Cats Are Sadistic, Aren't They?

Alex Tabarrok tells us to go watch Ed Leamer play cat-and-mouse with Thomas Friedman:

Marginal Revolution: Flat Buster: Ed Leamer reviews Thomas Friedman's The World is Flat.

When the Journal of Economic Literature asked me to write a review of The World is Flat, by Thomas Friedman, I responded with enthusiasm, knowing it wouldn’t take much effort on my part. As soon as I received a copy of the book, I shipped it overnight by UPS to India to have the work done. I was promised a one-day turn-around for a fee of $100. Here is what I received by e-mail the next day: “This book is truly marvelous. It is perhaps the greatest book ever written. It will surely change the course of human history.” That struck me as possibly accurate but a bit too short and too generic to make the JEL happy, and I decided, with great disappointment, to do the work myself.

Don't let the opening fool you, in the course of much fun at Friedman's expense Leamer does a superb job of reviewing economic geography, trade theory, and recent economic history. And lest you think he picks easy targets, Paul Samuelson and others come in for some knocks as well. Hat tip to Prashant Kothari at the Indian Economic Blog.

Comments

[liberal]

A periodic reminder: funniest thing ever written about Thomas Friedman: "The Datsun and the Shoe Tree," by Thomas Freetrademan, _The American Prospect_, 2000-05-22.

http://www.prospect.org/print/V11/13/devil5.html

[anne]

http://www2.gsb.columbia.edu/faculty/jstiglitz/download/website/Global_Playing_Field_More_Level.htm?res=9902EFD81131F933A05757C0A9639C8B63

April 30, 2005

Global Playing Field: More Level, but It Still Has Bumps
By JOSEPH E. STIGLITZ

The World Is Flat
A Brief History of the 21st Century
By Thomas L. Friedman

The world is flat, or at least becoming flatter very quickly, Thomas L. Friedman says in his exciting and very readable account of globalization. In this flat new world, there is a level (or at least more level) playing field in which countries like India and China, long marginalized in the global economy, are able to compete. And while Mr. Friedman, a Pulitzer Prize-winning columnist for The New York Times, celebrates the new vistas opening up for these countries, he describes forcefully the challenges globalization presents for the older industrialized nations -- especially the United States.

America is still the global leader in science and technology, but its dominance is eroding. As Mr. Friedman points out in ''The World Is Flat,'' Asian countries now produce eight times as many bachelor's degrees in engineering as the United States; the proportion of foreign-born Ph.D.'s in the American science and engineering labor force has risen to 38 percent; and federal financing for research in physical and mathematical sciences and engineering as a share of gross domestic product declined by 37 percent from 1970 to 2004.

About a third of ''The World Is Flat'' is devoted to describing the forces of leveling -- from the fall of the Berlin Wall, which eliminated the ideological divide separating much of the world, to the rise of the Internet and technological changes that have led to new models of production and collaboration, including outsourcing and offshore manufacturing.

The rest of the book is devoted to exploring the implications of this flattening, both for the advanced industrial countries and the developing world. In truth, Mr. Friedman's major points would come across more strongly if his 488 pages were edited more tightly. But he provides a compelling case that something big is going on. I was in Bangalore, India, in January 2004 -- just a month before Mr. Friedman -- visiting Infosys, one of India's new leading high-technology companies. I, too, was bowled over by what I saw: ''campuses'' more modern than anything I had seen on the West Coast, and business leaders as dynamic and thoughtful as anywhere in the world.

It may be true that fears of outsourcing have been exaggerated: there are only a limited number of radiologists, software programmers and back-office people whose jobs can be performed at a distance. But I side with Mr. Friedman: the integration of some three billion people into the global economy is a big deal. Even if only a limited number of American jobs are lost, the new competition will have striking effects, particularly on the wages of unskilled workers. While free trade may ultimately make every country better off, not every individual will be better off. There are winners and there are losers; and while, in principle, the winners could compensate the losers, that typically does not happen. Among other things, a flatter world means a less flat America -- more inequality.

The playing field may be getting more level, but not everyone is equipped to play on it. On that same trip to India, I spent more than half my time in the countryside surrounding Bangalore, where traveling 10 miles was like traveling back 2,000 years. Peasants were farming as their ancestors must have. What has enabled Bangalore to become a high-tech success story is that companies like Infosys have removed themselves from what is going on nearby. They communicate directly by satellite with the United States, and in a place where local newspapers list the number of brownouts the previous day, these companies can have their own sources of power. And while new technologies may close the gap between parts of India and China and the advanced industrial countries, they will also increase the gap between those countries and Africa.

Mr. Friedman is right that there are forces flattening the world, but there are other forces making it less flat. At issue is the balance between them....

[Frank Wilhoit]

Mr. Friedman speaks (as do so many) in code, even unto his book titles. When he says "The World Is Flat", what he means is "The Playing Field Is Level"--a proposition too absurd to possess even contrarian interest.

[chew2]

Friedman is so often nothing more than a cheerleader and propagandist. I recall reading his India silicon valley series in the NYT where he profiled an indian software firm which had taken jobs from Americans. Hhe waxed rhapsodic oabout the fact that the firm was then turning around and purchasing services from some American firm. The virtuous circle - so we had nothing to fear from outsourcing. But he didn't mention that the balance of trade was something like 3 to 1 in India's favor at the time. The deceptive anecdote is an art with him.

(my memory could be off off on the exact figures)

[Peter K.]

wood turtle is a troll. Times columnist Kristoff got it right in a recent column on immigration. Yes immigration and (I'd add globalization) hurts the American worker in some ways. Mostly they can be used as a bludgeon against the American worker and reduce her bargaining power. The response should be to increase the social democratic aspects of the American economy, not go after the immigrant or the Indian worker. Otherwise you are being protectionist and showing no solidarity with fellow immigrant and foreign workers.

[Eli Rabett]

Why does everyone enjoy abusing a bag of wind?

[radek]

"Why does everyone enjoy abusing a bag of wind?"

Because that particular bag of wind is soooo asking for it. And 'sadistic' is the right word. In a good way.

[Arun Khanna]

I enjoy Thomas Friedman's columns. However, he often seems to get a 'hammer of a notion' in his head and then he uses this hammer to hit everything in sight from nails to widgets.
Come to think of it, I just figured out why I like Thomas Friedman's columns.

I enjoy Thomas Friedman's ... Rinse and repeat.

[PJGoober]

Peter K. writes:
[The response should be to increase the social democratic aspects of the American economy, not go after the immigrant]

We don't have to go after illegal immigrants already with-in our borders. Why not just halt the incoming low-skilled flow, which is much less cruel than uprooting illegals.

Peter K. writes:
[Otherwise you are being protectionist and showing no solidarity with fellow immigrant and foreign workers.]
Thank you for being blunt and honest. It's refreshing to see someone admit that ideology (as opposed to self interest) is the only concievable reason that poor americans might favor the immigration of more poor people.

In response to your call for furthering the social democratic aspects of the economy instead of limiting immigration of the poor, why shouldn't poor americans favor both, to get even more of a living standard boost?

[David W.]

"Mr. Friedman is right that there are forces flattering the world..."

No kidding.

[Ellen1910]

Foranyone who missed Matt Taibbi's takedown: http://www.nypress.com/18/16/news&columns/taibbi.cfm

[ArC]

Taibbi's is a classic; it's what I woulda posted a link to if Ellen1910 hadn't beat me to it.

[BHC]

Leamer is well known to econ geeks as they guy responsible for the BEST TITLE EVER for a refereed published economics paper: "Let's Take the Con Out of Econometrics", American Economic Review vol 73 (1983), pp 31-43.

[Blissex]

The review contains what looks to me a good example of intellectual dishonesty:

«But intellectual properties are not stacks of identical plain-white t-shirts. While some software programs compete with each other, many do not, and the value of one can be enhanced by the existence of others. For this reason, I don’t think we need to
worry about terms-of-trade deterioration for our intellectual properties - movies, drugs,
financial derivatives, equipment and software -provided that we have adequate intellectual property protection.

We do need to worry about the new competition for mundane coding tasks.»

The intellectual dishonesty here is comparing the effect on the rent generating value of an ASSET («intellectual properties») with the terms of trade of LABOUR («mundane coding tasks»).

It is Microsoft owns the MS Windows asset, not the Microsoft programmers in Seattle. Microsoft could continue to get large monopoly rents from MS Windows, an asset, even if it moved all its development to India or wherever.

And Microsoft will do so, because as far as 99% of its customers are concerned the development of Microsoft software is already offshore, and it matters little whether the shore is that of the eastern Pacific or the southern Indian ocean.

The rent value of an intellectual property does not mean that the *workers* producing it are any better off than the workers doing mundane coding tasks.

It just means that the USA owners of the intellectual property can make even more money by firing a lot of ''high value added'' american programmers, and making the USA economy as a whole poorer, because savings to the owner of the asset will be smaller, by the amount of the salaries paid to the new employees in India, than the loss of income to the USA employees.

The extra profit made by the owner will be greater than the loss of income for the fired workers (thus the offshoring will be a net boost to the USA economy, even if with redistributional implications) only if the cheaper production costs were to lead to greater sales because of lower prices, but since we are assuming that the intellectual property already enjoys monopoly pricing, that's unlikely.

[Arun Khanna]

Blissex said: The review (Ed Leamer's) contains what looks to me a good example of intellectual dishonesty.
This is a perennial problem of economics (and some business school disciplines), individuals who don't know much about economics feel confident enough to make sweeping judgments about economists' motivations and character.

[Tyrone Slothrop]

A periodic reminder: funniest thing ever written about Thomas Friedman: "The Datsun and the Shoe Tree," by Thomas Freetrademan, _The American Prospect_, 2000-05-22.

http://www.prospect.org/print/V11/13/devil5.html

Very nicely done, until you get to the Morocco/Monaco confusion at the end, and so it ends on a flat note.

[Barry]

One little nitpick - Leamer makes a comment that offshoring of radiologists will be limited by the desire of doctors to meet face-to-face with their radiologists, and the desire of (somebody) to have the radiologists in the US, where they are subpoenable. The second is not neccessarily true; having radiologists unreachable is an advantage. The first ignores the HMO-led restructuring of medicine for the past twenty years.

[anne]

What globalization means to me is continually searching out economic and social exchange mechanisms that in addition to being advantageous to us are decidedly advantageous to so large numbers of people who have lived in poorly developed conditions for generations. Brad DeLong will tell us that little more than 10 or 20 years ago, development specialists were terribly pessimistic. Then, there was China and India and Brazil and South Africa and there is excitment such as has not been known before. How then do we contribute and benefit ourselves in so doing?

[anne]

As to what the Chinese or Indians or Brazilians or South Africans are capable of and about, I am continually impressed through a lens on the arts :)

[liberal]

Arun Khanna, "This is a perennial problem of economics (and some business school disciplines), individuals who don't know much about economics feel confident enough to make sweeping judgments about economists' motivations and character."

This particular example aside, economists' own theories provide strong reason to doubt their motivation.

As economists point out, incentives are important inputs to human behavior. It seems quite reasonable to predict that the rich and powerful would handsomely reward economists who advocate policies (or whose positive/descriptive work suggests policies) that benefit the rich and powerful.

[Arun Khanna]

Liberal said: "This particular example aside, economists' own theories provide strong reason to doubt their motivation. As economists point out, incentives are important inputs to human behavior. It seems quite reasonable to predict that the rich and powerful would handsomely reward economists who advocate policies (or whose positive/descriptive work suggests policies) that benefit the rich and powerful."
First, you do not doubt the motivation of economists but rather point out that economists are subject to the profit motive. Given that economists (in academics) are working in the non-profit sector an explanation based on the profit motive is a stretch, however I concede that it can hold in some circumstances.
On a different note, let me give you something to think about. Even today, U.S. imports lot more from Canada than from India. Similarly, U.S. imports more from EU than from China. I am always surprised why non-economists on blogs (like this one) never point out perceived American job losses due to imports from Canada and EU. Nonetheless, I don't go about telling such non-economists that the reason for their posts is that they are racist and intellectually challenged.

[dale]

AK,
Doesn't the answer to your question lie in understanding that trade between high wage nations is on a level playing field and is not seen as a motivating force to reduce wages and move factories?

I think your charges of racism and stupidity miss the mark. Concerns are about wage levels, etc, not skin color.

[anne]

http://www.nytimes.com/2006/04/12/opinion/l12fried.html

Time for an Iraq Exit

To the Editor:

While conceding Defense Secretary Donald H. Rumsfeld's "monumental strategic error in not deploying enough troops," Thomas L. Friedman continues to believe that our presence in Iraq is about "trying to bring about ... the first ever bottom-up, horizontal dialogue between the constituent communities of an Arab state."

Wrong. Whether we went into Iraq because of the declared (but baseless) belief that Saddam Hussein possessed W.M.D.'s or to gain access to Iraqi oil, it is clear that the democracy-exporting justification was a Johnny-come-lately rationale for this imperialistic venture.

With our very presence seeming to fire the sectarian violence and the overwhelming majority of Iraqis united in the desire to see our troops leave, it's well past the time when we should start withdrawing from Iraq and letting Iraqis exercise their democratic right to "forge their own social contract."

Jay N. Feldman
Port Washington, N.Y., April 7, 2006

[anne]

What matters now is peace. What is harming us psychologically is the lunatic war and occupation, and we have the ability to stop the harm by standing for peace, leaving Iraq immediately.

[anne]

Globalization is a technical problem set that can be readily solved for all to benefit, peace however must be there and we are not at peace but could be of our choosing.

[Ninjaplease]

RE:: Arun Khanna

"You're a racist for not agreeing with me."

People don't care about being outsourced to Canada or to the EU because their standard of living is much higher, they have high taxes and between the US, Canada and the EU the LABOR playing field is fairly level (except for some countries in eastern europe who have the advantage of having lower labor costs.)

China and India and to a lesser extent Mexico have much much much much much lower standards of living, meaning that US labor cannot ever hope to compete against them with no tariffs in place. It's not even competeing, your job industry simply vanishes to a low labor cost center.

But that's not enough for some people, for the arrogant, we must applaud the loss of our jobs.

No one (with brains) blames the people of India or China or any other low labor cost center for taking jobs that pay a decent living wage there. Many people don't even blame the corporations for seeking the lowest cost of production (invisible hand.) We blame the policies that our elected officials put into place at the behest and lobbying of corporations. They sold us out.

Competing on education is laughable. I still haven't heard of a field that pays over $10 an hour that's booming due soley to globalizaiton, which we who are "costs to be minimized" can be retrained for. It's actually a great compliment to the people of low labor cost centers: we know that you can do our job just as well as we can (for the most part, and depending on level of experience.)

The point is that our government should not allow companies to sell goods here without paying a tax IF they've profitted from moving jobs offshore. They should have to help pay the costs of retraining those workers. Currently they don't and there's special tax incentives for corporations to keep their unrepatriated capital gains offshore, so that the money made from offshoring production staff, stays offshore, enriching the country where the production has moved to.

[Barry]

Arun: "Given that economists (in academics) are working in the non-profit sector an explanation based on the profit motive is a stretch, however I concede that it can hold in some circumstances."

Technically an economist getting a grant from a foundation or institute is still in the non-profit sector. This doesn't mean that there's not enough money to change their opinions, or to proved amplification to those with the 'correct' opinions.

[liberal]

"First, you do not doubt the motivation of economists but rather point out that economists are subject to the profit motive. Given that economists (in academics) are working in the non-profit sector an explanation based on the profit motive is a stretch, however I concede that it can hold in some circumstances."

That's a laughable response.

In addition to Barry's point, the notion that academicians and academic institutions are immune to financial incentives is ludicrous and naive.

For example, you've never heard of the Mercatus Center at George Mason University? You've never pondered from where such institutions receive some (if not all) of their funding?

Give your head a shake.

Finally, _an academic posting_ is itself a "financial incentive"---it's a job, with quite reasonable pay.

Not to mention that the opportunities in the non-academic sector are bound to influence those in the academic sector.

[liberal]

Ninjaplease wrote, "China and India and to a lesser extent Mexico have much much much much much lower standards of living, meaning that US labor cannot ever hope to compete against them with no tariffs in place. It's not even competeing, your job industry simply vanishes to a low labor cost center."

I could be mistaken, but my guess is that the playing field is more stacked in the case of India and China because of the Penn Effect:
http://en.wikipedia.org/wiki/Penn_effect

That is, I'd wager the misalignment between purchasing power and exchange rates is far greater in India, etc, than in Canada.

[Blissex]

«Given that economists (in academics) are working in the non-profit sector»

This statement seems extraordinarily naive to me. Academic economists actively seek often find very profitable non academic consulting assignments, whose income usually is MUCH larger than their already reasonable salaries. Nevermind getting project funding etc., or endowments.

An appendix of the book "High st@kes, no prisoners"
http://WWW.J-Bradford-deLong.net/Econ_Articles/Reviews/ferguson.htm

gives a credible, informed account of how corrupt the consultancy market for well credentialed economics professors may be seen.