"China and Wal-Mart: Champions of Equality"

Christian Broda argues that globalization has not increased inequality. The argument is that "China and Wal-Mart have increased the purchasing power of the poor more than the rich," and this offsets unequal changes in income. [My response is here and here. The response argues that a full assessment of the change in worker circumstances should include factors such as changes in economic security (see recent headlines about job layoffs), employer based health care and retirement programs, debt burdens, etc., "and when you do that, it is far less clear that workers have benefited overall even if you take the Broda and Romalis result as given."] [Update: Brad Delong says "Like many people, I am still somewhat puzzled and confused by Christian Broda and John Romalis." See his discussion, and his Multisector Stolper-Samuelson Finger Exercise]:

China and Wal-Mart: Champions of equality, by Christian Broda, Vox EU: The U.S. presidential campaign has sometimes sounded like a contest to prove who despises trade the most, as Willem Buiter and Anne Sibert point out in their recent Vox column. Media reports of job losses to China and the destructive effect of Wal-Mart on local business are ubiquitous. In recent weeks, Lawrence Summers and Martin Wolf have highlighted the dangers of having high-income countries turn against globalisation. This public debate has taken for granted that inequality in these countries has risen as a result of globalisation.

But has it really? In a recent paper, co-authored with John Romalis from the University of Chicago, I argue that it hasn’t.[1] The reason is simple. How rich you are depends on two things: how much money you have and how much the goods you buy cost. If your income doubles but the prices of the goods you consume also double, then you are no better off. Unfortunately, the conventional wisdom on US inequality is based on official measures that only look at the first half, the income differential. National statistics ignore the fact that inflation affects people in different income groups unevenly because the rich and poor consume different baskets of goods.

Inflation differentials between the rich and poor dramatically change our view of the evolution of inequality in America. Inflation of the richest 10 percent of American households has been 6 percentage points higher than that of the poorest 10 percent over the period 1994 – 2005. This means that real inequality in America, if you measure it correctly, has been roughly unchanged. And the reason is just as dramatic as the result. Why has inflation for the poor been lower than that for the rich? In large part it is because of China and Wal-Mart!

Poor families in America spend a larger share of their income on goods whose prices are directly affected by trade – like clothing and food – relative to wealthier families. By contrast, the higher your income, the more you spend on services, which are less subject to competition from abroad. Since 1994 the price of goods in the U.S. has risen much less than the price of services – and, yes, this includes the recent surge in food prices. Paradoxically, focusing only in the last few quarters of high relative food prices misses the fact that the main trend we have observed for decades is exactly the opposite (Figure 1).

Figure 1.

This trend can partly be explained by China. In U.S. stores, prices of consumer goods have fallen the most in sectors where Chinese presence has increased the most. Take canned seafood or cotton shirts, for instance. Exports of China to the rest of the world in these categories have increased dramatically over this decade. Inflation in these sectors has been negative over the last decade, while in other sectors with no Chinese presence inflation has been over 20 percent. Moreover, as China produces goods of relatively low quality, sectors with strong Chinese presence are disproportionately consumed by the poor.

The expansion of superstores – like Wal-Mart and Target – has also played an important role in accounting for the inflation differentials between rich and poor. Superstores sell the same products as traditional shops at much lower prices. Today the poor do roughly twice as much of their buying of non-durable goods in these stores than the rich. So poor consumers have been the biggest beneficiaries of Wal-Mart coming to town.

Figure 2.

What is really worrying is that, despite these facts, we have had a backlash against China and Wal-Mart in America. Trade sceptics who suggest that there is no point in buying cheaper goods if you have lost your job should check America’s unemployment rate again. It’s around 5 percent, close to its record low.

We need to remind politicians and the public that the gains from trade are broadly shared. Every time the discussion over trade is diverted towards the problems facing specific producers, be they farmers in France or textile workers in the U.S., we miss the central point. Trading allows everyone, and especially the poor, to buy things that they could not otherwise afford. Without better public understanding of these facts, governments will not only keep supporting policies aimed against China and Wal-Mart but may receive the uninformed support of many consumers who are benefitting from trade.

Editors’ note: An abbreviated version of this column appeared in the Financial Times on 3 June 2008.

Footnotes

1 Christian Broda and John Romalis (2008). “Inequality and Prices: Does China benefit the Poor in America?” University of Chicago mimeograph.

Comments

[Gegner]

Um, as a thirty year manufacturing professional, I find this person's views 'delusional' at best.

Um, is she aware that the price of most commodities have increased substantially over the past decade while income has stagnated?

I am unaware of anything I can purchase now that I couldn't formerly afford. The price of Lamborghinis hasn't dropped to the best of my knowledge.

I sometimes suspect the problem is there's too much Prozac in the water supply, making people like Ms. Broda far too optimistic.

[mik]

Is Mr Broda allergic to numbers?

Undoubtedly imports of cheap Chinese goods make money go further.
Maybe poor benefit more from it than rich, but I would like some factual support for this assertion.

Undoubtedly without imports some of those goods would be produced in the USA. Some of the poor could have had jobs in that production. It may or may not would have made them better off.

Sum of positive and negative could be positive or negative depending on numbers. Does Broda have any numbers?

Does he consider other effects of imports: lost manufacturing expertise, transferring and training potential competitors, security issues, etc?

Without solid numbers and consideration of other effects, the article is just an opinion of Mr Broda.
And why we should be interested in his opinions?

[Corban]

People are consumers, investors and workers, roles which sometimes result in dilemmas on how to better themselves. Walmart certainly benefits the poor as consumers, but the same can't be said for them as workers. I think that asymmetry is what ultimately worries the people.

[kharris]

This is not a new argument, which makes the complaints that it lacks sufficient evidence and ignores a number of factors particularly damning. The point that the author makes has already been answered. The goal now should be to further the debate, not to repeat initial propositions.

I would also note that this iteration of the argument, like most that go before it, ignores power. I understand that any mention of power smacks of class warfare, and the rules imposed by the last round in the war state that we can't make class warfare arguments. Stuff that. Those at the top are in a position to use their winnings to make their position sturdy. They can lobby effectively for changes that make their position closer to permanent, and less dependent on their own (non-political) efforts. We are instructed to look at the pile of stuff that the less fortunate are able to take home and not at their ability to have an equal say in running the country. That's pure economic elitism. We aren't hungry enough that a new little increment in purchasing power is a desperately important issue.

Any argument about our social, economic and political arrangement that focuses entirely on how much stuff we can consumer is a sad argument indeed.

[bakho]

Unfortunately, the measures of price do not also include measures of quality. How many wash cycles before a clothing item has to be replaced? How long does the furniture last? Cheap in the short term can actually be more expensive if the replacement cycle is considered. "Inflation" that considers quality of the item is much harder to measure and model.

Clothing (and shoe) manufacturers are producing low quality items for cheap sale and better quality items at a higher premium. For instance, the N**' shoes you buy in a mall store are NOT the same quality as the N**' brand shoes that you get for a slightly higher premium at a sport shop. The quality of foot protection and replacement cycle are totally different for the different shoes. It is actually more expensive to buy the cheap shoes over a 3 year cycle.

[save_the_rustbelt]

Could someone explain to me how shopping at Wal-Mart compensates for losing health insurance and a pension?

No! I didn't think so.

Maybe "on average."

[bakho]

Isn't this part of a larger pattern of manufacturing shoes and clothing in cheap labor markets? Factories shut down in NE and moved to the non-union wage South. Now they are leaving the Carolinas and going overseas? One of the detriments is the dislocation faced by workers. Job loss in one location can cause their investments (especially in housing) to plummet. What happens to housing when a big employer leaves town and people need to sell their homes to move to a new job? What happens to the landlords with high vacancy rates?

Under current economic rules, those costs are externalized onto the backs of the individuals who live in that location. Those same residents may be paying taxes that are used to subsidize development in other areas, contributing to their own personal misfortune. This is the issue that STR keeps bringing to the forum. The Midwest has suffered huge job losses and it will get worse in the short term as Big Auto tries to recover. When Big Auto retools, the effects hit downstream suppliers creating a huge ripple effect. Switching to foreign cars, even if assembled in the US may greatly decrease US parts production. There is too little policy to address the effects of dislocation.

Another effect of Walmart is to externalize the transportation costs onto the customers. Cheaper prices in the past have encouraged customers to abandon local shops and drive substantial distances to shop. Now that the transportation costs have greatly increased, local shopping is no longer an option. Small town residents now have to drive to both shop and work. The re-location of rural residents will accelerate due to transportation costs. This depresses housing prices in rural areas with no jobs.

Flint Michigan has lost over 10 percent of its population since 1950. In some parts of the US, like western Kansas, there are fewer people living there today than there were in 1800. One can argue that past policies such as the Homestead Act were unsustainable and moved people to areas that were not economically viable, similar to the way FSU policies of building cities in Siberia has been expensive to sustain. Perhaps we are best to cut our losses. However, there is still little policy for dealing with the costs of dislocation. (Urban renewal grants? Rural development grants? (LOL))

[hari]

For Economic historians, the question is how do you get US consumption down or back to some historical average? It ain't an easy proposition given the trend and tendency to live over one's credit limits.

Perhaps the capitalsit system has finally reached its nadir and something radical is required to make it both responsive to basic needs of the citizen while providing adequate social security.

Why not try our European social economic medicine and see if it works for your self-pitying egos or not? At any rate, forget about past glory of capitalism a la America - the decline may have already set in concrete - unless of course Chinese and GCC SWF are prepared to pop it up again....

[ken melvin]

Oh boy. This guy's a professor at the University of Chicago no less. Philosophy is one thing, such distortions another. Does he really not know what the actual unemployment rate is? What's happened to the per cent employed and the quality of jobs?

Cheap? Cheap is for birds. Far better to have reasonable prices and good jobs. Too often economists neglect the importance of balance. It is not all important to manufacture and sell a product for the lowest possible price. Better to make Buicks with well paid union labor here than import a cheap car from India.

[dd]

The point of lower good prices is to allow access to services but if service inflation far outstrips goods inflation that would mean the poor have even less access in 2008 than they did in 1994 to lawyers, doctors, financial professionals, banking, childcare, pre-school, tutors, a university education for their children, SAT/LSAT/MedCat prep courses, the internet and all the other "services" that are necessary for upward mobility. It also means they pay more for everyday "service" necessities like utilities and transportation.
The trade-off may not be worth the extra goods.

[Gene O'Grady]

I agree completely with the comments on quality. But one thing that isn't raised in that context very often is the decline in quality in terms of services. I worked in a phone company business office before such things yielded to "call centers," and I can assure you that we were committed to giving people an accurate bill and meeting their needs. Nowadays if -- make that when -- a fictitious charge shows up on my QWEST bill I don't waste my time following up on it.

By the way, didn't Bakho mean 1900, not 1800, in his remarks on Kansas?

[kthomas]

University of Chicago? Please....

[Anamalous Cowherd]

Dot Com 2000
Real Estate 2006
Academia is next!
We need to stop the over investment.

[Holly W.]

Could someone explain to me how shopping at Wal-Mart compensates for losing health insurance and a pension?

Not to mention how it's supposed to make up for workers in general receiving no meaningful raises since about 2000. I keep getting the feeling that cheap junk and tax cuts are somehow supposed to make us all believe everything is just fine.

Why is it so impossible, or unacceptable, to admit that people in America (and not just officially "poor" folks, either) might be actually struggling?

Plus what kharris said.

[OhNoNotAgain]

Many good points, so I'll just add this:

Cheap goods are temporary, while the job losses and income insecurity are fairly permanent. That fact alone should dissuade anyone from trying to make this silly argument that the former compensates for the latter.

[Julio]

kharris:

I would also note that this iteration of the argument, like most that go before it, ignores power. I understand that any mention of power smacks of class warfare, and the rules imposed by the last round in the war state that we can't make class warfare arguments. Stuff that.

[Bravo.]
Those at the top are in a position to use their winnings to make their position sturdy. They can lobby effectively for changes that make their position closer to permanent, and less dependent on their own (non-political) efforts. We are instructed to look at the pile of stuff that the less fortunate are able to take home and not at their ability to have an equal say in running the country. That's pure economic elitism. We aren't hungry enough that a new little increment in purchasing power is a desperately important issue.

Any argument about our social, economic and political arrangement that focuses entirely on how much stuff we can consumer is a sad argument indeed.

[Bravo.]

[robertdfeinman]

This slanted use of data has already been thoroughly demolished in a speech given by Elizabeth Warren, available on YouTube:

http://www.youtube.com/watch?v=akVL7QY0S8A

It was discussed here at least twice already. Her investigations have shown that the prices of essentials like health care, transportation, and education have gone up much more than the prices of imported consumer items have gone down. As a consequence the middle class is now relatively poorer, not richer. If you haven't seen the video, watch it, even though it takes about an hour.

Instead of bloviating like the shills at Chicago she actually examined the data available from the government.

[donna]

Sure, we can all equally be wage slaves. Except the rich of course.

Stupidity reigns.

[John V]

mik,

you say:

Undoubtedly imports of cheap Chinese goods make money go further.
Maybe poor benefit more from it than rich, but I would like some factual support for this assertion.

You say "undoubtedly" knowing it to be a simple truth. So why do you need numbers to back up a simple assertion that you already know to be true? I don't get it.

Undoubtedly without imports some of those goods would be produced in the USA. Some of the poor could have had jobs in that production. It may or may not would have made them better off.

I see this leap of faith a lot. People dwell far too much on what is "lost" and not enough on what is "gained" and even what is "lost" is overvalued most times. That production happening in the US doesn't automatically mean we're better off that way. How many jobs is that? not much. How many benefit from it? Almost everyone. Manufacturing jobs in and of themsleves are not necessarily "better"...and most often times are not better. These jobs in question that have been outsourced are not attractive jobs, they are not high paying jobs and they don't produce things that have enough value to justify their production here...otherwise they'd be more likely to be here. There are plenty of jobs in America and the complexion of that workforce is constantly changing and evolving. The fact that most repetitve grunt work is being outsourced while the less expensive end product is coming back here to benefit the entire population is not a bad thing. It's a good thing.

Saying the poor could have those jobs had those jobs stayed is ultimately meaningless since the absense of those jobs simply means they are doing other jobs while the products of those exported jobs help these same poor people make their dollars go further.

It's no different than saying automation and technology took jobs away that poor people could be doing if those jobs were still done with human hands. I mean really, how jobs have been lost because machines wrap candy now?

Insert your comment after that question:

Some of the poor could have had jobs in that production. It may or may not would have made them better off.

How does that sound now?

[Lord]

I think this is true, it is just those poor are in China.

[a different chris]

> If your income doubles but the prices of the goods you consume also double,

Uh, no.

My income is $20. My expenses are $10. I have $10 left over.

Now double both, and I think --- maybe my math is a bit rusty -- that I now have $20 left over.

Is this a good representation of the rest of the paper? I hope not.

[John V]

a differnt chris,

No. I don't think that's what he said.

He said if your income doubles and expenses double, you're no better off. That $20 you have now instead of $10 is worth what that $10 was worth before. If everything doubles, the numbers change but the value doesn't.

[a different chris]

John V: what you say is a good argument iff the whole "cheaper goods" is because of some real comparative advantage not because of (a) artifical currency manipulation and/or (b) desparate people, both conditions cannot (we hope in the case of b) be held to be permanent. And the problem with manufacturing, unlike services, is that it is not really that easy to move -- only in "mature" industries, and there is no such thing. There are only technology plateaus. Once things take off, they change again. Cars have been made for many years out of metal and they run on gas. Once cars change over to, say, hybrid drivetrains/carbon fiber construction then all the little and mid-sized shops down whatever that Interstate is from Detroit to Tennesee will be reproduced in Asia.

But their knowledge will be around the new technologies. And they won't be moved back easily.

You can claim teaching rich kids Latin and managing their parent's estates are "comparable" jobs, but you are simply wrong.

I maintain that the Chinese are not propping up our currency because they love to make stuff for us for nothing, but that they simply are basically paying "tuition" to the Engineering Dept. Of the United States Manufacturing University. When they decide they know enough to no longer need schooling, they will stop paying us.

The Japanese were also doing this, but they somehow became stuck -- well, everybody knows a "permanent student." I don't think we should count on the Chinese making the same mistake.

[a different chris]

>I don't think that's what he said.

It was a quote, so it's what he said.

The savings rate in America is abysmal, so even if he meant to say what you claim he cannot be taken seriously as he is not talking about a world that exists.

[John V]

robertfeinman,

I finally got around to watching that video. Informative video and she seems like a very thoughful person. But I also felt a little let down because a predictable thing happened that is often the case with thoughtful liberals:

After doing a pretty good job of showing and empathizing with the current landscape compared to 1970, she stops her analysis and turns totally to explaining how the realities effect people and what needs to be addressed with more action.

However, in doing so, she stops the analysis short of finding out WHY things got this way and WHY the items she concentrates on have gone awry. Notice that all those items have been greatly hammered at, meddled with and "addressed" with heavy government action over the last 30-35 years while the items that have gone down in total cost have been left pretty much alone relative to the the items she's concentrating on. (PS: this is the point of the paper cited by Dr. Thoma...so in a sense, you've strengthened Broda's argument) I don't even know if she (and many, many liberals) realize that they are doing this when they go into great detail about current problems without the proper "forensics" to see where the problems came from and what policies induced it or contributed it in a compounded fashion over the years. What's changed? QUITE A BIT and it wasn't "laissez-faire"...I can tell you that much. The advent of HMO's in the 1970's was a huge factor in changing the way we look at health care and shifting market forces for the worst...and it's NOT free-market at all. Policies have changed behavior and induced new outcomes and those issues are inter-related...to put it briefly. And beyond general and broad ideas with brief explanantions, it's actually the most insightful work that could be done and I don't think we do enough of it.

BTW, I say "pretty good" in the first paragraph because I see a little lack of imagination at times in comparing her median family in 1970 to her median family in 2005. People buy A LOT MORE stuff nowadays and spend much more friviously. MUCH MORE frivously and in greater quantities. People expect more and try to get it. Those bickering old people who complain about "you young people" (And I'm still one of those youth...35 years young) and how we got it so easy and don't know what it's like to live within means DO have a point....though I also think it's none of their business. But it's insighful nonetheless. I'm not so sure the drop in consumer spending as a percentage of average income truly accounts for the increased QUANTITY of things we blow money on. Look at what you had growing up and compare in terms of quantity and quality to what kids get showered with today. It's almost embarrassing.

The housing issue is where she comes closest to the unvarnished truth...though even there, I think she leaves a bit of good data out of the matter. The fact that interest rates are SO MUCH LOWER (and without a truly justified reason) has a lot to do with it. That's Federal Reserve policy. Didn't we go off the Gold Standard totally around that time? Yes. It took a while to recover from the bad behavior that going off the Gold Standard exposed and Volker brutally and rightly fixed about 12 years later. But since Greenspan came in, the Fed has gotten more and more crafty at keeping low interest rates, expanding money supply and keeping inflation low. But like the Titanic, it was a false confidence that didn't respect it limitations against the glaring stubborness of fundamentals....and it would come crashing down eventually. The creativity has also done a good job of masking (or at least drawing attention away from) the long term side-effects of inflation.

Also, the income volatility has a lot to do with women periodically leaving the workforce to have children. That's just a social reality. I also think that women entering the workforce and challenging men for jobs in full force has made job-hunting more competitive for everyone. Imagine if women staying home returned to 1970 percentages. What shortage of labor we'd have. Wages would get bid up a bit.

It's ALL inter-related and has the flaws of short-sighted, over-active policy written all over it. We can complain and do what we can to mitigate the problems it has all created but we shouldn't do it withot being incredibly mindful of where exactly the problems came from and without learning what NOT to do to "fix" it.

[John V]

a different chris,

I think you need to take that example in isolated instance for which it was used. It was explained in the context of people fixating on income and ignoring expenses. Broda wasn't saying this is how it is all the time but rather was simply showing what happens in one example if you ignore one half of the equation.

[mik]

you say:

Undoubtedly imports of cheap Chinese goods make money go further.
Maybe poor benefit more from it than rich, but I would like some factual support for this assertion.

You say "undoubtedly" knowing it to be a simple truth. So why do you need numbers to back up a simple assertion that you already know to be true? I don't get it.

An assertion I referred to is "Poor benefit more than rich from cheap Chinese imports".

May be they do, may be they do not.
It is not as obvious as a casual blog commenter may think.

Many/some goods more expensive than Walmart's are affected/benefit from/use chinese components.

Most chip components in multi-thousand dollars Home Theater system came from China and others. So a so-called rich person buying that system probably gets some benefit from China imports.

[eck]

a different chris,

You save 50% of your income???? My income is $20, my expances are $25! Now, double that...

[Farrar]

I second RDF's endorsement of E Warren's findings. If you dont have time to listen to her talk you can read her article at
http://bostonreview.net/BR30.5/warrentyagi.html

[Farrar]

Regarding John V's take on the E Warren talk -

"However, in doing so, she stops the analysis short of finding out WHY things got this way and WHY the items she concentrates on have gone awry."
(True, but it was something of a eye-opener to me.)
"Notice that all those items have been greatly hammered at, meddled with and "addressed" with heavy government action over the last 30-35 years while the items that have gone down in total cost have been left pretty much alone relative to the the items she's concentrating on."

Some areas where things have gone awry according to E Warren-
Poor health system.
Lack of public transit
Lack of child care for working mothers
Unequal distribution of educational resources around metropolitan areas.

Have governments really been throwing tons of resources at these problems? And even if they have been thrown in the wrong direction, is that a reason to give up?

[Patricia Shannon]

My grandparents and grandparents were in the working class, but they could afford to buy land and and houses. If you look at the cost of land then compared to wages, they had to work far fewer hours to buy their land and houses than people in the comparable or better jobs today. Besides the fact that building codes in many places don't even allow for modest housing to be built.

[John V]

Farrar,

My take on that whole matter is that the decline in the ability of education and health care is RELATED in a cause/effect corrolary with the level of government involvement. Educational funding is HIGHER, far higher than before as is the level of control. Health Care is more controlled by government regulation and effected by improper coaxing of market forces than ever before. It started slowly in the 40s with employer provided health care and has escalated with the advent of Medicare and HMO's. This is not a coincidence in my opinion.

I don't claim to have specific, detailed answers. I'm simply making an observation based on my knowledge of how markets function...and can be made to MISfunction.

Keep in mind that health services that operate more or less outside the modern health insurance mess have seen significant DROPS in cost over short time spans. Lasik surgery being one example. Are there other factors involved? Sure. But I think there is something real "there" there that has everything to do with the point I'm making.

[John V]

Patricia,

It's hard to do much about the cost of land. In Europe it's far worse. This is of course compounded by the building, land and zoning restrictions along with the fact that people are hoarding more densely, as population increases, into the same areas while many areas see declines. It seems like some areas, you can't give land away.

[notsneaky]

"Is Mr Broda allergic to numbers? ... I would like some factual support for this assertion. ...Sum of positive and negative could be positive or negative depending on numbers. Does Broda have any numbers?"

Hmmm, perhaps if one is looking for numbers then one could, oh, I dunno, READ THE FREAKIN ARTICLE THAT MARK HAS POSTED!!! Maybe, just maybe, there's some numbers in that article. Like maybe something about inflation for the rich being ... wait, wait, wait, a number is coming ... SIX ... percent higher than for the poor. Then, those two pictures that apparently have been included - I believe the technical term is "figures" - have some scribbles on the bottom and side which just could be numbers, though they're a bit fuzzy so I can understand you missing them. Finally, in the section very adventurously titled "Footnotes" there is another number - I believe it's called "a one". And right next to it is some words which could possibly lead one to the article that this column is based on. I have this sneaking suspicion that just maybe this article has some numbers in it.

You may not agree with the article for various reasons, as Mark states and as some folks indicate above (the jist of it being that things other than prices and wages matter (though average wages, inclusive of benefits, should pick up things like loss of health insurance, unemployment, etc.)) - but first you need to look at the numbers. Cuz they're there.

[notsneaky]

Also, I'm a bit in awe of John V's patience.

[Farrar]

John V

Are you saying that government interference with markets in efforts to patch up and save failed systems (e.g. education and health care) is doomed to failure - or worse?

If so I agree with you wholeheartedly.

It seems obvious that such failed systems must be thrown out or entirely rethought without reference to "markets" as most of us currently understand them. Easier said than done.

[Real Person from the Real World]

Interesting conversation:

The advent of HMO's in the 1970's was a huge factor in changing the way we look at health care and shifting market forces for the worst...and it's NOT free-market at all. Policies have changed behavior and induced new outcomes and those issues are inter-related...to put it briefly.

Health Care is more controlled by government regulation and effected by improper coaxing of market forces than ever before. It started slowly in the 40s with employer provided health care and has escalated with the advent of Medicare and HMO's. This is not a coincidence in my opinion.

John V

Farrar says...

John V - Are you saying that government interference with markets in efforts to patch up and save failed systems (e.g. education and health care) is doomed to failure - or worse?

If so I agree with you wholeheartedly.

It seems obvious that such failed systems must be thrown out or entirely rethought without reference to "markets" as most of us currently understand them. Easier said than done.

Farrar

BUT JOHN V ALSO UNFORTUNATELY STATES:

Also, the income volatility has a lot to do with women periodically leaving the workforce to have children. That's just a social reality. I also think that women entering the workforce and challenging men for jobs in full force has made job-hunting more competitive for everyone. Imagine if women staying home returned to 1970 percentages. What shortage of labor we'd have. Wages would get bid up a bit.
John V

HUH? What about all the foreign workers we bring in to compete on some of the top paying tech jobs?

[Real Person from the Real World]

from above:

I maintain that the Chinese are not propping up our currency because they love to make stuff for us for nothing, but that they simply are basically paying "tuition" to the Engineering Dept. Of the United States Manufacturing University. When they decide they know enough to no longer need schooling, they will stop paying us.
a different chris

Clothing (and shoe) manufacturers are producing low quality items for cheap sale and better quality items at a higher premium. For instance, the N**' shoes you buy in a mall store are NOT the same quality as the N**' brand shoes that you get for a slightly higher premium at a sport shop.
bakho

Cheap goods are temporary, while the job losses and income insecurity are fairly permanent.
OhNoNotAgain

No one forces you to buy at Wal*Mart (there is a book with the title on game theory), but the choices of a few has now become the limited options of the rest of us.

[John V]

Farrar,

Reread my quote on market forces. I said "improperly coaxing". That implies that those forces are always there. You are talking coming up with something that works outside of them. Not the same thing. Moreover, I'm not sure how you do that. As long as you have people, incentives and choices, you have market forces. You can't avoid them. Think of schools and home markets and the choices and costs that arise.

As for the part on women and income, you say "unfortunately". Why? Is what I said wrong? Not at all. Seems like the dynamics of child bearing on family income volatility is pretty clear...as I'd the effect of having both genders in the workforce as opposed to primarily one.

[John V]

Real Person from the Real World,

Saying job losses are permanent doesn't have much in the way of importance or significance. Jobs are lost forever for a variety of reasons and it happens all the time. Fortunately, job creation is also a permanent process and the job market evolves all the time.

The loss of the hand held butter churn was permanent as was the job of plucking feathers from chickens at a local meat factory. So what? Imagine reading an editorial from 1902 about the permanent loss of jobs that we smirk and giggle at today in hindsight. It's all a process and it's misguided to jump in at any point and decry the loss of particular jobs when history shows us that new opportunities arise in their place.

The evolution of available jobs, sought-after jobs, high paying jobs, defunct jobs and less attractive jobs is an ongoing process. Job losses in a particular task may often times be permanent just as death is permanent. But new jobs are always arising and forming and expanding...just as life always is. Sorry to get all philosophical there with life and death but it's true.

The importance placed on that "particular" yet generic "lost job" is most always overdone if not myopic.

[John V]

Sorry,

the reference above to Real Person from the Real World was misplaced. The quote was from OhNoNotAgain

[german_reader]

There are good reasons to believe that Broda's results are nonsense.

Prof. Brachinger of the university of Fribourg in Switzerland has constructed an alternative inflation index which he calls - a bit euphemistic - "perceived inflation". This index weightens, based on an extensive research of the consumption habits of average households and especially lower income households, products which are frequently consumed such as food, energy or cigarettes ( it does not include for whatever reasons health care) higher than the traditional inflation indexes.

According to his results the inflation for lower income households ( in this case in Germany ) is significantly higher than for high income households. The reason is simple: Lower income households must spend more of their income for goods and services which have seen dramatic price increases in the last years. And high income housholds spend in general a lower share of their income for consumption. They have more money to save and invest and that reduces not only their relative inflation burden, but gives them also an extra return on their income. Low income households cannot follow the same strategy, because they must use most of their income for basic needs.

The results for the U.S. may be somewhat different, because especially the inflation in health care or education in the U.S. has been significantly higher than in most European countries. But the phenomenon that high income households spend in general less of their income on consumption and can save more than low income households is the same in the U.S. as in Europe. And high income households can not only save more, they also have increased their income over the last decades faster than the lower departments of the society. Inequality has been growing on both sides, the income and the expenditure side.

On top of this people from high income households work more often in sectors with a special legal protection ( such as lawyers or doctors ). And they are more often in a position where they can control ( as managers or company owners for example ) the effects of globalization. It certainly makes a huge real and psychological difference, if you're the victim of offshoring and outsourcing or if you're the one, who decides it. It's not very probable that those with the power in their hands will make decisions which damage their own interests.

Besides, neaŕly all Western nations are currently importing inflation from the international markets in the form of higher food, energy or natural resource prices. The finding that globalization lowers the prices may be a result from the past. Future developments could go in the opposite direction.

[german_reader]

@ John V.

1. If a company slashes 5000 good paying factory jobs and creates 500-1000 better paying engineer jobs, while the rest are replaced by lower paying service jobs with less or no benefits or no jobs at all, how is the net balance for a society? Show me that the net gains for the society as a whole are positive and that not only a small minority of the society profits. And include in your considerations the rapidly eroding international investment position ( foreign liabilities - foreign assets ) and fast rising debt levels of such explicit "service" economies as the U.S. or the U.K..

2. The fact that some public institutions in the U.S. are very expensive and don't work very efficient doesn't mean that public institutions in general are less efficient than private institutions.
Many countries have better organized, cheaper and more efficient public services than the U.S.. And they are often as efficient or more efficient than corresponding private institutions.

The question is often not, if private institutions are more efficient than public institutions. The question is why some public institutions in the U.S. work so much less efficient than comparable intitutions in other countries ( or why Republicans manage public affairs so much less sucessful and responsible than Democrats ).

[german_reader]

Very good comment on this issue from someone called "jerry" on Brad Delong's website. I repost it here, because some readers might be interested:

"Three tenured economists celebrating always low wages and wondering why the peasants aren't thrilled.... Not one of whom seems to understand that this isn't free trade, but heavily subsidized trade.

Trade subsidized through losses of economic (and pyschological) security, losses of vacation benefits, losses of retirement benefits, losses of environmental victories, losses of child labor protection, losses of occupational safety, and gains in overly packaged products that all too quickly make their way to the dump. (As I think Professor DeLong has observed in the past, if you're rich, you'll find your iPods, cars, and computers have dramatically decreased in price and increased in quality, followed by my corollary, of course, if you're poor and can't afford iPods, cars, or computers, then perhaps your quality of living has actually fallen.)"

http://delong.typepad.com/sdj/2008/07/china-and-walma.html

The question is indeed, if the gains of globalization in some fields offset losses of income, social security, social status or living quality in other. And that's not only an economic question.

And the theoretical gains from globalization could disappear because imported inflation eats up all of these gains. One of the fundamental question in regard to globalization is - see my comment above -, are the price advantages from globalization permanent or have they been temporary and are now turning to the opposite?

[mik]

notsneaky says...

perhaps if one is looking for numbers then one could, oh, I dunno, READ THE FREAKIN ARTICLE THAT MARK HAS POSTED!!! Maybe, just maybe, there's some numbers in that article. Like maybe something about inflation for the rich being

Sneaky, I believe the proper term is Playtime Troll, a most simple minded troll there is (www.netlingo.com/lookup.cfm?term=troll)

I would have thought that by now you would have advanced to the next category.

Must be too busy doing drive-by commenting.

[John V]

German Reader,

Thank you for your comments.

On point 1:

"If, if, if". That hypothetical scenario whereby the only relevant facts are strictly those you provide is not helpful in understanding what actually happens. You're not using economics to understand what happens. Your using specific yet hypothetical scenarios to get at results you want in order to imply the need for certain economic policies. That's not the same thing. And all the considerations about national debt of all kinds is simply background noise that has nothing to do with the economic principles at play. I go no further.

2. I'm not saying these institutions should necessarily be privatized. I'm talking about how market forces are used in creating these institutions. All together different.

[german_reader]

@John V.

My scenario may be hypothetical, but it fits the reality. If you look at income or employment statistics in the U.S. and elsewhere you'll find that only a few people have ascended and many descended in terms of income or job quality. And even those who made it upwards, made it upwards often only in relative terms - because the rest stagnated or declined.

Stagnant real incomes combined with diminishing social safety, that's the new pattern nowadays in many countries and for most people. And even that has often been financed by an enormous burden of debt in many so called service economies.

And now, as a result of scarce resources and fast increasing global demand, inflation goes up steeply nearly everywhere. The current economic crisis could be deeper and more widespread than ever before. On nearly all levels the promised benefits from globalization turn into their opposite.

The fans of unbridled globalization will find it increasingly difficult to defend their theories.

[notsneaky]

So... you weren't asking for "numbers" that were right in front of your face?

[John V]

german reader,

what you're saying is hypothetical. It is simply a scenario that you imagine and then use as reality. But then, you're imagination stops just when it should truly become more active. Even in your hypothetical, you create a dire and extreme example, describe then aftermath and then STOP. You make no further assumptions about what would else would happen. A lot of jobs are lost and some high paying jobs get put in their place and vast majority go on to get low-paying service jobs with no benefits. That's you're hypothetical scenario. Is that really what typically happens...or very often at all? If you think so, show me.

How about I create a hypothetical scenario and use it as reality?

5,000 factory jobs are lost. 1,000 change careers and are making more money right away. Another 1,000 change careers and are making the same money and then more within two years. 2500 simply change careers and are no better off...even after a few years. 500 get jobs that pay less and continue to pay less even after a few years. Maybe a few of them eventually get back to the pay they had before after a few more years. Meanwhile, the lost jobs go overseas and help the purchasing power of everyone. More companies get involved in distribution and some of the people who lost their factory jobs are now working with these distribution companies. Morover, if the product is a part of larger whole, the lower priced product is now a re-imported to serve as a cost cutting measure which allows companies who use that product to expand productio and hire more people....which still improves the purchasing power of the consumer who share in the producer's savings. Either way, the absence of this outsourcing actually would have STOPPED the creation of different manufacturing jobs.

Stagnant real incomes combined with diminishing social safety, that's the new pattern nowadays in many countries and for most people.

Show me. Moreover, on a slightly separate point, what do stagnant wages mean? Does that mean that the same people's wages haven't increased or that the wages of different people who occupy that percentile over time haven't increased? Each scenario presents a different issue and a safety net(which I don't see as having "diminshed") is not part of the solution for helping either.

On nearly all levels the promised benefits from globalization turn into their opposite.

The things you mention before this sentence are not the fault of golbalization. That's mismanagement of monetary policy and trade policy.

The fans of unbridled globalization will find it increasingly difficult to defend their theories.

The fans of whatever it is that you are advocating will always sadly be in a position to blame complex problems on globalization by attributing what is wrong to it through anecdotes and tortured statistics while advocating policies that exacerbate the problems or at least ignoring them. Of course, sometimes these are not true "problems" simply evolving economies whose temporary pain is exaggerated or prolonged by myopic policies.

[Real Person from the Real World]

It's a cliche, but needs repeating here. The wealthy can buy anywhere, including wal*mart. Those trapped in the lowest paying jobs HAVE to buy at wal*mart and buying for quality is not a luxury they can afford. Trying to create the semblance of the life styles they see around them and in ads, some of the slightly better off of the poor, may over buy cheap crap based on whatever they can squeeze out of their assets, while they might buy better, just less of it.

What about market place competition? Isn't that what consumerism and capitalism is all about? Wal*mart doesn't seem to have much competition, so I guess it's harder to get goods at lower prices than Wal*mart, but if you work at Wal*mart, chances are, you cannot buy goods there on your pay check. If all the jobs go away, except for Wal*mart, who will be left to buy at Wal* mart?

[mik]

I guess it's harder to get goods at lower prices than Wal*mart, but if you work at Wal*mart, chances are, you cannot buy goods there on your pay check.

Now, now, let's be rational here.
Even lowest paid Walmart employee must work 1 or 2 or 3 hours to earn enough to buy one or a few items in Walmart.

It is a shame that Walmart, a truly marvelous business organization, really hurting Americans by doing business the way they are doing it.

[Lafayette]

Externalities

Corban: Walmart certainly benefits the poor as consumers, but the same can't be said for them as workers. I think that asymmetry is what ultimately worries the people.

You may be indeed right. But, let's take a closer look at that asymmetry.

It is a dangerous prerogative to extrapolate the Walmart phenomenon to the entire GDP - and start shouting that the sky-is-falling. Walmart is an example of Retailing Specificity. Their products are typically commodity-like, that is, high-volume production and low-cost, or high-tech and high-volume production at high-cost. With its mix, I'll bet it sells more soap-powder than LED TVs.

Its approach to cost-cutting and selling volume has allowed it, over the years, to obtain, on thin margins, very decent profits. This is not ground-breaking Marketing Strategy. It is a strategy that has upset traditional supermarket retailers, who thought that retailing niche was ITS specificity.

The phenomenon is like that of the American rail-track business from the turn of the 20th century up till after the 2nd world war. It thought it was in the business of train transport. When it woke up, after the war, to realize it was in the business of Transportation (period). It was mauled by both the expansion of the nation's highway system but also Air Transportation. Sadly, never to come back. (Which, we shall see, will have its own externality with higher fuel costs affecting both of the latter transportation means.)

These evolutions are called paradigm changes, because, simply, the way things are done change fundamentally due to what economists like to call "externalities". But, businesses with their hands-on-the-steering-wheel spend a great deal of time trying to understand externalities BEFORE they happen. They do so in order to either "go with the flow" (product wise) or to change product-lines as new products or services replace the old ones that are slowly retired by consumer demand. Generally, they try to diversify their businesses in order to depend upon just more than one product or service niche for their corporate revenue.

Not by a long shot

Given this reasoning, the question to be asked is this: Is Walmart the stalking horse for the rest of American business? My response: Not by a long shot. It is a success in its very popular niche (Retailing) because it has/had the right approach. This condition is not necessarily exportable to other market or industrial specificities.

But, what does that mean for the future of retail workers? Not much good, I'm afraid. With the low service-cost Internet retailing competition and the fact that Walmart MUST sell at the lowest cost in order to survive, then its total labor costs must be contained. Or it becomes just another retailer in the pack.

Inevitably, however, I foresee the closing of a number of Walmart stores that were built too fast too soon during a euphoric period that is no longer with us. And, at the very least, a consolidation in this very particular niche-market of low-cost high-volume retailing.

A Win-Win Scheme

Nonetheless that the plight of Wal-Mart’s workers could be alleviated if the company simply opened stockholder rights to this group. They would then share in the year-end bonuses and, yes, stock-options. This latter could be kept in a common fund and the stock-options exercised and shared out over time based upon seniority – thus binding workers to the company by treating them fairly. Labor costs are maintained, but worker total compensation is enhanced. So, it’s a win-win scheme.

Such a scheme will take a sea change in mentalities, amounting to a profound paradigm shift in American notions of Return to Capital versus Return to Labor. Why Top Management should receive such rewards in such grossly unfair proportions compared to Staff is beyond belief.

[german_reader]

@John V.

I appreciate your enthusiasm, but I think you're wrong.

My hypothetical example was not a fully elaborated scenario. It was a simple question. Show me that I'am wrong, not only by constructing another "hypothetical" case. You ask me for the facts, where are your facts? Your assumptions are as hypothetical as mine. And even in your very optimistic scenario the majority of workers is not better of than before.

Nevertheless I try to underpin my position with a few concrete arguments ( don't expect a scientific paper ):

1. Jobs:

From 2000 alone employment in manufacturing in the U.S. has declined from around 17.4 million to currently around 13.6 million. Over a longer period the job losses in manufacturing have been much higher. Even in Germany with its blown up export sector employment in manufacturing has gone down from 6.3 million in 2000 to currently 6 million. Many other nations have seen comparable job losses in manufacturing. Not all of these job losses are the result of globalization, but many are.

Your argument that globalization creates jobs in manufacturing or other export related sectors which otherwise wouldn't have been created makes sense, if you can show that the downsizing of manufacturing jobs has significantly slowed over the last decade compared to prior periods. This seems to be not the case in the U.S. - as far as I know the American statistics - and many other countries.

In Germany the decline of manufacturing jobs has indeed slowed down since 2000. But Germany has reached this only by an extremely aggressive export strategy which was only possible, because other countries were prepared to indebt themselves up to the throat ( and some over it ). Without the willingness of these nations to go into debt the German export strategy wouldn't have worked. And German workers have paid a high price for it in the form of extreme wage restraint or precarious employment forms. Many of the new jobs are low paying temporary jobs which will disappear, if the world market slows down and German exports stagnate or decline. Even in the case of Germany the theory that globalization stabilizes or creates jobs comes on weak legs.

In the U.S., Spain or the U.K. many manufacturing jobs have been replaced by jobs in the service sector. Many are low paying jobs in retail trade or leisure and hospitality, some good paying in construction, health care or financial services. And while the employment level is not significantly higher than in previous times, debt levels have reached record highs.

It seems as if not globalization but the uncontrolled accumulation of debt is responsible for the preceding good economies and job gains. We'll see how many of these jobs will remain if the current debt crisis is over ( and as I fear the next even worse debt cycle starts ). The chances that globalization is a major reason behind the relative good jobs markets in these countries or has even contributed to them is not very high.

What has happened indeed is a massive power shift from labor to capital and that has led to stagnant wages.

2. Wages:

The share of labor income as part of national income has declined in many European countries over the last decade. Profits have exploded ( in Germany more than in any other European nation ).

In the U.S. the distribution between labor and capital has been more stable, but there has been a massive upwards distribution towards the highest earning workers. Especially the top 1% has increased its share significantly. At the same time median wages have stagnated. The median wage earner of today makes inflation adjusted not more than a median wage earner thirty years ago. Nearly all real gains of national income have gone to a small group at the top. Even college graduates have seen only minimal wage gains. And the average private debt level nowadays is much higher than a few decades ago. Workers have reacted to their stagnant incomes with more debt.

Not all of this is the result of globalization. But globalization, or better the way globalization currently is organized, has definitely an influence. It has changed the power distribution between workers and management or capital/company owners. The assertion that globalization has an positive impact on income is at least keen.

3. Benefits, social safety:

The thesis that the U.S. has something like an social safety net will at best provoke a compassionate reaction here in Europe. The U.S. ranks in regard to nearly all social indicators at the lower end of industrialized nations. Much more reduction is not possible without finally reaching third world levels. And many workers in the U.S. get only meager benefits compared to most of their European counterparts. But even these modest privileges have come under pressure. The number of workers with company paid health care has declined, many companies have reduced their pension promises. New workers have difficulties to get the same benefits as their parents.

The same here in Europe. Benefits are cut back, new workers find only temporary jobs and more financial burdens for health care or pensions are shifted onto workers. Standard justification: Companies can no longer provide these benefits in an intensified global competition and international "investors", also part of globalization, demand higher returns on their capital.

Governments reduce corporate taxes or taxes on capital income and increase at the same time taxes on workers or comsumers or reduce social transfers, because the international competition "leaves them no choice" ( especially stupid in a country like Germany with one of the highest trade surpluses in the world ). If globalization is really the reason behind these actions or if it is only used as a justification makes no difference. Fact is that globalization is used constantly as an argument to move tax burdens from capital to workers and consumers and to reduce public or private benefits.

4. Prices, cheap goods:

Prices for oil, food or some other natural resources such as iron ore have gone up steeply over the last years. Some of it may be the consequence of speculation, some the consequence of monopoly power or the production of bio fuels. But most of it is probably the result of the integration of many millions new consumers into the global market. It is naive to believe that this will have no impact in a world with limited resources.

Much more probable is that many prices for basic goods will go up even faster in the future. Combine this with the fast rising wages in many emerging markets and growing costs for transportation and you have perhaps an idea in which direction things go. Western consumers may save through globalization a few bucks at one end, but they pay more at the other. With some realism this trend will intensify in the coming decades. On top of this it's pretty stupid from an ecological perspective to ship raw materials, components or final products in an ever increasing number thousands of miles around the globe.

I'am not in general against globalization. I think workers in third world countries deserve their fair piece of the pie and should have a chance to participate in the wealth of the world. And I believe that Western nations have many internal possibilities to response to the pressure of globalization on large groups of their population. We don't need to abolish globalization in general.

But what we need are better and fairer agreements to rebalance the weights between labor and capital. We should discuss more the ecological costs of shipping goods around the globe or producing under environment polluting conditions. And it should be clear that countries such as China, Germany or Japan cannot follow their mercantilist practices endlessly without regarding the effects in other nations.

One of the most stupid assumptions of globalization supporters is that anyone who demands changes to the current system of world trade is in general against any form of international trade. There is a difference between trade and fair trade. Point.

As promised, a short and compact comment. Isn't it?

[John V]

well, German Reader:

"Your assumptions are as hypothetical as mine. And even in your very optimistic scenario the majority of workers is not better of than before."

Exactly, it is hypothetical....which is why I did it. I wanted to turn the tables and show you how pointless it is to make sweeping generalizations. As for the second part of my hypothetical, the majority are indeed better off than before. But that really isn't the point. Your initial statement in your hypothetical about what happens in globalization is based nothing other than your hunch so it doesn't work as a basis for reality...which is the entire point of why I pursued the point I did. Asking to me to prove my hypothetical simply coaxed you into the position I already had.

1. Jobs

I'm not really interested in how many jobs there are any given sector like manufacturing. You imply a superiority to certain jobs with what you say that simply isn't well founded. Besides, in the US, while the number of jobs in manufacturing has declined as a percentage of the total work force, production is up. "Manufacturing" doesn't carry any special weight.

On the second point on downsizing and outsourcing creating new jobs...not just manufacturing but other jobs as well...there's nothing to prove because it happens. Either way, needing to show that downsizing has slowed overall as evidence to prove this is meaningless. Jobs created in the US from down-sizing in other areas is positive. It simply shows that jobs worth having here were created by getting rid of jobs that were no longer worth having here. Companies that downsize face competitive pressure. If they don't change, they'll likely shrink or go out of business and then the jobs are lost anyway.

"In the U.S., Spain or the U.K. many manufacturing jobs have been replaced by jobs in the service sector. Many are low paying jobs in retail trade or leisure and hospitality, some good paying in construction, health care or financial services. And while the employment level is not significantly higher than in previous times, debt levels have reached record highs."

On the first sentence, so what? People lose jobs and then find others....some better, some same and worse. There's nothing to be drawn from there. Either way, this all happens with the increased benefits of growth, specialization, lower prices, more choice and more jobs. It's like blaming "freedom of the press" for jobs lost at newspapers. You blame what created jobs for what took them away. It all comes together. Accumulation of debt is a separate issue.

Wages:

So what does the observation on European trends tell you in terms of policy. It doesn't tell me anything other than that growth is accompanied by this trend and it's nothing to fix...and lord knows they've tried. Same in the U.S..

Median wages are not stagnant, they simply haven't grown as fast over the last 30 years. There's a difference. But again, none of this really matters and getting to the point of the article in this thread, that's only part of the equation. Costs have dropped. And where costs haven't dropped is not the fault of globalization...it's from bad policies.

Benefits, Social Safety:

The U.S. has a social safety net. Whether it should be stronger or reformed is another matter. A more flexible job market is more important is any case.

"The number of workers with company paid health care has declined,"

So what? The number of insured is pretty stable and hasn't changed much....and even more would be insured if they took advantage of Medicaid and other services. But none of this really matters. Company-paid health care is not the issue. A more efficient system that gives better results overall at a lower cost overall and over time is the issue.

Governments reduce corporate taxes or taxes on capital income and increase at the same time taxes on workers or comsumers or reduce social transfers, because the international competition "leaves them no choice"...

Herein lies the heart of the matter. Taxes on everyone need to be reduced and behavioral patterns will change for the better.

4.Prices, cheap food

Western consumers may save through globalization a few bucks at one end, but they pay more at the other.

That's your assertion....not mine and you have no basis for saying that. It's what you "feel". Besides, the increases in energy costs is something that must be adapted to in the short run and addressed in the long run...but the heavy lifting on either will not be given by government. They don't have the answers and the more they play around in energy policy in the US and Europe, the less it will yield and the more problems it will cause...like the silly wastes in biofuel subsidies...you say it's a monopoly...if so, I wonder why. Could it be because competitiveness in biofuels doesn't exist since its funding comes from public money?

But what we need are better and fairer agreements to rebalance the weights between labor and capital.. Define "fair". It seems to me that you want it all. And phrases like that are usually a cover for stifling liberal trade policies.

[Real Person from the Real World]

On some other page, John V. claims wages are depressed because there are more women in the work force, and if they stayed home, wages would rise. Too bad Anne has not discovered these comments. As for some of the above comments - re - Jobs, the claims hat we are only losing jobs because of competition, and those are the non-competitive ones and those few jobs that remain are what???? Come on. There is NO JOB that doesn't require face-to-face interaction, that cannot be outsourced. By outsourcing everything that can be outsourced, merely because someone else can do it cheaper due to arbitrage, we are losing our economic mobility. And cheap isn't always better. Lots of outsourced IT projects have not worked out. Furthermore, we import visa holders that take job experience away from our own IT folks, yet no company is saving anyway..... the vendors all mark the poor serfs up (as well as anyone else they can find for a particular job) then vend at "market rates" to their clients. They pocket the profits that could have been a savings to the company. Furthermore, who really checks the job and educational credentials of the visa holders that are from other countries? If the visa holder stays and becomes a US citizen, he usually is as greedy or greedier then the US candidates that have always been here. Wages are depressed because there are too many people available for commodity jobs which are about the only jobs left after globalization. There are not enough non-commodity jobs for the better educated and the few there are, are geared toward finding that needle that has to be found in the haystack. Meanwhile, you have legal and illegal aliens competing as well.
As for benefits, and food, well, I wish I had the time to waste on telling this ignoramus off.

[german_reader]

@John V.

On your first point, your hypothetical model, you may be right. I forgot the consumer price side. It depends on what is more intense , price reductions or wage reductions. But as you said it's hypothetical.

The rest of your post is nonsense. And you're obviously unable to discuss these issues constructively.

1. Manufacturing jobs are important, because they are the ones which are the most exposed to international competition. You're thesis was that globalization creates jobs even in manufacturing that otherwise wouldn't have been created. I can see no statistical evidence for this. And even if they are - see Germany - they may be temporary and disappear soon. The decisive point is if jobs of equal social and economic quality are created. And that's obviously not the case as studies from many countries show.

2. Average real wages for the vast majority of workers have been stagnant for years in the U.S. and elsewhere. These are not single cases, it's a general trend. If they have grown, they haven't grown in pace with national income. There was an massive upwards redistribution of income towards the top 10% or top 1% in many countries. The U.S. is only one of them. And that the share of wages rises and falls with the economic cycle is nothing new. What is new is that workers in many countries couldn't realize real wage gains or much lower gains than in previous periods even in an economic recovery.

3. Benefits, social safety

The U.S. ranks in regard to pensions, unemployment benefits, health care or poverty ( and many other issues ) below nearly all other wealthy nations. Only much poorer OECD countries such as Mexico, Turkey or Greece rank worse. The number of people with health care insurance from their employer has declined in the U.S. over the last decade ( from something like 68% to 64% ). Globalization may be only one reason, but it definitely didn't make things better. And it's often used as a mean to press employees and cut benefits. If there are real economic reasons behind it or simple political strategy is not important. Fact is that globalization and the constant threat with outsourcing and offshoring has obviously shifted the power balance between employees and employers. And that makes many people, if you like it or not, angry.

4. Consumer prices in many countries have gone up steeply over the last years. You don't need a sophisticated economic theory to understand that in a world with limited natural resources and billions of new consumers prices will go up dramatically. And it seems as if we are reaching now the point where these price increases offset more and more the former price reductions from globalization and outsourcing. This trend will probably worsen over the next decades. Supply-side economists, living in a dream world of unlimited natural resources, don't change anything in this regard.

[John V]

real person from the real world,

That's not what I said on women working and you know it. Don't dress it up with poetic license.

I'd respond more but I'm on my iPhone

[John V]

German Reader,

I finally got back around to responding.

Now briefly,

"Manufacturing jobs are important, because they are the ones which are the most exposed to international competition. You're thesis was that globalization creates jobs even in manufacturing that otherwise wouldn't have been created. I can see no statistical evidence for this."

Manufacturing jobs are important BECAUSE they're exposed to international competition? I don't get it.

Well, I have no "thesis" here. I'm simply responding within context, but anyway...you see no evidence for this job creation? Well, then you lack imagination...or should I say: a broad view...on what happens.

If firms had to rely on domestic goods for all their production and that production was for domestic consumption and so on, manufacturing would have withered. But more precisely, newer jobs would have been created on a smaller scale or not at all because there would be less wealth. This is the obvious point that gets overlooked. See my "freedom of the press" analogy above.

On wages, well, I'm not sure what to tell you. There is no policy for correcting this. Proof of this can be seen in European countries who have policies that reflect a general opinion that this is correctable or can be controlled...yet to no avail. But again, we need to look at income as well as outlays. And in this respect, the goods produced from globalization have seen dramatic reduction in costs to the end consumer. The problems lie elsewhere. THOSE OTHER AREAS outside of globalization are where growth in costs have exceeded income growth. Refocus your ire.

On point 3,

Again, I'm not interested in "employer provided health insurance" and its related themes that you keep presenting. I said that earlier and addressed it and you spoke around it and basically repeated yourself. Such benefits are not a good in and of itself.

4. A reassessment by the market for the use of allocation of sustainable resources is normal and that may be happening right now. But consider, much of what we are seeing in price increases in food is not because of globalization, it's because of government policy. Ethanol subsidies are causing a dramatic increase in the price of wheat and then other crops as well. This is a huge factor and it does require sophisticated economic theory to understand it. Moreover, general world instability...especially in the middle east...is a huge factor in soaring energy costs.

IOW, the problems in these areas you mention are the result of people being left to their own devices. They are the result bad policies in agricultural policy and foreign policy which then snowball.

says...

Correction,

"IOW, the problems in these areas you mention are NOT the result of people being left to their own devices. They are the result bad policies in agricultural policy and foreign policy which then snowball."

[Icarus]

Real Person,

Your comment about companies pocketing the labor rate savings from off-shoring is way off. Do you really have any real evidence for your statment?

In consulting, any project (nowadays) which is over $3-4 million almost requires an off-shoring strategy to win a contract.

I've been involved in many pursuits in which a lack of off-shoring in the proposed solution was the cause of the loss.

Off-shoring brings down the blended rate significantly, as labor in India usually costs between $14-30/hour. In the US, we bill consultants anywhere from $140-400/hour.

Obviously, blending off-shore labor in the overall solution reduces the costs, and improves the capacity of a consulting company to win the work.

The idea that a firm can just off-shore, and reap countless profits is silly.

[Real Person from the Real World]

Icky - I was commenting on a statement that John V made, that somehow all the women in the workforce has resulted in overall lower wages, my point being that there are a lot of other reasons why wages are depressed. Maybe you ought to read the blog rather than cherry pick arguments to suit your own ideas.

[Real Person from the Real World]

Icky, BTW, I was not talking about outsourcing in IT, I said that ALL JOBS that do not require a face-to-face contact, could potentially be outsourced elsewhere cheaper. While it may save some company money in the short run, if no one has a job, there is no company is there, since no one can afford to buy the products, can they? The US is a BIG market, even for goods made elsewhere, but if that market fails, who do you sell all this expensive stuff like iphones, being that the wage slaves overseas are such cheap bargains at the wages they make? Maybe 2 tier pricing? but then is that a true market? People have to have discretionary income to buy. Here in the US most of us are losing that, and overseas doesn't have it yet.

[Real Person from the Real World]

When it comes to saving money on IT visa holders in the US.
1) Who really verifies the credentials, school and otherwise when someone goes for a job. There is enough lying and exaggeration, that people have to be thoroughly tested before hiring, and sometimes then, they do not perform. I see people that know how to code based on maybe rote work and practice, but do not understand the underlying principles of OOP. They dance around when you talk to them, since there are so many technologies, no one can know them all in depth.

2) Visa holders are paid shit here in the US. The company that hires them via a vendor, saves little, as the visa holder is vended at the going market rate for the skill. The only one making money on the deal is the vendor.

3) The visa holder's pot of gold is that Green Card. IF he/she lasts long enough to get that, he/she is a free agent, and charges the going rate to companies for his or her skill, competing with US candidates. However, the visa holder also got the experience here in the US at the expense of some US IT grad. Bottom line, US companies should commit to entry level jobs and continual job training if we are to retain our prominence in IT and technology.