Making the Case for Globalization

Source: Thomas Piketty and Emmanuel Saez, via Wall Street Journal

Mark Thoma reads Tyler Cowen:

Economist's View: "This Global Show Must Go On": Tyler Cowen on globalization:

This Global Show Must Go On, by Tyler Cowen, Economic View, NY Times: The last 20 years have brought the world more trade, more globalization and more economic growth than in any previous such period in history. ... More than 400 million Chinese climbed out of poverty between 1990 and 2004... India has become a rapidly growing economy, the middle class in Brazil and Mexico is flourishing, and recent successes of Ghana and Tanzania show that parts of Africa may be turning the corner as well.

Despite these enormous advances, however, there is a backlash against globalization... Ordinary people often question the benefits of international trade, and now many intellectuals are turning more skeptical.... The globalization process has had its bumps, of course, as reflected recently by rising commodity prices... Countries like China have become richer so fast that global production of energy and food have been unable to match the pace.... Trade advocates focus on the benefits of goods arriving from abroad, like luxury shoes from Italy or computer chips from Taiwan. But new ideas are the real prize. By 2010, China will have more Ph.D. scientists and engineers than the United States. These professionals are... are creators, whose ideas are likely to improve the lives of ordinary Americans, not just the business elites. ...

We urgently need new biotechnologies, a cure for AIDS and a cleaner energy infrastructure, to name just a few. Trade is part of the path toward achieving those ends. A wealthier China and India also mean higher potential rewards for Americans and others.... A product or idea that might have been marketed just to the United States and to Europe 20 years ago could be sold to billions more in the future....

Christian Broda and John Romalis... cheap imports from China have benefited the American poor disproportionately.... Despite all these gains, the prevailing intellectual tendency these days is to apologize for free trade. A common claim is that trade liberalization should proceed only if it is accompanied by new policies to retrain displaced workers or otherwise ameliorate the consequences of economic volatility. Yes, the benefits of a good safety net are well established, but globalization is not the primary source of trouble for most American workers....

What’s really happening is that many people, whether in the United States or abroad, are unduly suspicious about economic relations with foreigners. These complaints stem from basic human nature.... One approach is to appease these sentiments by backing away from trade just a bit, or by managing it, so as to limit the backlash.... It is wrong to play down the costs of globalization, but the reality is that we’ve been playing down its benefits for a long time. Politicians already pander to Americans’ suspicion of foreigners. There is no need for the rest of us to jump on this bandwagon. Instead, we need more awareness of the cosmopolitan benefits of trade and the often hidden — but no less real — gains for ordinary Americans....

Mark comments:

I agree on the benefits from trade. But I... [believe] the net impact on the welfare of middle and lower income households... is more negative than Tyler indicates... I am more convinced than he is that maintaining political support for increased openness will require that the gains from trade and technological change be shared more equitably, and that economic risk be dispersed... through... enhanced social insurance.

We can, as Tyler is doing, try to convince people they are wrong.... But I don't think they are going to be convinced by the Wal-Mart argument. Over the longer run... education... fix health care, and... "bad banking practices"... structural issues... but that will take time.... [Now] we also need to listen to what people are telling us and address their concerns, and they do not believe that the economy as it is currently functioning is working for them. Telling people they just don't understand how much trade benefits them is just as likely to produce a negative backlash as it is to convince people that their views are wrong.

But if their views are wrong, we are under an obligation to try to convince them that their views are wrong--that globalization is at most a bit player in the rise in inequality within the United States, if it is in fact true that it is at most a bit player. Tyler has three arguments that this is the case. First, the biggest benefits of globalization for the world as a whole come from bringing more minds up to speed at the technology research frontier and thus from faster global economic growth--something that is not a driver of increasing inequality in the world economy's post-industrial core but instead an all-boats-lifting rising tide. Second, that the distributional impact of globalization for the world as a whole is positive, not negative--it is poor people in China, India, Indonesia, and Mexico who gain the most. Third, that there is something wrong with the Stolper-Samuelson intuition--which Dani Rodrik put best, somewhere I cannot now find--that freeing up trade must create losers and that trade can have big benefits only if it creates big losers.

Let me pass over the first two (as I don't have anything terribly original to say right now) and focus on the third, which I have thought about before: http://www.j-bradford-delong.net/2008_pdf/20080530_stolper. Let me summarize:

In the neoclassical Heckscher-Ohlin-Vanek framework, freeing up trade is good for owners of "abundant" factors of production in the trading country and bad for owners of "scarce" factors. The efficiency gains from trade--the increase in the size of the pie--goes roughly with the square of the differences in factor proportions between countries, but the redistributive gains and losses go roughly linearly with the differences in factor productions. Thus for freeing up trade to be bad for the greater part of the citizens in the country, two things must all be true:

• The bulk of the people must have little "ownership" of the abundant factors which reap the gains from freeing up trade--their income must depend overwhelmingly on the returns to the "scarce" factors of production.
• The differences in factor proportions that generate the possibility of gains from trade must be small in order to make efficiency gains small relative to redistributional shifts.

The argument as applied to the United States cannot be that differences in factor proportions are small: differences in capital-labor ratios across the U.S. in China are on the order of 20-to-1. So the argument must be that the abundant factors of production are things like capital, organization, and technology, which have concentrated ownership. The scarce factor of production is labor. Hence free trade will be bad for the majority of voters because their incomes depend only on returns to the "scarce" factor--and those returns will drop with free trade. This goes against the likelihood that the trully scarce factors of production tend to be, well, scarce. and so not many potential voters will own a lot of them.

But in actual fact to argue that the incomes and living standards of the bulk of Americans depend on the real wages of raw labor and of raw labor alone seems to me to be equally implausible. A very large number of factors give Americans a substantial stake in the returns to--a degree of "ownership" of--the "scarce" factors. First there is the government, which is the property of all but which raises its money by disproportionately taxing the incomes of the "scarce" factors (for that is, after all, where the money is). Second, there are all the degree of formal and informal cross-ownership institutions like labor rent sharing, efficiency wages, local monopolies, and other deviations from perfect competition that give all stakeholders rather than formal equity owners alone a share in the value of the capital, the technology, and the organization: we are all stakeholders in Wal-Mart, if only through the pressure its competition exerts on other businesses' prices.

I suspect that we are, right now, seeing the peak of anti-globalization economic agitation in the United States. The fall in the real value of the dollar against European currencies and its coming real value fall against Asian currencies mean that export and import-competing sectors are likely to be expanding their employment rapidly over the next several years. It would be a pity if a look back deranged our policy going forward, especially if it is because trade is perceived to be a problem by politicians even though it has ceased to be perceived as a problem by voters.

Comments

[Mr Punch]

It's not about "the bulk of Americans" -- it's about the members of industrial labor unions, who are taken to be representative of the bulk of Americans.

[John Emerson]

"The American poor" are not a homogenous group. Some benefited, some lost, and some weren't poor before globalization.

I would trust globalizers more if they ever put forward a good-faith, detailed, non-tendentious report on the American losers from globalization, and if they recognized that while the losers **could have** been compensated by the winners (Kaldor Hicks efficiency), they **weren't.**

A national policy which aims at benefiting non-nationals can only work if the nationals benefit too. As far as I can tell, during the Clinton administration neoliberals in the Democratic Party sacrificed a lot of Democrats to promote their internationalist scheme. The Democrats are only now recovering, after about fourteen years, and if they want to stay in office they'll have to come through for the people they betrayed.

[Giovannoni]

not sure we are "seeing the peak of of anti-globalization economic agitation in the United States". I think we do see abusive piggy practices with which people around the world, as well as within the United States, are fed up.

[jimbo]

If globalization is perceived to be that the vast majority of people lose ground and shoulder more risk so that the well fed can have seconds and cake and pie, it will continue to have weak popular support. And it should. We live in societies, not economic models, so globalization should have explicit goals and mechanisms aimed at making life better for those at the bottom. Otherwise, what's the point?

[jerry]

Tenure Brad. If you want to understand why so many people fear globalization in order to find better ways to teach them why they are wrong to do so, you should revoke your tenure. In fact, you should consider resigning from Berkeley. There are many jobs on the free market for good economists: think tanks, financial institutions, in fact, institutions of any size.

It's good to know that trade lifts all boats, but I fear it's not a monotonically increasing process. Waves have crests and troughs. Waves can be gentle, or they can be rogue. Global Trade, when poorly regulated, swamps many boats.

In other news, there are now more billionaires in Moscow than in New York City or London.

When I learned how to sail, I was told, "one hand for the boat, and one hand for myself." I don't see that I have any moral obligation to place myself and my family in a trough from which we might get swamped so that others can be lifted. I don't see that we have any moral obligation to rollback the labor gains our parents fought for and died for in terms of worker safety, fair labor practices, fair wages, vacation, health benefits so that a few billionaires around the world can capture that as profit.

I am not convinced that it is Globalization that people fear, as much as it is so called Free Trade practices, that turn out to be not terribly free, but paid for my Cowen's "Ordinary" people.

It's not clear to me that Fair Trade would not have better outcomes for everyone than free trade.

Perhaps there is a paper for you if you consider Trade more as a system requiring damping than as merely a wave lifting all boats in the long run, but swamping some boats in the short run. The optimal, or critically damped system is neither undamped/underdamped nor overdamped.
http://en.wikipedia.org/wiki/Damping

[SERO]

Yes, don't look back on what actually happened. And don't, whatever you do, watch the hands.

[Matt]

jerry sort of sums up the issue, and continues Brad's discussion about first, second and third order effects. Also, this all leads us into Jim Hamilton's theory of collective restructuring being the engine of recessions.

We are at the point in global trade in which the second and third order effects are as large in uncertainty as the incremental gains from the first order effect. Hence, the trading community is looking for a new first order effect, a new engine of growth, as Brad calls it.

We see this in the global pressure on the FASB to make American banks mark up to market some of the derivatives. We see this in the rise of sovereign wealth funds. We now have to deal with the global interdependence of our entitlement system and our banking system. We are in the muddle of computing second and third order effects, a very inefficient way of doing business.

If I knew what the new engine of growth will be, I would be rich! My guess is that we will enter a new phase of endogenous gains in efficiency from natural resource usage. Each nation seeking to minimize its use of natural resources while adapting to new global institutions.

I think there will be a scramble to develop Africa, increasingly with China playing a role. Latin America will become more interdependent on a North American integrated economy. Asia will seek endogenous growth.

Part of this process will be redrawing the local monopolies in the USA where each local monopoly is constrained by the high cost of natural resources, and they will lose their automatic rents. We will see this in China also, where local government monopolies dominate the economy.

As per jerry's point about the academic institutions, they will increasingly be unable to secure rents for professors to place their hat, and more and more education will go online, where we can gain wider audiences for professors.

[save_the_rustbelt]

Prof. DeLong:

Come to Ohio and Michigan, I would be glad to be your host, and to introduce you to reality.

Reading reports in a faculty office in Berkeley is, I am afraid, not reality.

"are likely to be expanding their employment rapidly over the next several years"

Huh?

[Yep. Have you looked at the value of the dollar recently?]

[Tim Worstall]

"But in actual fact to argue that the incomes and living standards of the bulk of Americans depend on the real wages of raw labor and of raw labor alone seems to me to be equally implausible. A very large number of factors give Americans a substantial stake in the returns to--a degree of "ownership" of--the "scarce" factors."

There's damn few Americans that depend upon selling raw labour. Think human capital, with which Americans are hugely endowed: not just those with degrees, but the basic cultural institutions of the country. Human capital is still a scarce resource globally....and those well endowed with it are earning a return on it.

[Bill Lumbergh]

"But in actual fact to argue that the incomes and living standards of the bulk of Americans depend on the real wages of raw labor and of raw labor alone seems to me to be equally implausible. A very large number of factors give Americans a substantial stake in the returns to--a degree of "ownership" of--the "scarce" factors. First there is the government, which is the property of all but which raises its money by disproportionately taxing the incomes of the "scarce" factors (for that is, after all, where the money is). Second, there are all the degree of formal and informal cross-ownership institutions like labor rent sharing, efficiency wages, local monopolies, and other deviations from perfect competition that give all stakeholders rather than formal equity owners alone a share in the value of the capital, the technology, and the organization: we are all stakeholders in Wal-Mart, if only through the pressure its competition exerts on other businesses' prices."

I'd suggest that someone who believes in this idea of the majority having an indirect 'stake', should try living on the reduced income created by globalization.

[But it is an increased real income created by globalization--your paycheck stretches farther because you can buy a lot of stuff at Costco...]

Can they trade their 'stake' for a job? For rent? For healthcare?
The government is run for the benefit of the .1% of the population, and the rest will only get some redistributional benefit if those few thousand rich people also get a cut of the 'profits' generated. Medicare drug bill anyone?
Obviously, I'm not an economist, but I am a member of that growing group of people that realize that the prosperity of the majority in the U.S. has been sold off piece by piece to fuel the dream of international free trade, a dream which has been a fairytale come true for Billionaires, but a nightmare for those who simply want to support themselves and their families in a manner similar to their parents and grandparents.

[Neil B.]

"Christian Broda and John Romalis... cheap imports from China have benefited the American poor disproportionately.... Despite all these gains, the prevailing intellectual tendency these days is to apologize for free trade."

Yes, cheap imports help the poor because they can buy more "junk" for a few dollars. But they aren't earning as much because so many good jobs have been lost over in the US. The net result is negative, because low pay and cheap junk brings the following: about break even on the bric a brac of everyday life, but disaster about housing, medical care and insurance, education, gas, etc. all of which remain expensive (even higher in fact relative to average income than in the past.) It's a net loss for most of us.

Even worse is the subsequent insinuation that some sweaty nativism is behind suspiciousness of dealing with foreigners, as if plenty of ordinary people and not just (the honest, progressive, and on the ball) "intellectual" couldn't just appreciate the points I set out just above.

[Cranky Observer]

> The fall in the real value of the dollar against
> European currencies and its coming real value fall
> against Asian currencies mean that export and
> import-competing sectors are likely to be expanding
> their employment rapidly over the next several years.

I recently moved from a US-based manufacturing company to a US-based consumer products company. A large one, with brands you would recognize and a significant market share. Our total production in the US and Canada (and Mexico for that matter) is 2%of total sales. 98% come from China and other low-cost Pacific Rim nations. No matter how low the dollar goes and how much we might want to move manufacturing back to NAFTA we cannot; the factories were either moved to China or simply dynamited 10 years ago.

Now before that I was in industrial and heavy commercial manufacturing, and there is still some of that going on in the US. Some. Compared to 1990 and 1980 not much, but some. Those segments might seem some pickup from exchange rates (as Boeing is). Until they reach the limits of their capacity (not large) or the owners decide that further expansion might make the workers uppity. But we aren't talking 1946 here.

Cranky

[lark]

What do working folks really need?

Cheap radios and underwear and cooking pots...

or

health care, pensions, good education k-12 through college?

Globalization has provided the former, at the expense of the latter.
That is the problem. Arguing with working folks that "real" measure of their prosperity is the former is treating them like they are stupid.

Anyway, just in the last year I've noticed a shocking decline in goods quality. Kitchen timers, rugs, coffee grinders, tape players: we've bought these (outsourced to manufacturers in China even when the companies were American) and they all broke or disintegrated within three months. So even the abundance of cheap goods has a downside. I actually think this is so severe it will have a negative influence on consumption. Why buy something that will break almost immiediately?

[Bill Lumbergh]

"[But it is an increased real income created by globalization--your paycheck stretches farther because you can buy a lot of stuff at Costco...]"

I'm sorry to disagree with that blanket statement, but I do. Shopping at Costco or Walmart is not much an added economic benefit for those who find themselves in the 'lower 90%'; it is a necessity. After they pay for housing and gas, which are taxed regressively, they still have to cover healthcare costs which are, (compared to their parent's healthcare costs at the same stage of life), obscenely expensive.
Like I said, I'm no economist, but I have lived and worked in this changing global economy all of my adult life, and I see no evidence that the value of the invisible 'stake' that 90% of us supposedly have in any way offsets the losses we've accumulated.
Like many people I know, I also put little faith in inflation and 'real income' numbers, because they don't seem to paint an accurate picture of the economic realities I face every day.

[save_the_rustbelt]

"[But it is an increased real income created by globalization--your paycheck stretches farther because you can buy a lot of stuff at Costco...]"

If one has a job of course.

And who needs a pension and health insurance when you can shop at Sam's Club and Costco?

American workers are not filing bankruptcy petitions and going through foreclosure because they bought a hot tub with the Visa card.

Good God Almighty, does any economist have a clue?

[jerry]

Fair's fair, and Brad is right regarding Costco. I buy all my cheap starches there. Rice, potatoes, beans. We eat huge amounts of that stuff now.

And if I take my kids there at the right time, we even get a free dinner.

[Denis Drew]

First; if you lose a high paying job to globalization which you cannot replace with an equivalent paying job, then, you are a big loser -- whether or not -- you work in an economy plagued by so-called “inequality” (I call American labor’s current plight “the Great Wage Depression”).

Does your loss create inequality? One theoretical “yes” possibility would be if enough job losses occurred all at one time to free up enough labor to flood the market causing an overall drop in the price of labor.

Barring a flood, globalization simultaneously may benefit middle and lower income labor as much overall from a drop in the price of middle-income labor made products as it looses overall in middle-income pay: tending to flatten low to middle income distribution – but globalization does NOT simultaneously benefit low and middle income labor from an overall drop in the price of upper-middle income and upper income labor made products as much as it is losing overall in low to middle income pay: speeding up the race to the bottom.

[John Emerson]

I generally agree that the average American is significantly better off with globalization, but there are a significant number of non-average Americans who aren't. Politically, if I'm not mistaken, these non-average Americans are mostly Democrats in labor who were failed or betrayed by the Clinton administration. And the globalizations come on top of a large number of other problems affecting the same people: e.g. decreased affordability of education, less security, less full-time work, poorer or no pension plans, reduced benefits, etc.

[vtcodger]

The notion that an endless supply of cheap stuff somehow makes up for society's inability/unwillingness to provide workers with access to jobs with reasonable pay and benefits is really quite strange when you think about it. Why don't economists understand this issue? I think Paul Simon addressed that. "The man hears what he wants to hear and disregards the rest" (Paul Simon, The Boxer)

[Jim Lund]

Under free trade world economies grow faster (world gets richer faster), but US salaries decline. US salaries will keep going down until they reach rising China/India labor prices. Does anyone have projections of how these two factors play out? Tyler Cowen notes the third world is going to college so that advantage of US labor is declining.

[Dave]

Those in the rust belt (and elsewhere) need to stop complaining about change and evolve to provide value in today's global economy. Change is continuous, and those unwilling to meet new challenges will be left behind. Those who ask for protection are admitting that they are unable or unwilling to compete and ask the rest of us who are willing to compete to put up with higher prices (and hence lower our standard of living) in return for their job security.

[save_the_rustbelt]

"average American"

And who is that?

Dave:

You managed to get every globalization cliche in two sentences. Congratulations.

If only life were as simple as you make it out to be.

[Dave]

vtcodger writes: "The notion that an endless supply of cheap stuff somehow makes up for society's inability/unwillingness to provide workers with access to jobs with reasonable pay and benefits is really quite strange when you think about it."

Well, I guess we should call up "society" and file a complaint then...

Society is simply an aggregation of individuals with their own motives, skills, preferences, etc. The idea that "society" owes any individual anything is misguided, especially when that society is in part made of the very workers vtcodger is concerned about.

[John Emerson]

Oh, shit, a Thatcherite. Fuckety. Someone do something.

[Dave]

save_the_rustbelt:

I agree that there are "losers" (at least temporarily) in free trade and globalization. But those who argue against it are inherently attempting to limit the freedoms of other individuals who also happen to live in the US (limiting trade with other countries or for specific goods places limits on my freedom of choice as a consumer, for instance). Arguing for free trade and globalization does not in any way interfere with the freedoms of those who may happen to lose out in the short run. It's not the government's obligation to ensure that everyone can have a low skilled job, although I think most would agree that a social safety net is important to help those in temporary need.

Arguing against free trade and globalization is the equivalent of asking to place the rust belt in a time capsule at the expense of others. Certainly there are sad stories to be told in the short run, but in the long run, restricting free trade and globalization simply serves a limited few to the detriment of many.

[L2P]

Wow, Dave, are you a living person, or a computer program that regurgitates free trade think tank talking points? I think if I had my three year old take a scissors to random pages from Atlas Shrugs, and paste together random phrases, she'd end up with your basic thought pattern.

Compassion's through that door you never opened, by the way. It's the one you confused with irrationality.

[Dan in EuroLand]

L2P,

I don't understand the "compassion" comment. What about the gains to developing nations? Shouldn't our "compassion" extend to them?

I think Emerson's point about Kaldor-hicks efficiency is very important. Instead of trying to stop globalization, efforts should be made to better compensate the losers and help them adjust. And yes Save the Rustbelt that could include helping people leave a defunct geographic region that has lost its competitive advantages. We shouldn't "save the rustbelt," we should help people leave and just put the rustbelt out of its misery.

[albrt]

"differences in capital-labor ratios across the U.S. in China are on the order of 20-to-1"

"The scarce factor of production is labor. Hence free trade will be bad for the majority of voters because their incomes depend only on returns to the 'scarce' factor--and those returns will drop with free trade. This goes against the likelihood that the truly scarce factors of production tend to be, well, scarce. and so not many potential voters will own a lot of them."

???

These assertions are directly contradictory (although the second assertion is stated in such a roundabout manner that it almost does not qualify as an assertion). Relocation decisions by definition are made based on relative scarcity in the alternative locations, not absolute scarcity.

The greatest losses will be borne by those whose factors undergo the greatest change in relative scarcity based on the changes in the local market due to changes in trade patterns. In other words, by the laborers facing the 20:1 ratios. How is this even debatable?

I agree with my compadres above - free trade cannot be persuasive, and cannot even work at all for that matter, unless it is accompanied by robust means for redistributing the wealth created. More robust than cheap crap at WalMart.

[a]

"In the neoclassical Heckscher-Ohlin-Vanek framework, freeing up trade is good for owners of "abundant" factors of production in the trading country and bad for owners of "scarce" factors. The efficiency gains from trade--the increase in the size of the pie--goes roughly with the square of the differences in factor proportions between countries, but the redistributive gains and losses go roughly linearly with the differences in factor productions. Thus for freeing up trade to be bad for the greater part of the citizens in the country, two things must all be true: ..."

The last sentence should read, "Thus, *in the neoclassical Heckscher-Ohlin-Vanek framework*, for freeing up trade to be bad for the greater part of the citizens in the country, two things must all be true:..." That is, you seem to be making an assertion B, when in fact your assertion is (A => B), and nowhere do I see any justification for the truth of A.

[numen]

> But if their views are wrong, we are under
> an obligation to try to convince them that
> their views are wrong--that globalization
> is at most a bit player in the rise in
> inequality within the United States

Yes, pray convince me that my 75% reduction in income for the last eight years is an illusion that merely needs a bit of convincing to expel. Please show me how my year and a half of unemployment that followed my employer moving from 15% guestworkers to 85% guestworkers in my job immediately before I was cast away didn't happen, or when I got my next job and after four months 80 of us contract programmers were replaced by 80 in Chennai, India, that it was mere illusion.

Please show me how my change in income from over $100K in 2000 to $12K in 2005 was an improvement since I can now buy silk shirts ever so much cheaper than before.

Do economists ever see the real world much less live in it?

[Denis Drew]

Dave,
What do you do for a living? Is cheaper Chinese or illegal immigrant labor "compteting" with you? The unlucky Chicago meat packer of 20 years ago has been replaced by Mexicans working for HALF as much in a meat packing plant deliberately placed to AVOID (!) a supply of local labor. But, white collar work (teachers, journalists, doctors, lawyers) are predictably protected from such "competition".

[Neil B.]

I have thought of the following change in tax policy before, that would stimulate US companies to pay more to workers. It was also take away the advantage of paying overseas workers. First, instead of companies just compiling all their expenses to subtract from gross receipts to get taxable profit income, we would multiply labor cost by some factor (e.g. 1.5) and reduce other expenses accordingly. Hence, labor cost would be a weighted expense. If well-chosen relative to tax rates, the multiplier could make it effectively cost e.g. $0.25 more for each $1.00 more paid to an employee. But OTOH, I would also forbid US companies from applying wages paid to any non-US citizen in the deductible expenses. Then they would really not save much, or even lose money, depending on tax rates.

That would be better than direct blockage of trade and "capital movement" (a bone to Ayn-al retentive types like Dave upthread.) However, his argument was fallacious anyway since you still have the right to buy foreign goods, differential taxation (which is what a tariff really is) has existed for a long time on various things. Such taxation isn't really a block to "freedom" unless very oppressive, like very high tax rates in general anyway.

tyrannogenius.

[Neil B.]

And, lest I forget: Why do those talking about the need to US companies to downsize, to "compete globally" only refer to the workers and not the managers/CEOs? For the latter to get paid thousands of times more even than the workers each, especially if you consider the latter's pay "too much", is horribly non-competitive isn't it? Isn't that interesting?

Compound that with the little-appreciated fact that CEOs aren't even paid out of a market arrangement. In a true market, buyers must choose how to spend their own scarce resources in a zero-sum (immediately, at least) game. So *they* save a dollar for their own use by buying cheaper somewhere. But the Boards that pick CEOS, are making recommendations about how much of the *company's* income will be used for that salary. Those Board members aren't any poorer by picking a high salary for the CEO; indeed they will likely be rewarded with more money themselves.

delver23

[Bill Lumbergh]

People like Dave can never adequately explain how people in the 90% majority are supposed to pay for continuously upgrading their skills and changing jobs. Should they give up having a family, or owning a home, or saving for retirement so that they can pay for retraining? Is that the destiny of a 'worker bee' in your simplified, idealized global-capitalist model?
If history has proven one thing clearly, it's that when the worker bees are ignored and exploited, bad things happen to the 'society' that Dave insinuates doesn't actually exist.

[Hussein]

Congratulations to numen: your rant provides a perfect demonstration of Dave's point!

"Yes, pray convince me that my 75% reduction in income for the last eight years is an illusion that merely needs a bit of convincing to expel."

"stop complaining about change and evolve to provide value in today's global economy"

[Dave]

Denis Drew (and others):

You'd be surprised at how much international competition there is in many industries and occupations now. The top law firms are international, and X-rays can be sent overseas for diagnosis. Advertising agencies and consultancies are global. Financial and data analyses, as well as presentations, can be prepared offshore for US companies. Investment banks face international competition and hire workers abroad. The list goes on and on. In fact, most jobs that are truly protected by physical boundaries are ones like janitors, cab drivers, child daycare, etc that require local service.

My position is defensible because I want to lift restrictions and increase freedom of choice for producers and consumers. The position against globalization and free trade requires the opposite adjustment.

As for compassion, I have already stated support for a social safety net. But I do not believe it is the government's duty to protect jobs from competition. Should the government have helped protect the makers of horse carriages when the automobile brought competition? Surely, there was some suffering in the families of laid off carriage makers, but the US seems to be better off a century later because of the change. Stifling competition in the name of compassion would have been the wrong decision. Or was that different, because the cars were being made by Americans? Or because it was a technological change? How would you know when it is OK to let people lose jobs and when it is not?

Remember that when you take a job, you are engaging in trade. You trade your time and productivity for a wage or salary. Just as you wouldn't want anyone dictating what you do for a living, you shouldn't hope to dictate who employs you. That wouldn't be a fair trade either.

[jerry]

"But I do not believe it is the government's duty to protect jobs from competition."

It's not about protecting jobs from competition, or protecting industries.

It IS about protecting safety standards, environmental standards, child labor standards, and protecting the many advances in employer/employee relations we've gained over 100 years: collective bargaining, unionization, vacation, health care, ....

Let's have fair competition and not just have arbitrage of wages. The former improves products and quality and reduces costs, the former doesn't improve anything, it is just a race to the bottom and probably comes with less quality not more.

There is a reason your WalMart jeans are so inexpensive, it's not just the labor that's cheap, it's shoddily made. Is there a market for shoddy goods? Yes, when people are out of work and ill paid, they'll take shoddy goods over no goods.

[Bill Lumbergh]

Let's stop pretending that globalization is about "competition" or "choice" or any other such nonsense. Globalization is about siphoning off the established standard of living in developed countries, and liquidating the assets and income of the middle and lower classes, in order to make the very wealthy even more so. If you're very wealthy, you can earn a 20% return per year on your investment by taking advantage of the economic growth in Asia and elsewhere. If you're a worker in the U.S., you're lucky if you're annual raise meets inflation, which it almost never does.
Let's not pretend that a nation with worker safety standards, and environmental standards, and a social safety net, can compete with nations that either offer none of these to workers, or have laws that aren't enforced. If you were a worker in a factory that produces goods for Walmart, you'd work 14 hour days with one brief meal break. And when the Walmart suits come to 'check the books', they'll wag their finger at this abuse of the workers, and then do absolutely nothing about it, because it's a system that produces the most goods at the cheapest price.
And as an American consumer, what 'choice' do I have but to buy these goods that are produced through abusive labor standards? I have none, because that's all that is offered to me.
Frankly, it all feels a lot like economic canabalism, and I'm sick of having this disgusting taste in my mouth.

[Denis Drew]

Dave,
Two things you leave out of your “free competition” model:
First, outsource enough jobs and that floods the home market with extra workers – a labor market in the American case where labor has uniquely little collective bargaining power due to thorough de-unionization.

I guess if outsourcing our jobs on a scale that can grow prosperity for nation of 1.3 billion people, almost by definition that must have caused a flood in the labor market here.

But we also have “insourcing” as I call it. Meatpacking companies build plants seemingly incongruously far from any domestic source of labor. Build them and Mexicans will come – for half the pay and no benefits. Ditto for a minimum wage of $5.15 which American born worker will simply not show up for.

So today’s American workers may not only face a flooded labor market due to workers who will work cheap someplace else – they also have to deal with an additional flood workers who will work cheap right here adding an impossible bargaining burden to their own already existing flood (if you can follow).

This all is why the language you use can sound so cavalier and offensive – you have failed to recognize the depth of the dilemma American into which American labor has been thrown. Don’t feel too ashamed: I don’t think most of our best known progressive economists are in very good touch conceptually with folks below the 50 percentile level either.
***************
Second, even if lower incomes recouped some money from buying cheap foreign manufactures to make up for their lost pay – upper incomes gain equally from cheap priced manufactures without any trade off in lost pay for the most part: contributing to inequality.

Inequality or not, lower incomes do not get any break in the price of expensive goods and services produced by upper income Americans so their pay loss is mostly unrecouped.
*************
For all this, the root of American labor’s deprivations is not globalization or immigrations. It is its gapping lack of understanding of the need to a strong collective bargaining position in a free market – not just working hard and playing the rules and expecting to get you fair share.

Dual-answer whenever American labor wakes up: 1) sector-wide labor agreements (collective-collective bargaining: the only answer to the race to the bottom) and, I think, 2) revolving (like every four years) union certification and RE-certification elections in every workplace (the only way to keep some union leaders permanently on their toes I am afraid – no need to fear decertification with sector-wide agreements: non union firms must work under conditions negotiated by union terms.

[Daniel Reeves]

"Come to Ohio and Michigan, I would be glad to be your host, and to introduce you to reality."

Your "reality" is only a small slice of the totality of events. To assume that it represents the whole of things going on better than hard statistics is completely stupid. Worse still, it's muddled with observer biases. Your statement is completely narrow-minded.

--

"Kitchen timers, rugs, coffee grinders, tape players: we've bought these (outsourced to manufacturers in China even when the companies were American) and they all broke or disintegrated within three months. So even the abundance of cheap goods has a downside. I actually think this is so severe it will have a negative influence on consumption. Why buy something that will break almost immiediately?"

Or maybe if the bulk of Americans preferred quality over price, then we'd see more quality at a higher price. Are you assuming that the market is completely unresponsive to consumer demand? Money speaks louder than words. And if people who denounce cheap foreign goods could put their money where their mouth is (quite literally), then American goods would be produced more.

[jerry]

"Or maybe if the bulk of Americans preferred quality over price, then we'd see more quality at a higher price. Are you assuming that the market is completely unresponsive to consumer demand? Money speaks louder than words. And if people who denounce cheap foreign goods could put their money where their mouth is (quite literally), then American goods would be produced more."

Well, I would buy rBST free milk if I knew which milk that was, but the Republican FDA says I am not allowed to know. I would buy meat that had been rigorously tested for mad cow disease, but the Republican FDA says I am not allowed to know. I would buy non-genetically modified products in general, but I am not allowed to know which those are.

I would buy human and pet food products that did not come from China unless prior to import, the US rigorously tested them, but GATT/WTO says we are not allowed to do that. I would buy toys from China only if prior to import, the US rigorously tested them, but GATT/WTO says we are not allowed to do that. GATT/WTO doesn't allow distinctions to be made about child labor practices, worker safety, environmental pollution, collective bargaining but I would make those distinctions, if I was allowed to know.

I buy only dolphin safe tuna. I know it's dolphin safe, because I can see the information on the label. I suspect that that legislation would never pass these days. (Would FDA nutrition information ever get passed?)

Economists like to say that all the information can be summed up by price. But then they win nobel prizes talking about how information asymmetry helps the used car salesman. Price doesn't tell the whole story, and when American Consumers are given only the price of a consumer good, they are not being given all the information they probably would prefer.

Free market? I don't see the free market that you worshop at Daniel, perhaps you can point it out to me.

STR's reality is documented to exist in many places. To pretend it doesn't exist, doesn't it exist in the severity STR claims it does, or somehow is made all right because other people have done better, is not a reality based viewpoint.

I don't see STR saying his reality is representative of the entire situation. He is saying his reality is his reality and you have to take that into account in your cost benefit analysis. And that his reality of individual data points makes a lot more moral sense and sense in a reality based analysis than a reality based on smoothed lines and tossed outliers.

Regardless, I concede to your arguments of "completely stupid" and "narrow-minded". Perhaps you should visit the argument clinic.

[jerry]

(I probably have some of my details wrong about what labeling is permitted re rBST, and I would not be shocked to find that some of these decisions were approved of during democratic administrations.)

[jerry]

(I probably have some of my details wrong about what labeling is permitted re rBST, and I would not be shocked to find that some of these decisions were approved of during democratic administrations.)

[KnotRP]

> Are you assuming that the market is completely unresponsive to consumer demand?

To afford *better* quality goods, the cost of goods (let alone better goods) would have to decline faster than wages.

Which idiot is going to argue that the cost of necessities is declining, let alone faster than wages?

Budgets are shrinking while required costs are rising....that is surely a recipe for massive economic failure.

Worse than that, the failure mode is worse than the status quo...this is like derailing a train in an attempt to run faster, without realizing a derailed train is a damaged train.

Dave - you never said what your general profession is....out with it, or shut up about everyone competing with globalized labor. It's obvious, without even knowing what you do, that you are sheltered.

[J Thomas]

Brad has presented us with an intelligence test. I believe he wanted to see how good we were at ignoring reality.

First he presented a graph which showed that 90% of american families have lost income.

Then he says that the bottom 90% of families will inevitably gain from an improved economy, through what he carefully does not call the "trickle-down effect".

First he makes a gobbledegook argument about "scarce" and "abundant" factors, and handwaves the claim that labor can't be "scarce" and therefore labor can't suffer.

Then he argues that most americans don't depend on mostly labor for their income. They have other sources of income, for example:

1. The government. The government takes money from rich people and provides services to poorer people. The more wealth there is, the more wealth the government will provide to the bottom 90%.

2. There are lots of other ways that people benefit indirectly. (For example, the more pens etc that businesses have, the more pens etc that labor can pilfer. This is one of the informal ways that labor shares ownership of businesses.) And of course we can buy at Costco and Walmart etc. Costco prices have fallen as much as income, right? And when Walmart drives other companies out of business then we can buy things cheap at their going-out-of-business sales. We have a stake in Walmart keeping other companies from charging enough to provide a living wage to their employees.

Anyway, there's hope! Since the dollar is falling, we will soon have the chance to get more jobs and work harder to produce goods for export. We will have jobs! We will be the ones who work hard so that Walmart can sell our stuff cheap in china. Joy!

All in all, I think Tyler's second argument is the most effective one. Why should US workers be paid any more than mexican workers or chinese workers or egyptian workers or bangladeshi workers? What makes US workers worth more is really the capital behind them. We can move the capital to where the cheap workers are, or move cheap workers to the capital. Americans who work for a living deserve no more than nigerians or haitians who can do the same work, supported by the same capital. If you don't like your standard of living dropping to that of nigeria, then you should figure out how to play the stock market or something and get rich. Vietnamese workers deserve your job just as much as you do.

This argument needs to be expressed clearly with great enthusiasm and vigor, preferably by McCain.

Anyway, I'm pretty sure Brad was presenting this to see whether we'd notice. And a lot of people didn't.

[J Thomas]

Mike, I agree. I want McCain to agree publicly in great detail.

His speech could start out,

"Americans have the most expensive health care in the world. But we don't deserve it. Americans have the highest standard of living in the world. And we don't deserve it. Americans who work get extraordinary pay for the work we do. We don't deserve it.

"Americans consume far more than our share of the world's resources including far more than our share of the oil. We don't deserve it.

"And I intend to make sure that we don't get these things we don't deserve.

"But! Americans *do* deserve to have a military that can beat any combination of other nations. The money that would have gone to health care and social security and other perqs for civilians can go to making sure that America stays Number One!"

I think McCain deserves to make that speech.