"The Free-Trade Paradox"

James Surowiecki says closing markets will hurt middle and low income households because it will increase prices on goods that make-up a large fraction of their budgets:

The Free-Trade Paradox, by James Surowiecki, The New Yorker: All the acrimony in the primary race between Barack Obama and Hillary Clinton has disguised the fact that ... when it comes to free trade, ... the campaign has looked like a contest over who hates free trade more... The candidates are trying to win the favor of unions and blue-collar voters in states like Ohio and West Virginia, of course, but their positions also reflect a widespread belief that free trade with developing countries, and with China in particular, is a kind of scam perpetrated by the wealthy, who reap the benefits while ordinary Americans bear the cost.

It’s an understandable view: how, after all, can it be a good thing for American workers to have to compete with people who get paid seventy cents an hour? As it happens, the negative effect of trade on American wages isn’t that easy to ... quantify. But it’s safe to say that the main burden of trade-related job losses and wage declines has fallen on middle- and lower-income Americans. So standing up to China seems like a logical way to help ordinary Americans do better. But there’s a problem with this approach: the very people who suffer most from free trade are often, paradoxically, among its biggest beneficiaries.

The reason for this is simple: free trade with poorer countries has a huge positive impact on the buying power of middle- and lower-income consumers—a much bigger impact than it does on the buying power of wealthier consumers. The less you make, the bigger the percentage of your spending that goes to manufactured goods—clothes, shoes, and the like—whose prices are often directly affected by free trade. The wealthier you are, the more you tend to spend on services—education, leisure, and so on—that are less subject to competition from abroad. In a recent paper..., the University of Chicago economists Christian Broda and John Romalis estimate that poor Americans devote around forty per cent more of their spending to “non-durable goods” than rich Americans do. That means that lower-income Americans get a much bigger benefit from the lower prices that trade with China has brought.

Then, too, the specific products that middle- and lower-income Americans buy are much more likely to originate in places like China than the products that wealthier Americans buy. ... (By some estimates, Wal-Mart alone has accounted for nearly a tenth of all imports from China in recent years.) By contrast, much of what wealthier Americans buy is made in the U.S. or in high-wage countries like Germany and Switzerland. ...

This may not always be the case; as China’s economy continues to boom, its companies will likely move up the quality ladder and, eventually, become serious competition for high-end American and European manufacturers. But for the moment the benefits of free trade with China, at least when it comes to shopping, are concentrated overwhelmingly among average Americans. ... That means that free trade with China has made average Americans, at least as consumers, much better off—in the sense that it’s made their dollars go further than they otherwise would have.

Now, there’s a lot that’s left out of this equation, such as the fact that free trade may help richer Americans by increasing corporate profits. And cheap DVD players may not, on balance, make up for lost jobs. But the reality is that if we toughen our trade relations with China the benefits will be enjoyed by a few, since only a small percentage of Americans now work for companies that compete directly with Chinese manufacturers, while average Americans will feel the pain—in the form of higher prices—far more quickly and more directly than rich Americans will. Obama and Clinton, in their desire to help working Americans—and gain their votes—are pushing for policies that will also hurt them.

One comment. Just because someone gained, say, $10 doesn't necessarily mean they will be completely pleased. If they deserved $25 but only received $10, they might object. Thus, while trade may have benefited lower income households by lowering prices on the goods they are likely to consume, and that is certainly a positive, that doesn't mean they won't be frustrated if they aren't receiving what they view as a fair share of the gains from globalization.

We know, for example, that real wages for the working class have been stagnant in recent decades, or even declined slightly. So even if you argue that the CPI overstates inflation for low income groups because they consume a disproportionate share of goods with prices that have not risen as fast as the CPI, it's still hard to make the case that the gains have been large. Couple that with the rise in inequality, loss of health care and retirement benefits, decreased job security, etc., and it's easy to see why workers might not feel as though they have been adequately compensated for the change in labor market conditions and economic security that they have endured.

But I do agree with the main theme. The answer is not to close markets, the answer is, quoting Larry Summers, to "design more ways to insure that a more integrated and prosperous global economy is one from which all will benefit." We need to find a way to distribute the gains (and the pains) of globalization so they are shared more equally, to increase opportunity so that everyone has the chance to reach their full potential, and we need to reverse the declines in economic security, retirement benefits, and health care coverage that have occurred for middle and lower income households over recent decades.

Comments

[Real Person from the Real World]

Perhaps CHEAP goods allow some employers to underpay employees. When I told my foreign born entrepreneur employer, who pays me walmart wages, that some receptions make as much as I do, he said that they only work 40 hours! That's right! less time at a higher wage. Meanwhile his wife works for a food pantry. She complains that people don't take the vegetables, and they brought them to the office and gave me a bunch! That is supposed to make up for a poor salary? These people from the 3rd world live with exploitation, and some are bringing back to the US. We got rid of child labor and sweat shops, but now these guys bring it back. I am trying to find something else, I have stayed with this guy too long. My good will is exhausted. And frankly, I am tired of hearing about "free trade" goods. In the 3rd world, people have a local economy where it costs less to live. In the US, it costs more to live. Why should I pay US prices to someone in the 3rd world, and make myself poorer and them wealthy?

[a]

"Why should I pay US prices to someone in the 3rd world, and make myself poorer and them wealthy?"

Oh silly real person. Economists have PhDs. They have studied long and hard. They are Experts. They say Free Trade is good. They have the models to prove it. So who are you to disagree?

[Joe]

No paradox at all. Standard of living prior to free trade versus standard of living post freeing up of trade. PERIOD. What is hard to understand about that. IT'S SIMPLE. All those cheap products from overseas have been a net detriment to the standard of living of most Americans. Those cheap products don't make up for the loss of wage bargaining power. There are other reasons why American labor's bargaining power has disapated and free trade is just another factor; despite the fact that economist can't seem to make make an indisputable case. What changed in the last 30 or 40 years. One thing for sure is the income of most American households when you factor in that the median American household now has 2 wage earners as opposed to 3 or 4 decades ago (prior free trade) when there was only one. It is really no more complicated then that.
As far as fairer trade agreements, Americans have no control over how other societies run their business. We only have control over how we run ours via our democracy were the majority rules not those with the most money. Don't let muddled headed people bequile you about non-existant paradoxes.

[bakho]

The remarks I have heard center around, renegotiating trade deals, not terminating them. The deals as written fail to enforce environmental and labor standards. This is unfair. We can do better. There is no such thing as "free trade". All trade has rules and regulations.

[Denis Drew]

Joe,
The chief loss of bargaining power comes from America de-unionizing when we should have been going in the opposite direction (like the rest of the better paid world): sector-wide labor agreements (collective-collective bargaining). Sector-wide labor agreements are like unionization on super-charger: they end the race to the bottom which is what has really killed the average person's incomes in the land of asleep-at-the-switch labor.

[wjd123]

Bakho,

Hillary Clinton has been quite explicit and Barack Obama has added his "me too" that if NAFTA can't be renegotiated she'll withdraw from it.

She has also promised to reexamine all of our free trade agreements. What if they can't be renegotiated, what then?

[acerimusdux]

Despite some of the rhetoric, I don't think either Clinton or Obama are pushing for significant restriction of trade. If you look at their actual policy statements, both are pushing only for "fair trade"; i.e. modest reforms of trade agreements to better account for things like the external costs of the lack of environmental and labor protections by some of our trading partners.

So as far as I can tell, both seem to buy into this argument that trade does generally benefit most Americans. Their argument has been more that we shouldn't take an ideological position and assume this is always the case. Instead we should look at the real world evidence, and regulate when the real world costs of trade are not able to be fully accounted for by free market pricing alone.

[Joe]

deunionizing was certainly a factor in loss of bargaining power but even more generally it is supply of labor versus demand for labor. American corporations outsourced to low wage countries whose worker's did not have enough income to buy the products they were making for us, then sold them to us based on a price from demand schedule that was based on a income paradigm that was rapidly erroding. Arbitrage in a certain sense and the corporations made alot of money engaging in this arbitrage and selling the american worker down the river for the end of arbitrage is an evening out of differentials. Those who bought the politicians to enable them to sell us out made alot of money which has now shown up in an income distribution that rivals the gilded age. The American middle class has practically been evened out of existence

All the while, muddled headed people bequiled us with tales of paradoxes.

[Erik]

Even if access to cheap manufactured goods perfectly offset the decline in the real wage and bargaining power of most Americans (and it doesn't), this would be a system that was severly biased towards heavy consumption.

If you are not a materialist and are instead a crimper and a saver (like my parents) and trying to put money away for your kids' education or other lofty goals, you get the short-end of the bargain without the upside. If, however, you love nothing more than filling your home with cheap possessions from China and your main concern was keeping up with the Joneses, then you may get more value out of this exchange.

It's a poor tradeoff within a poor tradeoff.

says...

this gets very tedious

lower then otherwise consumer prices
racing lower then otherwise wage rates
add in distributional variations
like high hu cap vs no hu cap jobblers
and
then on top
of that
non wage incomes
to owners of "the property factors "

will some one please
put a nice little
ge model on the internet
to show these basic comp stats off
for the ass hole innocent bystanding public ??

[wjd123]

But I do agree with the main theme. The answer is not to close markets, the answer is, quoting Larry Summers, to "design more ways to insure that a more integrated and prosperous global economy is one from which all will benefit."--Mark Thoma

Larry Summers has also admitted that his pieces on globalization have been strong on discription and weak on prescription. Here is one of Summers's prescriptions:

Second, an increased focus of international economic diplomacy should be to prevent harmful regulatory competition. In many areas it is appropriate that regulations differ between countries in response to local circumstances. But there is a reason why progressives in the early part of the 20th century sought to have the federal government take over many kinds of regulatory responsibility. They were concerned that competition for business across states, and their ease of being able to move, would lead to a race to the bottom. Financial regulation is only one example of where the mantra of needing to be "internationally competitive" has been invoked too often as a reason to cut back on regulation. There has not been enough serious consideration of the alternative - global co-operation to raise standards. While labour standards arguments have at times been invoked as a cover for protectionism, and this must be avoided, it is entirely appropriate that US policymakers seek to ensure that greater global integration does not become an excuse for eroding labour rights.

Larry hasn't told us so maybe Mark can. In what international government are international "rules and regulations" to be deposited and enforced? And just how is this government to gain legitimacy when your dealing with countries with such diverse political economies?

[Rohan Swee]

And cheap DVD players may not, on balance, make up for lost jobs.

You don't say.

I'm always bemused by these articles extolling the glories of cheap crap* for the plebes, and not just for that hilarious "may not" in the quote above. What perversity enables people to write articles, even short articles, defending "free trade" without examining whether we do, as a matter of fact, have real free trade with any given nation (in this case, China), or making so much as a bored nod in the direction of trade deficits, debt, loss of manufacturing capacity and their long-term consequences for the nation. Even the average reader of the New Yorker, is, I suspect, capable of understanding the non-subtle distinction between "toughening trade relations" and protectionism and isolationism; efforts at confusing these seem pretty thick on the ground lately. (And far more Americans than the "small percent" competing directly with Chinese manufacturers can end up negatively affected by lopsided trade relations.)

*No, that's not an expression of snobbery. I'm a plebe, too, and don't furnish my humble abode with swish high-end gadgets. But even us plebes recognize shoddy if immediately-affordable crap when we see it, and think our children's long-term prospects count for more than not having to save up for a washing machine. Furthermore, to riff off Erik's comment at 7:19am, those of us middle-class people who are "scrimpers and savers" are not all that thrilled with the "high-consumption/no savings casino" national economic model underlying the oodles of cheap crap.

[ideogenetic]

How did Broda and Romalis calculate the effect of China pegging their currency to the dollar? Or did they? China's dollar peg has been a subsidy for America's middle class and poor. Without dollar pegs by many nations around the world, we would be paying higher prices for all our imports because of the hollowing out of our economy leaving us with less and less to trade.

[ken melvin]

Circular logic.

says...

"All the acrimony in the primary race between Barack Obama and Hillary Clinton has disguised the fact that ... when it comes to free trade, ... the campaign has looked like a contest over who hates free trade more... The candidates are trying to win the favor of unions and blue-collar voters in states like Ohio and West Virginia, of course, but their positions also reflect a widespread belief that free trade with developing countries, and with China in particular, is a kind of scam perpetrated by the wealthy, who reap the benefits while ordinary Americans bear the cost."

The problem is, I have no idea whether any of this is true. Do the candidates hate free trade, is hating free trade the way to win votes in Ohio and West Virginia, and why is the object of the tirade is of course Hillary Clinton who won in Ohio and West Virginia, and what is wrong with unions and blue-collar voters, and when was Clintoncomplaining about China?

[wjd123]

So as far as I can tell, both seem to buy into this argument that trade does generally benefit most Americans.--acerimusdux

acerimusdux,

That may be true, but they have a political problem: Polls tell us that most Americans don't believe that trade generally benefits them. There is a disconnect between the statistical arguments of economist and what Americans experience in their daily lives.

If what you say is true about Clinton and Obama it puts them on the wrong side of voter sentiment. It puts McCain in a different universe.

Voters don't like to be told that they don't know what is good for them, and they don't like to be strung along. They want to see their daily lives improve. They want to feel, like the Beetles, that things are getting better all the time.

[anne]

The problem is, I have no idea whether any of this is true. Do the candidates hate free trade, is hating free trade the way to win votes in Ohio and West Virginia, and why is the object of the tirade, actually, Hillary Clinton who won in Ohio and West Virginia, and what is wrong with unions and blue-collar voters, and when was Clinton complaining about China?

Why too are Barack Obama's advisers-supporters going about semi-secretly explaining that what is said about trade is not what is meant?

[Darn, I was bounced off the network but that was me above.]

[Joe]

Ken:

Yes the economy is a circular loop Production consumption production consumption...... and transactions all the way around

you post is unedifying.

And by all means any policy should be nuanced. It's the policy of anarchy that has brought us to this state of affairs where even with advantage of being a reserve currency, we now envy how the Europeans have run their affairs.

[hari]

If you're dispassionate and objective about what's up in US primaries - and why? - you can start discerning the decline of a *great super power* - whether it will fall precipitously or over a particular time-frame is not the issue - historical forces of decline not only leads to political/economic *vaccumn* but ultimately to real political decline (as with former regimes since Roman times). Is it an inevitable process?

The real paradox, however, is given the intellectual acumen of the so-called *elites*, there is so little serious discourse on substance of on-going decline. Instead we've this stupid discussion on *protectionism vs. free trade* and whatnot.

[anne]

I seriously doubt that any person would wish to have no trade or is even significantly against trade. When analysts create anti-free-trade straw dogs they are doing a mis-service to worries about economic policy that are entirely legitimate. There is nothing wrong with worrying about American economic policy that has continually limited middle class prospects through the decade.

I like bananas, and would not expect them to be grown in Vermont and do not object to buying them from Costa Rica, fair-trade bananas at that, but I object to a lack of wages and benefits that besets workers and has nothing at all to do with Costa Rica and everything to do with domestic policy.

Were we the least interested in competing with Japan, we would long ago have had universal health care and even automobile efficiency standards that might have allowed for a car from General Motors that might be more attractive than my (red) Prius. Looking to the Japanese cars everywhere about, I am not sure who is really complaining about trade as such, as opposed to economic policy.

[Joe]

While our status in the world is a multi-faceted issue and any analysis should include a historical view.

Trade matters are not stupid discussion from an historical view or any other view. To pass them off as stupid is stupid.

[anne]

Hari

"The real paradox, however, is given the intellectual acumen of the so-called *elites*, there is so little serious discourse on substance of on-going decline. Instead we've this stupid discussion on *protectionism vs. free trade* and what not."

From this prospective, I have no idea what free trade actually is since we have never had it before, do not have it now and unless there were no Congress will not have it from here. The issue needs to be allowing for increasingly free trade by strengthening domestic economic policy while and allowing for increasingly liberal trade agreements that are environmentally protective and worker protective.

[wjd123]

Here is part of Dean Baker's "Trade and inequality: the role of the economist":

The standard story of gains from trade is that fully utilized resources will be used more efficiently in the absence of barriers to trade. However, if one of the main outcomes is that a substantial number of workers end up unemployed as result of the being exposed to international competition, then the lost output due to higher unemployment can swamp any efficiency gains from reducing trade barriers.

While it is standard for economists to assume that periods of unemployment due inadequate demand are rare occurrences that can be safely assumed away for purposes of analyses, it is certainly hard to accept that this has been the case in the recent past....

1 Dean Baker is Co-Director at the Center for Economic and Policy Research in Washington DC. This paper was presented at the "Inequality, Democracy, and the Economy" plenary session of the Association for Social Economics in New Orleans, Louisiana, January 3, 2008.

2 This is main implication of the Stolper-Samuelson theorem.

http://www.paecon.net/PAEReview/issue45/Baker45.pdf

[wjd123]

More form the same article by Dean Baker:

The rise in wage inequality over the last quarter century is not really in dispute, nor is the stagnation of wages for most of the workforce. The only real question is the extent to which the growth in inequality can be attributed to increased trade. There has been extensive research on this topic, which has produced a wide range of estimates. At the high-end, Cline (1997) estimated that trade and immigration together explained 40 percent of the growth in wage inequality over the last quarter century.4 Krugman (1995) used a simple computable general equilibrium model to conclude that trade accounted for 10 percent of the increase in inequality over this period, coming in near the lower end of the range of estimates. Based on the increase in trade with developing countries in the last decade, Bivens (2006) uses the same methodology to conclude that trade would explain 14 percent of the change in relative wages over the period since 1980.

Such changes in relative wages imply substantial reductions in incomes for most workers. For example, if trade and immigration can explain 40 percent of the 20 percentage point gap between the growth in usable productivity and the growth in wages for the typical worker, then it implies a reduction in compensation of$2,900 a year for a full-time worker earning the median wage.5 Even the 14 percent figure implied by Bivens update of Krugman’s calculation, implies a loss of more than $1000 per year for a typical worker. While the additional growth attributable to trade may partially offset these losses, most of the workforce is likely to end up as serious losers from trade.

This point is important because most discussion of trade policy only treats the workers who directly lose jobs because of trade as the losers from increased trade. The policies proposed to redistribute to the losers from trade involve retraining or in some other way compensating the workers who can directly trace their job loss to trade. This group typically numbers in the low hundreds of thousands, as opposed to the tens of millions of workers who can realistically claim to have suffered wage declines due to trade. For the most part, the trade adjustment assistance received by these workers has not made them whole in the sense of leaving them as well off as they were before they lost their jobs....

25 real-world economics review, issue no. 45
the most generous trade adjustment assistance to displaced workers does nothing for the tens of millions of workers who suffer wage reductions as a result of trade.

It is certainly possible to imagine political scenarios in which various forms of trade adjustment assistance will be substantially expanded so that those who lose their jobs as a result of trade are not as negatively affected as is the case presently. It is not possible to imagine any measures that will offset the losses to the larger group of workers who suffer wage reductions. They are expected to simply endure this reduction in living standards as a necessary sacrifice for a larger economic agenda.

Economists have been especially notably for their silence on this issue. With very few exceptions they have eagerly embraced the trade agenda of recent administrations. They have been quick to denounce opponents of this agenda as "protectionists" who should not be allowed in polite circles. Yet, they rarely acknowledge the unavoidable implication of trade theory – that a large segment of the U.S. workforce will have to endure lower living standards as a result of the current course of trade liberalization. Apparently, economists believe that these people have an obligation to sacrifice in the interests of economic efficiency.

Bold lettering is mine.

[dale]

this constant conflation of trade and "free" trade gets tiresome. I prefer to speak about our various trade regimes rather than "free" trade this and "free" trade that. When we speak of NAFTA as a particular trade regime with a particular set of rules and regulations, rather than as a "free" trade agreement, we can avoid the false emotive constraints inherent in the "free" adjective. Then we can speak about re-negotiating or even pulling out of a particular trade regime without

[dale]

got distracted by a call from my daughter-
"Then we can speak about re-negotiating or even pulling out of a particular trade regime without all this pointless and politically unedifying emotional baggage."

[paine]

the jobblers or job class
is a combo of economic classes

of the wagery and the non official salariat
and the semi independent professional class
that all get their revenue/income/lively-hood
from corporate amerika

dean baker wants to end the split
in income fates
between the high hu cap
vs no-low hu cap

i share his aim
but his method at least for "show"
is expose the high hu caps to the same
open border treatment as the no'lows now get

my take unite the two by raising the no low caps
thru a ppp wage forex policy
and balanced trade chock full employment mandate

a popular frontamong all job holder class strata
a pigs for all of us approach
vs
dean's kill his pigs approach

ps dean is prolly only using this as agit prop
to get the clinton-obama merit class types
to dump their open borders
for the lower orders bias
and move in solidarity
with the trade and undoc battered "native "wagery

[paine]

note:

baker is keen to attack
globally enforced intellectual property "rights"
this is really key

the right to this million patent monopoly march
around the earth
this very minute--- as we all know too well----
is in the process of literally killing off
millions in black africa

[paine]

joe asks
who is the asshole innocent bystanding public

I am that A.I.B.P
and perhaps so are u
with all the claims and counter claims

my desire
a publically transparent general trade model
that at least stakes out
to the best of our science's ability
the boundary
of real possibility here

[Joe]

Axioms:

1.)Increase supply of labor the price of labor will go down.

2.)Decrease the demand for labor the price of labor will go down.

3.)If GDP is rising year over year and labor is getting less income then other factors are getting more income.

There are reasons other then trade that the American worker's income and bargaining position has decreased.

Larger more powerful corporations (oligarchies) have decreased the need for middle management.

While there are other beneficial reasons for women to enter the workforce from an economics standpoint it did add to the supply of labor and a greater % of the population engaged in the workforce.

Illegsl immigration.

As far as free trade, the overall increase in the trade deficit is stark.

All these factors weigh against the price of American labor on the margin and therefore over time absolutely. As a factor of production, while GDP rises (and consumption) other factors of production increase income. For some inelastic demand by necessity becomes elastic (i.e. healthcare, education, raising children). The mix of goods our economy produces changes less per capita necessities more plus 300 foot yachts.

But it is a circular flow and if we decimate the middle class and after all the losses are realized from the debt which was built up trying to keep up the illusion, a few will be left on top and a new equilibrium will occur.

As Keynes pointed out, a less then optimal equilibrium can take hold witness some oligartic South American economies.
Why to you think they are illegally immigrating here.

For awhile the American people controlled the economy they had control over in a sane, civilized way then the anarchist convinced us we were wrong.

It's everyone for themselves now and you better put aside any restraints on your behavior because losing in such an enviroment is not a viable or desirable option.

Maybe we could illegally immigrate to Canada. Then what?

[Jas Jain]

--
"We need to find a way to distribute the gains (and the pains) of globalization so they are shared more equally, to increase opportunity so that everyone has the chance to reach their full potential, and we need to reverse the declines in economic security, retirement benefits, and health care coverage that have occurred for middle and lower income households over recent decades."

Dear Prof Thoma,

May I suggest a line of reasoning that you can use often, if not all the time?

"Distribution of the gains of globalization" would depend on who controls, or has the power over, that distribution, no? For example, "The 6,000 Super Rich," are the biggest beneficiaries of globalization because they basically control it and the nation states have lost the power to influence the public policy when it comes to controlling the Super Rich, who can now successfully threaten, more than ever before, to take their capital away. No? There was a time when the world had 6,000 nation states and city states and now the corporate elite and the wealthy have the same kind of influence as the heads of those states did.

Modern democracy has reached its destination – Domination of Money.

Sincerely,

Jas Jain

[paine]

why comp stat
not dyno-comp ????

the claims are pretty clearly long run claims
couched in static terms
ie the pathway is not laid out

all sides
even the most ardent open widers
if pressed will notice
the massive job casualties
and the high tally
of border/trade policy induced
individual
misery
we'll pass thru along
the choppy
gear shifting
white water producing
transition route
to this long run
pareto improving
global
development path

[paine]

joe just caught your latest post

it has a chilly finality
as if like too many here
you command
the relevent facts
and
powers of logic
to x ray
the trade and imigo fronts

ill shaped axioms
are for high school
double dome wonders
and greg mankiw

[Jas Jain]

--
Q: Why is the free movement of labor, as Adam Smith advocated, not part of globlization of the economy?

What is a more fundamental right, for a person to find a job to make a living, wherever the best he, or she, can get or for goods to find the best price?

Jas

[paine]

"those of us middle-class people who are "scrimpers and savers" are not all that thrilled with the "high-consumption/no savings casino" national economic model underlying the oodles of cheap crap."

that statement contains an unholy gaggle of cross hatchings

help me understand

i note
don't
the rare saver in a spend thrift economy
get a higher return
then
the scotsman in a land of thrifty kilts ???

ie

why care about the grasshoppers mr ant ??

thought
could the fear be
the grasshoppers
after their ultimo crash
into a time of dearth and need
take mr ant's horde from him ???

[don]

Trade with China is not 'free trade.' When the U.S. Treasury failed to brand China as a currency manipulator, that has to compete with Bush's claims that Iraq had weapons of mass destruction for the most blatant lie of the current Administration. Free trade with China would probably also come at the expense of unskilled labor in the U.S., but the problem is greatly exacerbated by the currency manipulation.
During times of deficient aggregate demand, currency manipulation by trade partners to gain growth or to export their unemployment can be very bad for an economy.
As for Surowiecki's data-free assertions, the trade with developing countries also increases prices of some U.S. exports, such as food. The rich don't consume that in the same proportion to income, either.

[paine]

"Why is the free movement of labor, as Adam Smith advocated, not part of globlization of the economy?"

the wishful implications of
IT for free assuming
open border trade leads to
earth wide FACTOR INCOME EQIALIZATION

aka dba
stopler samuelson

[paine]

"Free trade with China would probably also come at the expense of unskilled labor in the U.S., but the problem is greatly exacerbated by the currency manipulation"

not necessarily the combo
of a ppp wage min forex policy
and a chock full macro regime
can keep things bottom wage kosher

ie
squeeze the diff by tax and transfer in necessary
out of the ghosts
in america's production machine
the domestic holders
of
"income baring "
property ...."factors "

[paine]

i'm surprised the job mollock of mollocks

"industrial automation"
hasn't raised its head
among us comment critters

or its entire evil clan of molocks

the technology driven
job creation/destruction path

with its bias toward relative hu cap job growth

this clan has really done in joe six pack
low skill production jobs
were the meat and drink of this wrecking crew
the same productivity increase that allowed for dramatic wage rate hikes supported by price pass thrus
but arrive
open borders price comp
with the trans nat corporate win win
of lower market prices
but higher margins
ie
no pass thru wage increases

cause potential wage increases
created by higher value added per hour
got converted instead into consumer surplus

[Joe]

paine:

I can't respond to how you percieve my level of confidence in my assertions. I will say I am a little stark and if time permitted I could be more dispassionate and achieve the same effect at which I am aiming. The point is the point though and stick to my assertions not how my assertions make you feel.

In the broadest sense our society (America) has changed(income levels) and our policy has changed (trade agreements)and both similtaneously ex post facto from a macro standpoint are the two connected?

To examine that question let's look at the situation from a micro standpoint and see how labor markets have changed, how have product markets changed, how has America's financial standing changed.

In retrospect, are these changes what we wanted, intended or supported. Do we like what we have wrought and do we choose to continue to live this way. If not what do we want?, KEEPING IN MIND WE LIVE IN A DEMOCRACY AND CAN MAKE IT ANYTHING WE WANT.

Models are useful but I don't have the inclination right here and now to try to satisfy your desire for one. Perhaps you could work one out and present it to this forum for our consideration.

In the meantime feel free to engage any of my assertions and perhaps you will edify me and others.

Thank you for your time.

[paine]

joe

"In retrospect, are these changes what we wanted, intended or supported"

good questions

with regard to
the wide open industrial
trade regime and
chronic industrial product
trade value gap
we've had since john connolly took us off gold

---answered from a jobholder view point

"wanted "-- we were not really consulted on this ---

"intended " --- if lower then other wise
domestic wages and higher profits
with a tamed price level
was corporate america's intentions
fine for them
but for us jobblers ...----

"supported " --- not knowingly ----

[paine]

"Models are useful but I don't have the inclination right here and now to try to satisfy your desire for one"

u build one ...???
the thought never crossed my mind

but u might refer me to any ones
your familiar with
that have easy public access
and a popularized self presentation
i suspect some hard working academic has to have ventured into these waters
beyond the usual
under grad
text book comp stat H-O flatland

hey do that up disney and it might at least
clear the dialogue decks some
of
shab chic journalistic debris

[paine]

"KEEPING IN MIND WE LIVE IN A DEMOCRACY AND CAN MAKE IT ANYTHING WE WANT "

now that's
an" assertion"
worth a thousand nights
of back and forth

[ken melvin]

Grasshoppers may be the solution to feeding the masses.

[save_the_rustbelt]

"And cheap DVD players may not, on balance, make up for lost jobs."

Wow, what a brilliant insight.

Not to mention poisoned heparin and lead coated toys.

[Jim D]

Just keep in mind that, as Dean Baker says, we're not really talking about Free Trade at all - we're talking about Protectionism for the Rich.

*Really* free trade would also open up competition in such fields as health care, legal and financial services, and education.

As it stands now, there are rather draconian trade barriers around these very expensive professions. And it doesn't take an economist to guess why.

So stop calling it "free" trade. If you won't accredit doctors without backflips through hoops of fire, despite their education being superior to many already here, then the trade isn't really free, is it?

Maybe if the common man could get his healthcare at the same kind of reduced rate that he could get his tshirts, not to mention seeing the upper classes take the same hit he did to promote "free" trade, maybe then he'd be a touch more willing to accept it.

[Jas Jain]

--
Comment: "KEEPING IN MIND WE LIVE IN A DEMOCRACY AND CAN MAKE IT ANYTHING WE WANT "

Spoken like a true democratic dope.

Breeding morally blind dopes has become a necessity for America's ruling elite and they have succeeded beyond their wildest dreams. We have arrived at:

A nation of morally blind dopes led by Crooks. W IS the best refelction of America and Americans that the world has.

Most Americans are in denial about the fundamental nature of their system and its current state.

Jas

[Masonik]

Maybe if the common man could get his healthcare at the same kind of reduced rate

You can. All it takes is a plane ticket to Asia for example for much cheaper health care like surgery for instance. The same is true for education. A degree is much cheaper overseas.

[Joe]

politicians will primarily serve those who make campaign contribtions and give the rest of us lip service until the rest of us make it clear to them we will not buy what they're selling and will vote for a person who connects with the sentiments of a majority of the voters. the sky's the limit for a politician who connects with the majority sentiment and those that don't change their tune and go along will be left out.

despite the way things usally work at the end of the day the constitution still says one person one vote.

at a time in our history it took a one third decrease in GDP and 25% unemployment to change the status quo.

the new status quo from that experience lasted around 30 years and are now viewed as golden years.

thankfully in a democracy we don't need a bloody revolution we merely resort to our civil arrangements.

the european democracies seemed to have figured it out better then us. we also had it figured out in an acceptable manner in a previous time and though some major changes have occured there are lessons to be learned form that time

we can work it out better but we have to figure out what will work, achieve a consensus and educate our politicians as to what we want.

our political system dictates our economic system not the other way around.

anarchist (conservatives)will cry about a republic but a switch in time will again probably save nine.

the majority will rule but clear thinking is needed about a workable social contract. America has alot of advantages and a workable social contract is within the realm of possibility.

it work before, it can work again.

[paine]

joe

"at a time in our history it took a one third decrease in GDP and 25% unemployment to change the status quo.

the new status quo from that experience lasted around 30 years ...now viewed as golden years."

nice short story

give us your outline
of a new social contract

surely the same old
new deal moxie
won't cut it this time

[Bruce Wilder]

Joe: "despite the way things usally work at the end of the day the constitution still says one person one vote"

That would be one person with state-issued photo ID, one vote.

In 2000, the one vote belonged to Antonin Scalia. Look at how well that worked out.

[Joe]

paine:

to be honest i've have noticed changes between that time and the present but have not concieved of a new disirable general equilibrium in it's entirety.

some obervations though:

stand alone retail establishment such as the numerous single proprietor pharmacies that use to exist or regional department stores or in other words the relative lack of national chains. in other words dispersion of economic power ie. many buyers and sellers.

many buyers and sellers except in some labor markets when at that time 30% of the workforce was union as opposed to 11% now.

more protection for domestic industries.

higher taxes for unearned income, through a more progressive tax system, then earned income as opposed to the reverse that exist now and more shared social responsibility such as pell grants that provided me and others with whom I grew up the oppurtunity of a colloege education.

there are a multitude of changes and it is not apparent to me that we would want to arrange things as existed in that time but the bottom line is that income for most is down and i don't think it is apparent that this result was a necessity or that the increase in inequality was inevitable.

I also believe life was less stressful during that time possibly because incomes where high enough to afford the oppurtunity for only one wage earner per family.

My next book is a comparative economics textbook as I am interested to find whether other advanced countries are doing it better and how given current global economic parameters.

perhaps others that come to these forums have more concrete and developed ideas about how we could arrange our economy in order to achieve better results for more people.

let's be honest though any move in this direction is really about setting up a system were incomes are more evenly distributed. in the former time incomes were more evenly distributed and the absolute general welfare was higher. we need to figure out away under current economic parameters to make that happen again. though i can't entirely define how, i believe it is possible to do it fairly. does anyone want to make the case that the american economy of the fifties and sixites was inherently unfair. go ahead let me see you make that case.

[Joe]

by the way i think i'm done with this thread.

[mikx]

The answer is not to close markets, the answer is, quoting Larry Summers, to "design more ways to insure that a more integrated and prosperous global economy is one from which all will benefit." We need to find a way to distribute the gains (and the pains) of globalization so they are shared more equally, to increase opportunity so that everyone has the chance to reach their full potential, and we need to reverse the declines in economic security, retirement benefits, and health care coverage that have occurred for middle and lower income households over recent decades.

Wonderful.

99% of Americans agree.

Any ideas how to reach this nirvana?

While also keeping the borders open, having one amnesty after another and unlimited outsourcing?

[KnotRP]

The problem is not trade.

The problem is the sudden coupling of a smaller labor force with a high standard of living
to a much larger labor force with a lower standard of living, with pegged currenc(ies).

Wages seek their own level globally, just like water seeks the proper level.
Trade with a currency pegger is neither a dam nor a pump -- it's the tube
through which the high living standard water drains out to equalize the
level with the lower living standard side.

The folks who were for globalized trade may have already let to much
water run out....there is a good chance the trade tube will be destroyed,
since it the flow wasn't governed properly.

[Jacob]

After reading through this discussion, I am surprised that the discussion is centered only around whether the American working class has benefited or lost and how much from globalization without mentioning any of the benefits that are being reaped by the working classes in China and other parts of the world. Possibly hundreds of millions of people in the developing countries are being lifted out of extreme poverty due to the export of manufacturing jobs there. It's intellectually dishonest to keep claiming that the globalization benefits only the rich without acknowledging the improving living standards in places like China.

And someone seems to lament the demise of the unions. By now it is clear that the unions are only great at driving entire industries out of your country. The Big Three has probably the most unionized labor force in the USA and it had been in a perpetual decline for decades, and will continue losing more jobs and market share. I wouldn't be surprised if ten years from now we have a Big Two or a Big One left with at best a quarter of the north american car market share, unless they become smart and stop building any new factories in the Midwest or even USA.

[Will McAlister]

Iam just A country boy from SC.But the way I see it we have got the talking about it part over with lets do someting about .Its time to Stop crying over spilt milk and do something about it.We ARE THE PEPOLE NOT China not Mexico. USA.stop free trade now.I want to do something BUT I NEED HELP FROM NO PARTIES ONLY USA