breakdown in real estate finance can be laid at the feet of merger mania. The Countrywides and Washington Mutuals, by buying up the appraisers and the title and escrow companies, and using them to form a kind of one-stop-shopping experience for someone going to a mortgage broker, substituted perverse incentives for professional integrity.

Like Tim Burke, my general sense that Bush has broken the institutional support for rational, principled, trustworthy decision-making, and rebuilding the same has become the principle issue for the 2008 election.

The Republicans are going to offer McCain, a corrupt old fool, who has played the principled maverick on television for twenty years. And, the Democrats, apparently, are going to offer Barack Obama, as a transformational Messiah.

Despite the inkling I have from a Catholic upbringing that the Messiah plot does not go entirely well, I am committed to the Democrat.

[wjd123]

The point is, if you go along with the idea that we should use social insurance programs to protect workers but not jobs, then this gives a means of evaluating candidate's trade proposals that doesn't depend upon whether the changes are driven by technology, globalization, or some other shock.--Mark Thoma

I can agree with the idea that we should use social insurance programs to protect workers, but I can't agree with the idea that social insurance programs should be used as a reason not to protect workers' jobs. And I can't agree that the criterion used to evaluate trade agreements should be neutral when it come to whether a worker will lose her or his job because of technology or globalization.

I'm not a Luddite, railing against new technology. I might not like losing my job because of it but down deep I believe that ultimately it will be a benefit to everyone. And even if I feel that in my life time I'm going to suffer from it more than I benefit, I just don't see how I can hold it back in order to protect my job. However, that is not how I feel about losing my job to globalization. I don't want it traded away, I want it protected. If that means tariffs then I want my government to impose tariffs.

I'll compete with the workers of Canada because their political economy is similar to mine. We both have the right to association, we both have rules and regulations protecting us in the workplace. Where we are not competitive, I generally want what they have--getting my health care through my government and not my employer--and having to compete with them will get it for me that much quicker.

I'll don't want to compete with the workers of Mexico because their political economy is so different than mine. I feel having to compete with them will jeopardize every advance made to our political economy over the last century. I feel that competing with Mexican workers will drag me as a worker back to my place at the beginning of the Industrial Revolution. I'll be asked to fight for every advancement to my predicament all over again.

No, trade agreements should be protecting my job if what is being traded with it are my rights as a worker. Trade agreements should be helping the Mexican worker advance his or her rights and not undermining mine. That can't be done through NAFTA. The differences in our political economies are simply to great. If we don't protect our jobs in a global economy worker rights will become meaningless.

Economist are asking workers to trade their political rights for social protection. They are asking workers to believe that ultimately factor-price equalization will make most of them better off. Well if that is true why did workers have to fight so hard in the last hundred years to enjoy a political economy in which they have rights. There is no global political economy within which worker rights are protected. How am I protected as a worker if my job is thrown into the global economy because I exercised my rights?

Economist tell us that our economy will produce new and better jobs. They can't tell us where the jobs will come from, but they can tell us that they will only be better is they are safe from globalization. So it does matter how change is driven.

No, it makes a difference to me what phenomenon is responsible for my job loss. Find ways to take the anarchy our of globalism, give me an system I want to be part of and not a process I'm supposed to have faith in, and then talk to me about not protecting my job.

[hari]

@wjd123 -

May be you should read "draft" paper PK is preparing for discussion on impact of international trade and inequality taking into account developments since 1990s (and earlier) and recent expansion of mainly China's exports to US.

It seems the argument that (import) trade is causing job dislocation is not substantiated. Basic data is mainly from 1980s and later but no long-time series to provide intelligent analysis of what's actually happening on the trade front.

PK is sanguine in coming to the conclusion that a lot more extensive studies are required to understand what's really causing the (domestic) income inequality.

NAFTA is a FTA and if it allows Mexico to benefit from comparative wage advantage in manufactures then the principle of free trade mechanism is working (like with mainland China). But is it causing income inequality in Ohio, is a very separate (political) question.

OECD always argued that its member countries (24 during my time) competed in international trade based on comparative technology advantage - until S Korea cornered more than +20% of the leather goods industry! It was then (1980s) when discussions on comparative technology advantage became academic, as ASEAN countries started emerging with not only low-wage manufactures but also some niche high tech products.

While reading PK "draft" paper, I was thinking about the role of OECD countries in this global trade transformation and specially the function of FDI - technology transfer and appropriate sector investment - in joint ventures (JV).

In case of mainland China, you're witnessing a more focused expansion of international trade ( during last two decades) as a share of GDP.

The case of Formosa (or Taiwan) and S Korea are known to us. It took a few decades of US technology transfer to impact their industrial/trade transformation. They're also classical case studies in modern industrial development.

However, we still need to understand the critical role of FDI in globalization of trade (in goods and services) - mainly from developing countries.

[hari]

It seems to me that some of yu guys are not only missing the point (of international trade policy) but also confusing your mind about current position of US on global international trade totem pole.

Not long ago, I recall having to implement (global) Trade Adjustment Policy dictated by IMF/IBRD (actually coming out of WH). There was time and place when the bible was IMFs policy framework, and since emerging countries had no other alternative (available), they had to accept the bitter pills.

Mark is not a trade economist, otherwise he'd have mentioned trade adjustment policy for Ohio - namely, under NAFTA there must be a trade adjustment assistance programme.

[hari]

There is a topic today dealing with "Multi-Regionalism" and challenges to WTO - none of you NAFTA die-hearts are giving it any attention. May be you'll find a valuable lesson of NAFTA...and whatnot.

[dissent]

hari your capsule summary of PK's views is misleading.

hari says...

@wjd123 -

May be you should read "draft" paper PK is preparing for discussion on impact of international trade and inequality taking into account developments since 1990s (and earlier) and recent expansion of mainly China's exports to US.

It seems the argument that (import) trade is causing job dislocation is not substantiated.

The draft PK paper, link at his NYTimes blog, has this summary sentence:

"the analysis presented here indicates that the rapid rise in manufactures imports from developing countries probably is, indeed, a force for growing inequality, and that factor content calculations suggesting otherwise are missing the essence of what is happening."

[hari]

@dissent -

There are 42 pages...hopefully you read it ALL. Not just his abstract. It could mislead you to make a false assumption of what's the impact of trade.

[dissent]

hari, would appreciate quotes to back up your view. I don't see your point as the primary message in this paper.

[Peter Schaeffer]

Is it OK to quote from Brad DeLong?

"But the larger problem is that Ohio's voters have good reason to be angry. For years, they have been promised that globalization was making the United States a richer country. They're still waiting for their share of the bounty."

If it is OK for Brad to write these words, is anyone else allowed to tell the truth?

[wjd123]

hari,

I don't know how Paul Krugman got into my comments about the idea of protecting workers but not their jobs. I haven't read the paper you're referring to, but the last I heard, Krugman was making the argument that as trade increased so did the problem of growing inequality. That is what your quote seems to indicate: As trade grows so does the problem.

I know that Krugman wants to protect workers with greater social insurance, but I don't know that he's advocates putting workers jobs on the chopping block in exchange for it.

He might advocate this, it seems a logical quid pro quo. Nevertheless, if the latter is Krugman position I'd like to hear him say it. If you have a quote it would be appreciated.

Also economist are starting to become more and more critical of unregulated international financial services. And well they should be with the international contagion our housing bubble's pricking has brought to light.

There was an interesting article in the New York Times today about how corporations are getting around the Sarbanes-Oxley regulations created after Enron's use of special entities.

Financial institutes have gone on creating them and gotten around the transparancy regulations by the use or rather misuse of Rule 46-R. It seems that the exemption is seen by financial institutions as a way not to reveal their special entity dealings until they actually fail. Isn't that what happened with Enron, their use of special entities to keep losses off their books were revealed after the company failed.

“After Enron, with Sarbanes-Oxley, we tried legislatively to make it clear that there has to be some transparency with regard to off-balance-sheet entities,” Senator Jack Reed, Democrat of Rhode Island and chairman of the Senate securities subcommittee, said this week. “We thought that was already corrected and the rules were clear and we would not be discovering new things every day.”

Senator Reed has sent letters to the Securities and Exchange Commission, as well as to the Financial Accounting Standards Board, which sets United States accounting rules, and the International Accounting Standards Board, which does the same for most of the rest of the world, asking detailed questions about what went wrong and how it should be fixed. Getting together answers to his questions could provide the S.E.C. with a road map to determine where the rules failed, as well as where companies failed to apply the rules properly.

One rule that needs scrutiny now — called 46-R — was passed after Enron. Essentially, it says companies can keep “variable special purpose entities” off their balance sheets if they conclude that the bulk of the rewards, and risks, lie with others.

But companies are supposed to evaluate those estimates regularly, and change the accounting if the conclusions change. A risk that seemed remote last year can seem all too real now, and that explains a lot of the surprising write-offs.

Suddenly, losses are booked. Investors learn that a company has taken a risk only after the risk has gone bad.

That should not happen.--From "Why Surprises Still Lurk After Enron"

http://www.nytimes.com/2008/02/29/business/29norris.html?ref=business

(God, I wish I could figure out how to incorporate my links into the text of my comments. It would make things so much easier for the reader.)

At this point I don't know what we need more, more chains or more arrests. And Mark Thoma is afraid we will go too far with regulations.

BTW, I want to read "Multilaterlising Regionalism" I just haven't gotten to it yet. Right now I feel that with a title like that it might be best to save it until the morning when I'm fresh.

[hari]

@wjd123 -

You've no idea how far you've come to question some of the traditional libertarian conceptional framework of policy. Keep it up because a curious mind has no limit! And for gods sake, don't let ideological perfection come between your cerebellum and printed words. I've never found such thinking process of any reasonable value.

[ken melvin]

Thanks wjd 123 and hari, enjoyed the volley. For us in the range who saw it coming but thought it would improve the lot, this doing everything bassackward comes as a shock but perhaps it shouldn't.