I Belong to No Organized Political Party

Matthew Yglesias says: can't we all just get along? In the process he confirms some of my fears.

Matthew Yglesias / proudly eponymous since 2002: Both/And Not Either/Or: With regard to the split between the Economic Policy Institute's populists and the Hamilton Project's centrists, I would hope that both sides of this debate would see that they need each other. On issue after issue, there's simply no way you're going to build a constituency, politically speaking, for Hamilton-style technocratic tinkering unless moderate Republicans and the business community see a credible risk of something more far-reaching happening. On trade, for example, if folks thing anger at the downside of these agreements really may cause the agreements to fall apart then suddenly you'll find its possible to do lots of stuff to mitigate downsides.

Conversely, it's useful to populists for there to be a moderate left out there offering non-sweeping proposals for progressive change. Absent some kind of giant crisis, the odds of congress finding itself inspired to make a giant leap to social democracy are just incredibly tiny. I'm all for universal health care and most of the rest of this agenda, but while some folks are off building support for sweeping reform, it's good to have other people around slicing the salami thinner such that something could actually be achieved in the short run.

One area where the rubber really does hit the road here is the deficit. If Democrats take the view that first we must balance the budget, then we must bring the budget into surplus, and then we can institute new programs, the country is going to be stuck forever in the Reagan-Clinton-Bush loop where the time for new programs never comes. On fiscal responsibility, it takes two to tango, and insofar as the GOP doesn't want to dance, Democrats can't afford to take sole responsibility.

The most interesting part of this, for me, is the last paragraph. Matthew Yglesias is serving notice that, at least as far as he is concerned, Rubinomics is dead. Rubin and us spearcarriers moved heaven and earth to restore fiscal balance to the American government in order to raise the rate of economic growth. But whatwe turned out to have done, in the end, was to enable George W. Bush's right-wing class war: his push for greater after-tax income inequality.

We will try to argue for fiscal prudence and stability in the councils of the Democratic Party. But I fear this is a bellwether--that we will lose, because the choice will be presented as between (i) left-wing things that are good for the nation, and (ii) centrist things that simply enable another round of right-wing class war by the rich and their minions a decade hence.

Ah well:

Hige sceal þe heardra,
heorte þe cenre,
mod sceal þe mare,
þe ure mægen lytlað

Comments

[bakho]

THE signature issue for Bush is tax cuts. No way will Bush accept tax increases. The only hope the Dems have of adding any new revenue is to tack it onto the Bush Defense supplementals.
It will be good fiscal policy,
It will send the message that supplementals are no way to fund a war.
It would put Bush between a rock and a hard place
The expense of Iraq might reach the radar screens of the media making the American public less likely to support such ill conceived adventurism in the future.

[TomF]

I always read your blog with interest, but part ways in these areas.

You are in a large sense correct about the way the choice may come out. From the standpoint of someone who is accutely aware of what has gone on in the tax system-- I've been paying self employment tax as a lawyer since the mid-80s-- I feel that one of the biggest, hidden lies we've had from GWB is about social security.

The social security tax increases that "solved" the problem of social security years ago are what finance the Bush tax cuts-- there was a surplus because of this extra money I've been paying that was supposed to have assured me of social security checks in the future. I for one will be very, very angry about any future "compromises" about that. I don't want to see further tinkering with social security.

So I react pretty strongly against two themes you strike-- suggesting maybe we *should* tinker with social security, and at the same time arguing that we're going to have to do something about the fiscal mess Bush and the Republicans have left us with. The later is inarguable. Combining it with the other sounds like setting us up for another sucker punch of spending the "fix" three times or so, like we did under Bush.

[Anon]

It is truthfully the case that with one party (in power at least 50% of the time) dedicated to wrecking the treasury, another party can't do much to stop it.

Simple fact: it's much easier to destroy than to build. And it's much easier to loot the treasury than to fill it. Any number of kings and empires have fallen over this simple truth.

Why *shouldn't* the Democrats roll forward tax cuts and new spending on liberal causes? By the Republicans' oft-repeated logic, this will cause government to shrink, right? Right?

[RKKA]

The Democratic Party must not be sucked into the politically suicidal role of cleaning up rethuglican fiscal messes. There is an alternative. A good deal of dubya's insane tax cuts expire in 2010. Let that run its course. And when rethuglicans make the lying claim we're raising taxes, we point to dubya's signature on the bill, and name the Congressional rethuglicans who wrote and voted for it.

[MDtoMN]

I'm with Yggles. Fiscal responsibility was worth a shot, but after the payroll tax deal and the Clinton years, all we've bought is a class war aimed at 95% of us. Well, we've not all fools. I say, don't focus on the mess. Try to be responsible, but let THEM propose some cutting and tax raising. They want to play chicken with the debt. Fine.

Not that we should be as bad as them, but we've learned that cleaning up their mess just gives them more opportunity to wage class war.

[Ponzi Q. Globalization]

Rubinomics?:

"I would not hold back from going ahead on a trade agreement because another country refused to accept labor standards. If we were going to have a bilateral agreement with India and they refused labor standards, I still very much want to do the agreement."

[otto]

Brad, you haven't provided any argument here that the centrist things you want won't simply enable another round of right-wing class war by the rich and their minions a decade hence. Do you really disagree that that was one outcome of Clinton?

[Lee A. Arnold]

I disagree; I think the Democrats should act. But: The Hamilton Project are "centrists"? Where is the center between the populists and the Hamilton Project?

Look, the Democrats would be wrong to think the country is not near giant crises, both in fiscal and foreign policy. The Democrats can still move toward Rubinomics. You did NOT "enable George W. Bush's right-wing class war," or else you are quite an omnipotent causative agent. Did you enable Al Gore to win the popular vote? Maybe you can still do some good!

But, we do not have to suppose that the budget will ever really go into balance. Who actually believes this? Certainly no Republican. The Democrats merely have to work in the direction which is towards balancing the budget. And they should start NOW: be slow and methodical; start to push, just a little, the country out of debt. But leave Social Security alone. It is a already a "left-wing thing that is good for the nation." What the hell else is everybody looking at?

Now, what other plans have you got? Let's go a little in the negative direction. Trim some corporkorate fat; let the upper tax cuts sunset. Rein-in Medicare drug costs. Then, move a little toward pay-go. Maybe a little corporate pork for alternative energy on global warming. Do it!

The U.S. public is keeping its eyes open; they know the stakes. The Democrats should not play them for stupid. Right-wing class war can be easily doused, those fools' minds are blown for the next twenty years, their ideology just detonated in their policy. The Democrats can be in power for a long long time.

[John Emerson]

All the way back to Carter the Democrats have been bullied into postponing their own programs in order to clean up Republican messes and promote bipartisan (Republican) programs like free trade. What Rubin, Krugman, and DeLong wanted to do under Clinton might possibly have worked, but it didn't actually work.

Now Bush has deliberately thrown another fiscal crisis in our faces in order to nullify the possibility of any Democratic programs in the future. This was a deliberate plan ("starve the beast"). I don't think that the Democrats should be suckered again.

I think that, if given the chance in 2008, Democrats should raise taxes on the upper tax brackets and especially on the Republican industries, in proportion to their support of Republicans.

If that isn't possible -- if Bush really has succeeded in wrecking things so bad they can't be fixed -- aren't the Democrats finished as a significant political alternative?

[DRR]

Regardless of whether it's playing into the loop, Democrats have wasted so much energy blasting the GOP for running up the thing that if they become "Defecits don't matter" Party #2, I don't think it will bode well for them.

The Dems now have the advantage of being not only the party that will better peoples lives through government, but also the party of fiscal sanity & realistic defense. That's simply unprecedented. We would be fools to squander it.

[Lee A. Arnold]

John and DRR, great stuff; a gift for you: A lot of people will like this:

October 11, 1956 on "You Bet Your Life":

GROUCHO MARX and LORD BUCKLEY
(9:18)

http://youtube.com/watch?v=Qh_68zvtk8c

[Ginger Yellow]

Hey, that's my second favourite Old English poem!

[Dean Baker]

Naturally the Hamiltonians want to maintain unity among Democrats, as long as they get to set the course. It is dishonest to imply that extraordinary growth of the late 90s was due to deficit reduction. Please refer me to the article that shows a reduction in the deficit of 2-3 percentage points of GDP will raise productivity growth by 1 percentage point. The literature suggests that the effect would be approximately one-tenth as large.

[I would say one-third as large. There are some growth multipliers in there...]

With the Hamiltonians using misleading claims and denouncing their opponents as protectionists, don't expect to get smiles and flowers in return, unless of course you expected the Iraqi people to welcome us as liberators.

[Barry]

Brad, you've *finally* figured out that the mythical era of bipartisan technocracy is dead; assuming that it ever was alive. A liberal era of technocracy, yes. Not a right-wing era.

[failingeconomist]

I'm very confused by thought above that free trade is somehow a Republican idea. The people real free trade (taking into account Dean Baker's criticisms of what we seem to be getting now) benefits are consumers. The average man and woman in the street. How can people be reading this blog and not have absorbed that as yet?
As to Rubin being willing to accept a trade deal with India without labor policies, great! Exactly what he should be proposing, that India be allowed to get richer by employing its comparative advantage: hundreds of millions of poor people.
Or have I missed something here, that poor Indians shouldn't be allowed to get richer while making things that the American consumer wants to buy?

[david]

It's a question of priorities. When Social Security reform and trade agreements get more attention than global warming or poverty reduction or universal health care, oh dear. When Nafta and welfare reform are the achievements you want to take to the electorate, oh dear. These things lead Burrians to wonder how close the ties really are. And what Dean said about growth.

[Barry]

fallingeconomist, that's because we are not tenured professors, so we have to live in the labor market, which has stunk for quite some time now.

[John Emerson]

Yeah, it's amazing how enthusiastic people are for creative destruction when it doesn't affect them

[Paul Reber]

A profoundly sad statement: "Rubin and us spearcarriers moved heaven and earth to restore fiscal balance to the American government in order to raise the rate of economic growth. But whatwe turned out to have done, in the end, was to enable George W. Bush's right-wing class war: his push for greater after-tax income inequality."

If I were to suffer a betrayal of this magnitude, it might move me to spend a lot more time playing Civ than thinking about policy.

But if not give up, what is to be done? Suppose there is another Clinton-era-like tech-fueled boom within the next decade that produces a temporary revenue surplus, how can it be guarded from the fixers and thieves? Should Clinton & Rubin have written the tax rate reduction law before leaving office to head off the worst of the perfidy? In hindsight it seems that too much trust was given to Gore winning election or at least a shred of rationality being evident after a Republican victory. If a fiscally sane person had constructed the tax cuts, perhaps those triggers that O'Neill & Greenspan had initially preferred might have survived and the deficit would not now be so large.

I also cannot stop thinking there are serious education issues involved. I don't think the general public knows the scale of the current govt debt (I suspect many don't know the difference between the deficit and the debt either). I'm not entirely sure that most people really understand compound interest on debt (or else credit cards would be used more rationally). I don't think they know how much of their current tax bill goes to debt service. I don't think they know that tax rates cannot be seriously lowered in the long-term unless the debt is reduced. I'm not even sure people are sufficiently aware of the relationship between their tax bill and the services provided by the govt.

I don't know how to fix the education problem. Lately, I've wondered what the effect of getting a "receipt" for your taxes would be. As in, "Thanks you for your 2006 tax contribution of $X dollars. You may be interested to know that in 2006, $x went to supporting defense, $y went to social services and $z went to interest payments on the federal debt." My intuition is that this might lead to better informed taxpayers and better informed voters.

[kid bitzer]

Brad, your invocation of Maldon suggests you are still missing the point.

It's not that you were outnumbered, or need to fight harder.

The trouble is: you thought you were fighting for one side, when in fact your gains and victories were being used to aid your enemies.

If you really understood this, you would not be saying "well, then we must keep up our martial ardour and continue the battle and fight harder in the future."

You'd say: that's it. I'm not going to fight that fight any longer. Because it turns out it only benefits my enemies. I'm going to abandon that particular tactic, and indeed abandon that whole battle, until I can guarantee that my success in that battle will not be stolen from me.

And that's not what Maldon says.

[divadab]

Like it or not, Dems will be cleaning up ALL of the republifascists' messes. What's worse, when the shit hits the fan, it will be the Dem's fault, per the corporatist media. Only one correct course - "do what is right let the consequence follow, battle for freedom with courage and might."

And a question from one whose knowledge of early English literature is limited - from which poem is the quote?

Thanks!

[Ponzi Q. Globalization]

"As to Rubin being willing to accept a trade deal with India without labor policies, great! Exactly what he should be proposing, that India be allowed to get richer by employing its comparative advantage: hundreds of millions of poor people."

Take it to the extreme and conjure up a nation with NO labor rights. How would you feel having a nation of slaves do the work? Now there's a comparative advantage in today's neo-liberal globalizationized world!

Before anyone rips my head off, I'm not asserting that India is such a nation. However, we're on a continuum here with power dynamically shifting from labor to capital. You think the unfettered market will regulate this to the advantage of all? To the advantage of the majority of Americans? You can't picture a world where the perpetual threat of capital fleeing is enough of a stick to keep workers perpetually pliant?

[divadab]

Thanks, Kid Bitzer, for the reference. In fact, despite the loss at Maldon, and later at Hastings, English survived and prospered in the long run. (Keynes, incidentally, was clever, but completely wrong with his solipsistic retort). However, I think you are wrong to conclude that quitting the battlefield and giving up is the right approach. We would not have a Republic had that view prevailed. We would not have rule of law, however imperfect because it is administered by imperfect men. What 6 years of unfettered Republican control has created is without exception bad. A divided nation, divided by careful design and ruthless execution. A slave class, useful both to enrich and as a scapegoat. Atrocious foreign adventures creating chaos and enmity. Corruption and greed and the use of high office to extract rents. Self-aggrandizing Sadducees voicing high unction and repression. A house bankrupt. And liars yelling in the public square.

To resist is a duty. To stand for right, to act righteously is never a bad. But the righteous are confused by the sheer force of the malicious. Soft counsel has a safe appeal, but it is hard action which is required of the just.

[kid bitzer]

divadab--

you aren't denying what I was asserting.

Of course we have to fight for rule of law, and of course we must resist the current Republican leadership. I never meant to say otherwise.

But the battle that DeLong was commenting on was the one he fought as a spearcarrier for Rubinomics.

That was the battle for fiscal sanity in our taxing and spending policies.

But it turned out to be "the battle to provide the Republicans with more to loot."

Because they never had any intention of governing with fiscal sanity. Their whole game was asset-stripping: taking the nation's hard-earned wealth and giving it away to their friends.

Until that brand of criminality can be extirpated, do you really think Brad should continue fighting the good fight for larger surpluses, just so that Republicans can give the revenue to their friends? I do not.

And that's why I do not think that Brad should be saying that "the less power we have [sc. we spear-carriers for Rubinomics], the keener our hearts will be" [sc. to continue the battle of Rubinomics].

Hell no. Don't waste another moment's effort running up surpluses, until you can guarantee they won't wind up in the hands of the Republican kleptocracy.

[andres]

It's twue Bwad, it's too twue...

At this point, cleaning up the fiscal mess may be good economics for the Democrats, but it will be awful politics. Once again, the smear machine of the Republicans (a party that can fling pooh faster than any chimp on earth) will scream about the biggest tax increase in history (Clinton's first term) and about the starvation of the Defense department (Clinton's entire presidency), and the willing press will eagerly lap it all up. Add to this another Republican candidate who whines about how the resulting budget surplus could be put to much better use (you'll hear calls for Social Sec. privatization reach fever pitch at that point...), and the simple political equation is that Rubinomics falls into the trap set by the anti-welfare state, anti-progressive taxation wing of the Republican party.

And simply letting the Bush tax cuts expire, while the right step, will not be sufficient, as the Treasury will have lost a lot of blood in the eight fiscal years of the Bush administration.

It's time that the Democratic party stops messing around with mildly progressive, fiscally responsible _economic policies_ as the center (as opposed to a peripheral part) of their agenda and start playing political hardball. I recommend the following recipe:

(1) Without resorting to smear tactics, still play political hardball--undermine the moderate wing of the Republican party by hammering home the point that to vote for any moderate Republican is to vote for another cycle of theocratic/plutocratic domestic policies and neo-fascist foreign policies, the latter serving only to kill American soldiers. If successful, this will make the Republican party look like the monstrosity that it already is under its current leadership.

(2) Begin the process of turning the US into a multi-party democracy, and prevent the left-of-center vote from being splintered, by creating an anti-Republican Coalition of political parties (Democrats, Greens, Socialists, etc) that will hold its own general primary before the main election and run whichever party's candidate wins that primary.

(3) Assuming the Dems win the White House, investigate and prosecute the members of this current administration for instigating a war of aggression, violating the Geneva Conventions, and repeatedly violating the Bill of Rights. Toss the bastards in prison following due process of the law.

(4) Begin an interrogation of the press, not with the rack and brass knuckles, but with a political staff that is dedicated exclusively to showing the American people how the major media corporations failed in their duty to expose the abuses of this administration and how they have generally expressed a pro-Republican political bias. Encourage the creation of an alternative mass media whose predominant characteristic is independent ownership rather than ownership by corporate giants such as Rupert Murdoch.

Only once the current generation of the Republican party has been utterly discredited in the eyes of the US public will it be possible to implement sane economic policies that are also politically sustainable.

[divadab]

Kid Bitzer - "Hell no. Don't waste another moment's effort running up surpluses, until you can guarantee they won't wind up in the hands of the Republican kleptocracy". Then aren't you complicit in the looting of a surplus which wasn't really a surplus but a putting-aside to pay for future pensions?

Including Social Security funding with general government operational fiscal accounting is bad accounting. Corporations can't do this - why does the federal government do it? There are other governments as irresponsible as ours, but they tend to be in the third world. Do we really want to emulate Argentina? They once were a first-world country. They're flirting with the third.

At least a landed aristocracy has a sense of nobless oblige - not these cracker parvenus and their paymasters.

[andres]

And with respect to fiscal policy, only after all of the above has been done will it be possible to bring about _permanent_ fiscal sanity by (1) passing a Balanced Budget Amendment, complete with enforcing mechanisms, and (2) making the US Treasury an independent agency capable of unbalancing the budget "below the line" whenever macroeconomic stabilization is called for. That would be something that Brad and Bob Rubin would look forward to.

[divadab]

And I don't agree that Byrhtnoth's action was hubristic. He calculated that his duty was to not only repel, but to defeat, and so protect others of his country. That he died in the effort, and failed in the instance (although Essex was never a Danegeld county), doesn't make his decision wrong. His tactics, perhaps, could have been better. But to hold off, and not engage? Cowardice.

[divadab]

Danegeld? Danelaw? Essex did in fact pay Danegeld. Essex was indeed part of the Danelaw. But the whole was subsumed in to the English kingdom over time. I mean, old Norse and old English were mutually comprehensible. This was cousin warfare. I'm not sure I'd accord cousin status to the gang of thieves in the WHite House.

[Cranky Observer]

> The trouble is: you thought you were
> fighting for one side, when in fact your
> gains and victories were being used to aid
> your enemies.

The possibility that perhaps Rubin was a mole for the plutocrat class leads to impure thoughts about Bill and Hillary and thus cannot be entertained.

Cranky

[liberal]

failingeconomist wrote, "The people real free trade (taking into account Dean Baker's criticisms of what we seem to be getting now) benefits are consumers. The average man and woman in the street. How can people be reading this blog and not have absorbed that as yet?"

Uh, people wear more than one hat. They might benefit _qua_ consumer, but not _qua_ laborer. And the total benefit may be negative.

"As to Rubin being willing to accept a trade deal with India without labor policies, great! Exactly what he should be proposing, that India be allowed to get richer by employing its comparative advantage: hundreds of millions of poor people."

How do you know that the result will be the poor of India will get rich as a result? Much of the gains might get stolen by landowners (in the form of tribute paid by the poor as Ricardian rent), like in many places.

[dale]

If comparative advantage is defined as a nation having millions of poor people with no alternative to providing cheap labor then it might be better described as exploitation.

I always thought that comparative advantage was something more than cheap labor.

[John Emerson]

"Then you have different winners and losers, and even thought the gains to the winners outweigh the gains to the losers, it can be difficult to establish a compensation mechanism."

Without judging Keith's claim that the gains are certainly more than the losses, establishing a compensation mechanism is especially difficult when there's no attempt to do so, and that's what happened. That's the Democratic part of the bipartisn plan.

[dale]

"If you slap tariffs on cars, you're just detroying our ability to grow cars in Iowa."

I have no idea what that means Keith.

[dale]

It is frustrating- agreeing here with John- that for all the alleged gains and profits from our current trade regimes, ordinary American's incomes have been falling. Wealth is more concentrated. Insecurity is rising. The health effects of this rising inequality will be huge.

I don't know if rising inequality and insecurity is a feature or a bug of these regimes. But the promised ameliorating programs are not forthcoming.

[John Emerson]

Dale is unaware of the Ford fields of Iowa. He probably doesn't even know about the high-performance hybrid Fords developed in the Iowa State Ag school.

[Cranky Observer]

> I don't know if rising inequality and
> insecurity is a feature or a bug of these
> regimes. But the promised ameliorating
> programs are not forthcoming.

Two points here. First, the whole theory of comparative advantage was developed by people living in Atlantic nation-state with essentially unlimited resources and growth potential. It makes a lot of sense for the "best brain surgeon in town to outsource his typing to the second-best typist" when both are extremely wealthy and comfortable compared to the rest of the world. It makes a lot of sense for an infinitely wealthy United States (which, setting aside the Indians, is what the US was from 1800-1970 and particulary 1940-1970) to oursource its dirty work to, say, Mexico or even India.

It is not at all clear to me that with the US' resources and growth potential essentially gone, and India and China rapidly catching up in education, technology, and organziation, that it makes sense for the United States to participate in a "free" trade regime that will essentially result in its destruction (of the US that is). I keep hearing about these tremendous benefits that are accuring to us as consumers; all I see is stacks of crappy "made in China" TVs at Best Buy and a gnawing worry about what my children will do for work.

Oh, did you hear that Cisco is moving their high-value research, engineering, and design activities to India? Those are the activities that were supposed to make up for the loss of manufacturing...

Second, the goal of the ruling class in the United States is to return to the Gilded Age. Which if you recall was a time of great productivity and growth; it was just that the winner-take-all nature of that growth led to a 98-2 distribution of wealth. Sound familiar? Of course, that time we had the frontier as an escape valve. Today...

Cranky

[Ponzi Q. Globalization]

Would a nation made up of a huge number of slaves who can produce exportable goods and services and who are owned by a tiny number of slaveholders be viewed as having a comparative advantage?

Should we trade with such a nation? Why or why not?

How about a nation where workers are locked in a barracks when not on shift but who are still free to quit? How about if there is no safety net to speak of and a person without a job has a good chance of starving?

How much real power must an employer wield over his or her worker before some here will use the term exploitation?

[divadab]

Grow hemp not Fords.

[John Emerson]

"This change will probably also make wages more equal."

I think that you dropped several paragraphs of explanation after that sentence.

[John Emerson]

Keith, I've been telling people all along that the typical economist is someone like you, and they've all been denying it. The laugh's on them now.

[Ponzi Q. Globalization]

Keith,

Today is there anywhere in the world where we trade with entities who you would say are exploiting their workers?

[RKKA]

"Actually, the wave of talented inexpensive scientific and mathematically skilled labor will benefit us enormously."

For various values of "us".

"We're already seeing signficant cost savings and a big increase in people's quality of life with the ability to outsource high-quality health care."

For various values of "We".

"Cheaper computing power means more and more Americans can do more and better science and analysis. I was reading someone's resume, and now a master's student can use canned software to estimate choice models that would have been virtually impossible to estimate just 10 years ago.

This change will probably also make wages more equal."

Probably? Got examples, or is this just theology talking?

[Ponzi Q. Globalization]

"For the most part, I'd say trade and especially foreign investment, which essentially introduces new firms competing for workers, lessens the exploitation."

You don't think creating trade rules that prevent such exploitation would lessen it even more?

"The surest way to lessen exploitation, IMO, especially in the developing world, is to increase the number of firms competing for workers."

A lot of firms prefer exploited labor to non-exploited labor if the former is cheaper. The former would be cheaper in most cases. Thus, without regulations, the firms that use the exploited labor have an advantage. Is this a good system? Will such a system really lead to some sort of global paradise?

Even here in the U.S. it wasn't just the magical workings of the 'free market' that improved the lot of workers.

I think we accept crappy treatment of others today because there's money to be made or saved and there's an ideology that promises a wonderful future to justify.

[steve]

Keith has given a precise definition of exploitation--wages below marginal product. What is Ponzi's? There's not much point arguing about someone's feelings about what's exploitative if he keeps shfiting the definition to come to his predetermined protectionist conclusion.

[Ponzi Q. Globalization]

"I'm all for rules eliminating slavery."

Glad to hear this!

""A lot of firms prefer exploited labor to non-exploited labor if the former is cheaper."

Which then eliminates the exploitation, as firms bid the price of that labor up."

Why does the price have to be bid up? With a world filled with the dirt poor ready to be exploited, why not just go elsewhere?

"Now, cheap foreign labor will increasingly decrease wage inequality as it competes with high-wage American workers."

Wage inequality may decrease because of American wages decreasing.

A single global labor pool means a single global set of wages for given types of work. I can't come up with a good argument why this single global set of wages would be an improvement for Americans in most cases.

[John Emerson]

Gotcha. What you call "increased equality" is what I call "The global race to the bottom of wages". No further explanation necessary.

[John Emerson]

Global race to the bottom of wages, like I said.

In the end, people who are not wage-earners will benefit. Brad has been talking here about the absence of any trickle-down effect for 2-3 years now. He doesn't have any idea what's happening, but I think he's in denial. I expect it to get worse.

I've heard the buggy-whip joke umpteen times. Ha ha. I also know what comparative advantage is. I still disagree with you.

As far as I can tell, the obsolete buggy whip is American labor.

[John Emerson]

Not if their wages are low or if they're unemployed.

Comparative advantage is a very simple, easy-to-understand idea, but not everyone believes that it should be the dominant or sole consideration.

I did not deny that low-wage service jobs will expand. The low wage jobs might even be slightly less low-wage than they used to be.

You seem to be living in a Utopian theoretical world. Not every economist is as bad as you, but I still think that you're typical of the profession.

[John Emerson]

I do take an American point of view. For about half of Americans living standards are flat.

[Ponzi Q. Globalization]

"They may go elsewhere, if possible, which would then bid those wages up"

Yes, bid up the new poor workforce to a wage lower than that of the workforce abandoned. If you keep 'bidding up' in this way everyones wages eventually go down.

"As Indian computer programmers lower the wages of American computer programmers, the rest of us pay less and less for software, and we pay less for every good and service that uses software in some way. That's a lot of goods and services and a lot of savings. So much, in fact, that even the former American textile worker in a new job is better off (even if the new job is crappy, like their old textile job), even if they don't know that the cheap Indian computer programmer is what made them better off."

So if every American takes a pay cut because his job was outsourced, then his purchasing power goes up. Forever and ever? Doesn't someone have to invest in new domestic production at some point? But why would they unless we are cheaper than the other guy? Now look at the differences in living standards between us and the other guy today. Oooo... methinks this is going to hurt!

"Think about this for a second: What will get cheaper as more and more people around the world can provide high-quality research and science? Health-care? Drug research? Software? Logistics planning? Emergency services?"

I've thought about and it scares the hell out of me. Why? Because there are very few goods and services that we in America can (or soon will be able to) make and provide cheaper than other places. And I think that it's a pipedream to think that the other places living standards will rise to at least our current level instead of ours dropping to meet them somewhere in the middle.

In the meantime, the savings in labor cost will be one part passed on to the consumers and ten parts paid out to corporate executives and shareholders. It's a big transfer of wealth, no?

Hell, I'm not even sure that capital won't become so peripatetic that it drives everyone save the rentiers down a hole. "Work that 60 hour week like they do in (insert name of poorer place with equally intelligent human beings here) or else we'll pack up and leave you to waste your savings on wonderful cheap consumer goods", is what those with the capital will say. And it will be done over and over and over again.

[Ponzi Q. Globalization]

"The Utopian theoretical world where expanding world trade has conicided with rises in American living standards and an unprecendented rise in living standards in China, India, and increasingly Southeast Asia? That utopian world, where global trade has lifted billions out of poverty?"

Random questions...

Why are large portions of South America rejecting your utopia?

Is China really playing the game by your rules? I mean their Yuan don't float. They seem to be supporting the transfer of production to their shores by holding on to craploads of dollar denominated assets. What are they up to?

What about the Indian farmer suicides? Global trade lifted them right off this earth! And why was the neoliberal poster child N. Chandrababu Naidu booted out from office? More billionaires and more dead farmers: a fair trade?

[John Emerson]

As far as I can tell, the most successful developing nations ignore the IMF / WB rules as much as they can.

Everything Keith says is possibly true. If I thought it was actually true I would agree with him. His sublime confidence is uunnerving, however. At Heaven's Gate.

[StupidProtectionist]

"Why are large portions of South America rejecting your utopia?"

I'd say Brazil and Chile embrace "my" utopia, to their benefit so far.

As for Venezuela and Ecuador (maybe Nicaragua): Short answer - because they're mired deeply in inequality which stems from Spanish conquest, large-scale land empires and a disposessed native population. In addition, richness in natural resources tends to produce unhealthy politics, because it creates a powerful tendency towards central governments that consolidate power by giving largesse to certain consituencies. his tends to undermine the institutions that you need for market-based development.

"Is China really playing the game by your rules?"

No, but we actually benefit a bit more because they don't.

"I mean their Yuan don't float. They seem to be supporting the transfer of production to their shores by holding on to craploads of dollar denominated assets. What are they up to?"

They're up to a somewhat foolish policy, in my opinion, essentially paying us to buy their goods. I think they'll move away from this over time as they develop better capital markets.

"What about the Indian farmer suicides? Global trade lifted them right off this earth! "

You can bemoan some unfortunate Indian farmers. But then you have to turn around and be happy that more Indians can eat thanks to globalization. Think of all those extra suicides and starving Indians that your favored policies would cause.

[Ponzi Q. Globalization]

"You have ten people. Person one loses $5 but the other nine each gain $1. Do that nine more times, and everybody's better off."

Your example assumes an equal distribution of gains. I don't believe that this reflects the real world.

"Nope, both sets of real wages are higher, because they can both consume more with their wages."

You neglect the possibility that the actual or potential dire straits that some will be placed in will be used to negotiate wages that result in a loss in total purchasing power.

Bidding can go both up and down. Gains can be concentrated in the few. I wonder if we're already starting to see this effect.

"Again, this is a classic fallacy. You think that because you don't know what we'll do, then we won't do anything. But you couldn't have predicted most of today's jobs in 50 years ago. We do most of what we do because we do it more cheaply, not because we have some special protection."

This is faith-based economics. Most will refuse a loss today for mere promises of plenty tomorrow.

In general, I think you neglect the production side of the issue. A nation needs to produce something in order for there to be wide spread prosperity. My view is that the global economy is heading in a direction where America will be at an absolute disadvantage when it comes to production.

If you could give me a good reason to think that an unregulated global system that tends to transfer production to areas that (1) are poor, (2) that have lax controls on pollution and the like, (3) that have laws that effectively prevent collective bargaining, will help a country such as ours, then I might move more towards your viewpoint.

[Cranky Observer]

> Yes. You have ten people. Person one loses
> $5 but the other nine each gain $1. Do that
> nine more times, and everybody's better
> off.

I must be missing something here, because at the end of the game you describe one person has $19 and 19 people have $1 each. Or perhaps I am mis-adding here and one person has $100 and the other 9 are in debt to him for $10 each - I don't have time to work out the exact sums at the moment. But in any case the result is exactly what we have seen over the last 10 years in the US: a return to the Gilded Age, with productivity growing rapidly, a small elite living very nicely, and the vast majority working 80 hours/week while starving to death.

Cranky

[Ponzi Q. Globalization]

To keep things short, I'll use different numbers. Three people. Losing jobs costs 2. Gains are 1 for everybody. Everyone starts with 100. Job losses go round and round.

100 100 100
98 101 101
99 99 102
100 100 100
98 101 101

Oops! We're back where we started. Let me try some new numbers. Four people. Job loss costs 1. Gains are 0.25.

100 100 100
99 100.25 100.25
99.25 99.25 100.5
99.5 99.5 99.5
98.5 99.75 99.75
98.75 98.75 100.00
99 99 99

I don't like where this is heading. Someone please help me out and pick gains that make everyone wealthier!!!

Perhaps this model lacks something.

[Ponzi Q. Globalization]

I meant three people in last example above. Also, I realize the total gains < cost, but this was my way of modeling way the cut that the rentiers take.

[Cranky Observer]

Ponzi,
You are also making the (very generous) assumption that gains from the nth round go to the nth participant. Whereas in reality once one player gains a substantial lead the vast majority of all gains will flow to him.

Cranky

[Ponzi Q. Globalization]

"Ponzi,
You are also making the (very generous) assumption that gains from the nth round go to the nth participant. Whereas in reality once one player gains a substantial lead the vast majority of all gains will flow to him.

Cranky"

Such a modification to the model would cause an outcome that may lead some to question the so-called free-trade ideology that support the powers that be. Thus, implementing the modifications might lead some off of the one true path to salvation and, therefore, would put us into a state of sin.

I'm sorry but reality must conform to the existing model.

[Ponzi Q. Globalization]

I'll do you one better...

100 100 100 100 100 100 100 100 100 100
50 200 200 200 200 200 200 200 200 200
25 300 300 300 300 300 300 300 300 300
12.5 400 400 400 400 400 400 400 400 400

As you can see, this ignores the fact that demand curves slope downward even less than your model. I'm sure others who are more knowledgable can ignore this fact even less than me.

It seems there's no end to how high the numbers can go when you truly desire to represent the fundamental aspect of trade.

Jesus H. Christ, this free trade is amazing!!! How the reality of power relations, political situations, biology -- all the complexities of existence -- become an insignificant sideshow when placed side-by-side with The Trade Model.

Since I now feel as if I too should have an all-encompassing framework in which to make sense of the world, consider me the newest convert to your church.

[Ponzi Q. Globalization]

"I would say your model assumes overly high levels of demand elasticity, and while it gets the directions right (trade creates net benefits), it overstates the magnitudes of overall net gains from trade, and overstates the loss to that single worker from trade, at least in this country. The effects of trade in our real world are likely far more modest and closer to my model, at least for Americans."

How dare you ever underestimate the benefits of trade. You are hereby declared a heretic!!!

Seriously, you pulled the numbers you've been using from your backside, right? If not, then please explain how you derived them. I mean there are more than 10 people in the world so that was one simplification.

[Ponzi Q. Globalization]

"But one thing for sure, all reasonable hypotheticals must contain net benefits, because of comparative advantage."

What are the assumptions that must be made when applying "comparative advantage"?

[David Goodrick]

The Old English verse looks provocative. Could someone translate it?

Hige sceal þe heardra,
heorte þe cenre,
mod sceal þe mare,
þe ure mægen lytlað