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Tuesday, May 15, 2007

You Economists Don't Get It, Do You?

"Economists suck."

"I hear that a lot. What'd we do to you?"

"Globalization. Outsourcing. Immigration. You guys don't get it. You told us go to college, get a good education, do something technical, computer science, engineering, become an accountant, go to law school..."

"I think that might have been your mom telling you that . . . sorry, go ahead"

"Well I did all that and more and you were right - for awhile it worked out great. Then one day it all changed. My job was outsourced. One day I had a job, the next day I didn't. I did everything I was supposed to do and it didn't help, not one bit. Sure, there are people out there getting rich of this but it's the same old fat cats who have always profited forever."

"But, economists ..."

"And it's not just me, it's all the people I worked with too, same thing. You economists tell us it helps end world poverty and all that, and that's great, but why should we care about people in some foreign country when we're struggling to make ends meet here? My concern right now is with one thing, and one thing only, and that's my family. I really don't want to hear about how we need to be concerned with the poor in some other country, how I'm selfish if I want to do more for my own kids. I mean I'm concerned and care and all that, but why does the money to help the poor in other countries have to come out of my pocket and not the pockets of the people getting rich off this?"

"Can I ask you a question?"

"You're supposed to be the one with the answers, but yeah, what?"

"Overall, have we gained or lost from globalization?"

"If I say anything but gained you'll disagree since economists always support globalization."

"You're right, I and almost all other economists think there have been gains. We debate the size of the gains, but not their existence. So it turns out that globalization has, overall, increased the amount of goods and services that we have. If we distribute the gains right, then everybody, every single person, could have more today than they had in in the past."

"Who cares what everyone could have. I could have a yacht if Bill Gates gives me one, but that ain't gonna happen. I don't live in your imaginary world."

"But here's the point, the costs of globalization that have fallen on you and others don't have to be so large, but somehow we have to redistribute..."

"Yeah, yeah, whatever, I've heard all that before. Take from the winners, give to the losers. You guys ever actually look at who owns the politicians? What were economists thinking in the 1990s when they were pushing this stuff?"

"When we looked forward with our crystal balls using theory and empirical evidence in the 1990s, we didn't anticipate the kinds of costs and adjustments that actually occurred. We knew there would be winners and losers, but our very best estimates said the costs wouldn't be that high - we didn't think there would be huge adjustment costs for workers to absorb. We understood we'd need to help some workers through transitions, but it could be a targeted approach where workers in those industries that were harmed could be helped as needed. That's what economists advocated, open the doors and reap the benefits of globalization, then use some of the benefits to help displaced workers in the specific industries that were harmed."

"But your stupid models were wrong. Thanks for that."

"It wasn't the models so much, though they aren't perfect, instead it was the assumptions that went into them. We missed at least two things. The rise of China and India is the first, and the extent of the growth in digital technology is the second. And those were big things to miss - both had large impacts on labor markets."

"Yeah, but that stuff's been going on for a long time now. Ya blind or what?"

"True, and economists have been saying these things for several years, but it did take economists a few years to start seeing what was happening, and then to realize and understand the consequences. By the time that happened, by the time we started to figure out that these changes were bigger than anticipated, the political landscape was far different than during the Clinton years of the 1990s. That made changes in the social safety net in response to the larger than expected changes difficult to implement."

"But even after it became clear that things might not turn out the way you thought, economists were still pushing globalization."

"Yes, and we probably always will. But if you listen closely, we've always said that there are winners and losers from trade, and that it's possible to compensate the losers and still leave the winners better off. Whether that happens or not is a political choice. In the 1990s we didn't think the compensation would need to be all that large, and it also appeared that it could be targeted at very specific classes of workers. But as globalization progressed we began to realize that the costs were going to be much larger and broader based than we thought. At the same time, however, the political landscape had changed as I just noted. Pushing through broad based programs to enhance the social safety net wasn't going to happen with conservatives firmly in control of government."

"So you just gave up, left those hurt by globalization to fend for themselves? Why weren't you guys standing up for workers who were being harmed?"

"We could have been more vocal, and I suppose we could have caught on faster, but we didn't and that wouldn't have changed the politics much anyway. Besides, there were other pressing issues - Iraq, Social Security, tax cuts, that sort of thing - where economists could be more productive. Many economists, rationally I think, turned their efforts to those issues instead."

"Way to let economists off the hook."

"I don't think I have. But look at what's happening now that Democrats back in power and we finally have a chance to do something - the inclusion of a labor standards provision in the recent trade agreement in congress is a good example - economists are speaking out. Just yesterday, there were articles on this very issue in the New York Times, The Financial Times, Project Syndicate, on blogs, and elsewhere, and that's just a small part of the recent contributions on this issue. There's a fairly unified call to strengthen the social safety net, even from those with a more conservative disposition."

"If you say so, but so what. Call for whatever you want. Talk is cheap."

"Well, the labor standards deal I just mentioned is a sign it may be more than talk for once, but let me save you the trouble and admit that we are a bit murky on this point."

"Murky? How about clueless?"

"Here's what I mean. We say we need to use some of the gains from trade to help workers hurt by globalization, but beyond the broad acknowledgment of that point, we don't have much specific to offer. There's the usual list, unemployment insurance, wage insurance, job retraining, help with relocation, food stamps, minimum wage, EITC, etc., etc., but most of these have been around for awhile and don't generate much excitement or interest."

"That's because things like job retraining don't work, though they seem to make people who still have jobs feel better, and the rest of the things on the list just help you put off taking a worse job than you had before."

"Most of the ways we've dealt with this in the past have, as I talked about before, been targeted at groups of people demonstrably hurt by globalization. That has two advantages. First, when you can point your finger at a particular person it draws sympathy and support. Help is easier to get when there's an identifiable victim. But when the effect is, say, to lower the wages of low-skilled workers generally by, say, 5% or 10%, it's harder to find that particular group or person to single out as an example of the harm from globalization. The politics behind the problem are very different. In addition, there is a second advantage to targeted help. When help is given to specific groups of individuals, those getting the help understand what the help is for and those giving the help can see that it is going to the affected parties. This is different from, say, increasing taxes to transfer money from higher to lower income individuals. The reason for the income transfer may be to compensate the losers from globalization, but the disconnection between the income transfer policy and the reasons for it - compensation for the costs of globalization - will make such a policy difficult to implement and sustain."

"Let's get to the bottom line since I have to get going, so what do we do?

"I don't have the answer. As I said, when costs were concentrated on small groups of individuals it was easier to help. Now, with the costs so widespread and the benefits so concentrated at the top of the income distribution, there will be more resistance."

"So that's it? The rich will be unhappy so we can't do it? Figures."

"We have to keep articulating to politicians and the public that the costs are different now, they are widespread, and that the gains are concentrated at the top. We're used to thinking of the costs in terms of worker displacement, not in terms of generally lower wages, loss of health benefits, etc., though that message seems to be finally getting through. From there Democrats will have to do what they've done in the past, find a way to implement progressive reform and to strengthen the social safety net. I think the details matter, and matter a lot, but I also think that doing something, anything, that is clearly and demonstrably a response to the problem of compensating the losers from globalization will have large political advantages no matter what the policy is, within reason anyway.  It seems to me that many workers feel that politicians have lost sight of them, that they've been focused on other things while globalization has been pulling the rug out from under them, and they feel abandoned. I also think there's an impression that economists don't care, or don't really understand, and haven't tried all that hard to help (I think we have tried hard to help, we do care, etc., but perceptions matter). Implementing a policy designed to help workers would also help them to believe that both groups are finally starting to get it, and are trying to help. That would at least give workers the feeling that somebody finally cares. The inclusion of labor standards in the trade deal between Democrats and the White House had this effect. It's unlikely to make a huge difference for U.S. workers, but it's  strong signal that somebody is finally paying attention."

"Economists still suck."

    Posted by on Tuesday, May 15, 2007 at 02:34 AM in Economics, International Trade, Policy, Politics | Permalink  TrackBack (4)  Comments (125)


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