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Friday, February 01, 2008

Comments

Alan Harvey

Free trade is "free" only in the sense that there the toll at the border is going down. The relocation of industry which makes offshoring sense for a business extracts a great cost from individuals, families and communities.

The ones who make out are the gatekeepers. Why not enforce a fee on the winners to compensate the losers, rather than send it back to the various levels of government to find tax revenue from some other source.

Yes. A tariff. There would be fewer losers, as you can show with your elementary price theory, with a tariff. There would also be a funding mechanism for programs for those losers. Any funding mechanism to compensate losers that does not derive from the activity of the winners is a further subsidy to those winners.

What is most remarkable about Free Trade is that economists cling to a hypothetical condition of comparative advantage that is far out of line with the actualities of every day.

A tariff would discourage excess transportation as well. It is clear that future generations are bearing a heavy load for our overuse of fossil fuels.

And as a postscript to the comment, notice that the so-called "free trade agreements" have little to do with free trade and a lot to do with the enforcement of market dominance by the powerful economies.

Gabriel

Media sensationalism, I'm afraid.

Trade and technological discovery cannot be distinguished from their effects on productivity-driven dislocation of activity. So who's come out and say, "Burn R&D labs!"?

The fact that the US has no credible social insurance/safety net sort of thing is one thing, which has nothing to do with trade.

Arthur Eckart

Sound economic policies is the best safety net. The U.S. already captured the greatest gains of trade, e.g. through prices, interest rates, profits, exchange rates, competition (which increases productivity), etc., while strengthening older U.S. industries and accelerating growth in newer U.S. industries. Also, U.S. actual output has generally been below potential output throughout the 2000s, while high debt and low saving will add to future U.S. growth. The U.S. has built a large safety net reserve of real wealth, along with high living standards. Of course, Americans who don't want to work, or acquire needed skills, will be left further and further behind.

bellumregio

Not only are average Americans experiencing global labor arbitrage they have also been subject to 30 years of conservative anti-risk-sharing campaigns, anti-labor politics and tax cuts for the rich. The end result is stagnant wages, insecurity and GDP gains being captured and held by the top 1 percent. To say this is an accident is to have missed the economic agenda of the conservative revolution.

What is new is that foreign nations with low labor costs can capture the comparative advantage of the entire industrial base, not just one industry. Heavy investment in foreign markets, improved communication and transportation, and an educated foreign work force makes this possible.

reason

Arthur Eckart,
have you proof read your post? It is not coherent, doesn't answer the argument presented above and contradicted by a number of current facts (falling US exchange rate, low savings rate, high levels of personal debt, large trade deficit).

TBG

Why incoherent? The Anglo economies have chopped themselves off at the roots by restricting wages - i.e. cash supply - to consumers and then attempting to compensate with a debt bubble. This has trapped ever more surreal levels of liquidity among the richest 1% starving the rest of the economy of liquidity, infrastructure support (would anyone like to buy a collapsing bridge?) and investment capital - just like a tumour which eats away at its host's vital functions until they both die.

Investors have realised that the house of cards has no foundation and is about to fall over, so they're moving their money to high growth areas elsewhere, leaving the US itself to rot. Currently the US still has Wall Street, but it's unlikely that ten years from now Wall St will be quite the economic choke point that it is today.

The inevitability of this outcome has been obvious for at least half a decade to anyone who can do joined up thinking.

Free trade is largely an irrelevance when capital can move where it wants to. With the capital economy living in a woo-woo world, where it's increasingly decoupled from physical goods and services and can be traded on any market almost instantly, there are two real determinants of prosperity - higher taxation to promote redistrbution through help for start-ups, plus better educational standards to raise performance and innovation overall; and also fragmentation of key markets like energy to give the start-ups a chance to grow.

Tariffs aren't the answer. Damping the velocity of capital movements and forcing capital out of its current channels back into the wider economy will do far more good.

Arthur Eckart

There are no contradictions in my statements, which are based on orthodox economics and real data. For example, export-led economies had to lower prices to induce U.S. demand and lower prices even more to maintain their output and employment levels. Also, export-led economies bought U.S. Treasury bonds at high prices and low returns (real returns, adjusted for inflation, are roughly zero). If foreigners exchange dollars for their currencies, they'd receive fewer and fewer units of their currencies per dollar (because of a depreciating dollar and appreciating foreign currencies). Consequently, export-led economies lose on both their terms-of-trade and currency exchange. Export-led economies are trapped by U.S. economic policies. Moreover, high U.S. household debt and low saving increase future U.S. economic growth, because U.S. households must work longer to pay-down debt and build-up saving, etc. I've stated before, the U.S. economy can be viewed as a Black Hole attracting imports and capital. Now, it's attracting the foreigners who own that capital.

Also, I may add, the U.S. doesn't have a permanent welfare system, because it doesn't want an immoral system (full of moral hazards). Consequently, the U.S. attempts to maintain full employment. U.S. real compensation has increased 70% over the past few decades, while lower prices, lower interest rates, higher capital gains, etc. raised U.S. living standards even more. The U.S. remains the world's largest manufacturer and exporter, because older U.S. industries shifted into goods with market power, while U.S. emerging industries created new products also with market power. Consequently, the U.S. made up in value what it lost in volume (while export-led economies had to make up in volume what it lost in value). The U.S. leads the rest of the world combined in the Information and Biotech Revolutions (in both revenues and profits), while U.S. Agricultural and Industrial Revolution firms produce higher quality "core" goods at higher prices. So, U.S. per capita income is over $10,000 a year more than the E.U. The U.S. is the only economy that can expand with huge negative net exports. It's the main engine of global growth. Without the U.S., the world economy would collapse.

Arthur Eckart

Furthermore, I may add, the U.S. spends 50% more per student than Canada and 100% more per student than Britain. Also, full employment adds to human capital. Currently, 20% of U.S. households earn over $100,000 a year. The U.S. receives free goods and free money from foreigners. It can't get much better than that :)

The Objective Historian

This an outright fallacy and must be corrected whenver it is said.

"Yet concern is rising that the gains from free trade may increasingly be going to a small group at the top. For the vast majority of Americans, Dartmouth's Slaughter points out, income growth has all but disappeared in recent years. And it's not just the low-skilled who are getting slammed. Inflation-adjusted earnings have fallen in every educational category other than the 4% who hold doctorates or professional degrees. Such numbers, Slaughter argues, suggest the share of Americans who aren't included in the gains from trade may be very big. "[That's] a very important change from earlier generations, and it should give pause to people who say they know what's going on," he says."

Income levels may have remained relatively stable, but real incomes for most poor and middle income Americans have risen at 9% a years in the last 10 years. This explanation from Thomas Sowell is excellent and concise: http://bubbanear.blogspot.com/2008/02/thomas-sowells-new-book-discusses.html. It is the second Q/A down. Globalization has benefited the American poor and middle income worker more than anyone else in America by keeping unemployment rate down, inflation down, and thus the opportunity to make more and more in real terms with each passing year of experience in the market place. Income levels are not people; no professional economist should ever make that mistake.

TOH

Arthur Eckart

U.S. real income didn't rise 9% a year over the past 10 years. However, obviously, the increases in the quantity and quality of U.S. output exceeded the rises in U.S. inflation, which helps explain why U.S. living standards rose. Free trade benefited the rich, e.g. through higher profits. However, it also benefited the poor, e.g. through cheaper prices and lower interest rates. Moreover, in the global economy, the U.S. generally benefited from greater competition (e.g. to increase productivity), and offshoring obsolete jobs (for profits rather than discontinuing operations), while shifting resources into emerging industries and strengthening existing industries. Furthermore, U.S. entrepreneurship kept unemployment low, while many small firms became large firms.

Arthur Eckart

Also, I may add, abundant U.S. capital gave many Americans the opportunity to permanently raise their living standards (e.g. through subprime loans, refinancing at lower rates, and building-up credit ratings, for those who made payments on time).

Arthur Eckart

The free trade article states: "Economists are, however, noting that their ideas can't explain the disturbing stagnation in income that much of the middle class is experiencing."

I find that hard to believe. There's a surplus of low-skilled workers (in the global economy), while there's a shortage of high-skilled workers (in the U.S. economy). So, in the open market, a proportion of the U.S. middle class has stagnating or falling real incomes (e.g. when they lose overpaid low-skilled jobs), while another proportion of the U.S. middle class has rising real income (e.g. after obtaining needed skills). Over time, real incomes rise for many U.S. workers (both high and low skilled), because of experience, performance, finding higher-paying jobs, etc.

Also, U.S. job growth slowed, because U.S. negative net exports continued to increase in the 2000s reaching over 6% of U.S. GDP in 2007, which caused slower growth, higher debt, and lower saving. Moreover, technological upgrades slowed (since use of improved technology became sufficient for longer periods of time). U.S. GDP growth would have been even slower, in the 2000s, if it weren't for the U.S. housing boom (and related goods) generally from 1995-06. Furthermore, the U.S. economy became more efficient (after the quick and massive Creative-Destruction process mostly from 2000-02) in producing more output with fewer inputs.

Economic revolutions are inevitable and slowing them down through government disincentives will create moral hazards and retard improvements in living standards. Rather than giving educational scholorships, grants, loans, etc. based on income, race, sex, etc., they should be given for jobs where there are shortages (e.g. microbiologists and biochemists). Also, better job placement, along with more classes in human development, professional development, personal finance, economics, etc. will increase personal responsibility and independence.

Arthur Eckart

Also, I've stated before, the disparity between union and non-union wages has narrowed substantially, since union power peaked around 1960. U.S. real wages has generally been flat, although it rose in the second half of the 1990s, when U.S. actual output exceeded potential output. Currently, U.S. real wages equal real wages in the early 1960s (which were at a high level). However, U.S. real compensation has increased 70%, since the early 1960s.

Firmalar

Globalization has benefited the American poor and middle income worker more than anyone else in America by keeping unemployment rate down, inflation down, and thus the opportunity to make more and more in real terms with each passing year of experience in the market place. Income levels are not people; no professional economist should ever make that mistake.

Arthur Eckart

The Objective Historian, many of Professor Sowell's statements seem politically or emotionally motivated. However, I tend to agree with his statement below, in part, since the U.S. Homeland Security Chief has stated Europe is becoming a breeding ground for terrorists.

"There are people (immigrants) who brought in attitudes which were not the attitudes of citizens. In fact, they were the attitudes of people who were hostile. I’m amazed when they talk about the guest-worker program in Europe. No one even asks, “What has happened with guest-worker programs in Europe?” What has happened is that they’ve brought in people who hate their guts. This is why you have terrorism in London and Madrid and riots in Paris and other French cities by people who have absolutely no desire to assimilate and who in fact hate the very ideas of the country in which they live.

There is the second-generation phenomenon. You have people who move in from some poor country -- the Middle East, Mexico, whatever. Those people may be very glad to be in the United States or Britain or wherever they may be. But then they have children. And their children have never seen those other places; they’ve never lived that poorer life. All they know is that the population around them is a hell of a lot more prosperous than they are. And there are all sorts of ideologues and hustlers ready to tell them that it’s society’s fault that they don’t have what other people have. This then gives you the people who hate the country in which they live.

In the past there were leaders and organizations that were doing their damnedest to get them assimilated to the norms and the society to which they were moving. Today, you have just the direct opposite. You not only have groups within in these societies that are trying to keep them unassimilable and full of resentment. But you also have people from outside the group, including politicians but also ideologues and intellectuals, who say one culture is as good as another and why should we expect them to assimilate to our culture. Well, that’s wonderful. You should try to go to China and live without speaking Chinese."

DOR

Mr Eckart,
I went to China after college, in 1980.
I learned the language.
I still live here.
It isn't imppossible.

- - - - - - - - - - - - - - -

When Nafta took effect on Jan. 1, 1994, Ohio had 990,000 manufacturing jobs. Two years later, it had 1.03 million. The number remained above one million for the rest of the 1990s, before plummeting in this decade to just 775,000 today. It's hard to look at this history and conclude Nafta is the villain. In fact, Nafta did little to reduce tariffs on Mexican manufacturers, notes Matthew Slaughter, a Dartmouth economist. Those tariffs were already low before the agreement was signed.

Source: http://economistsview.typepad.com/economistsview


Arthur Eckart

DOR, I've stated before, the U.S. created 17.6 million jobs from 1993-98 and created 3.7 million jobs from 2001-06. However, U.S. real GDP growth was only slightly higher from 1993-98 than from 2001-06. So, the U.S. become much more productive in the 2000s (using fewer inputs to produce more output). Also, China is basically a U.S. factory, exporting a great deal of output to the U.S., for U.S. multinationals, while basically importing U.S. non-labor inputs, e.g. capital equipment.

Angry African

It seems as if we ride this train every single year. Someone somewhere decides that it is time to talk trade again. But do we ever get anywhere? Can we ever say we will achieve “free” trade with all the global protection? And no hope for “fair” trade either. It seems as if the dance is on again in 2008. More on this in my blog at http://angryafrican.wordpress.com/2008/01/27/here-we-go-again-lies-damn-lies-and-world-trade-negotiations/

John Konop

UNHOLLY ALLINANCE DESTROYING AMERICA

We have an unholy alliance between many leaders of the Republican and Democratic Party who have sold out our Country to finance their campaigns to maintain power. This policy may help the stock market yet has hurt the average American family. They have pitted Small business and Middle Class America against overseas workers and illegal immigrants with limited rights.

Adam Smith the one of the fathers of the free market system in his Book Wealth of Nations (which is used most universities economics programs) talks about the right of workers to negotiate wages as a key principal in a free market economy.

Yet both Parties with the help of many bought and paid for economist never mention this principal when they talk about trade or immigration policy. Economist and Politicians act baffled as to why real wages are going backwards around the world as we do trade deals ( NAFTA, CAFTA WTO CHINA…) with Countries that have workers who are treated like slaves competing with Americans. They are even more surprised as to why wages would be hurt by an unlimited supply of workers (visa) legal and (Illegal immigrants) illegal with very few rights also pitted against Americans.

The only solution is real trade and immigration reform that does not over supply our Country with workers and pit Americans against overseas child and slave labor.

READ MORE

http://controlcongress.com/uncategorized/unholly-allinance-destroying-america

John Konop

Economists Are Destroying America

Economists, politicians, and executives from both parties have promised American families that “free” trade policies like NAFTA, CAFTA, and WTO/CHINA would accomplish three things:

• Increase wages
• Create trade surpluses (for the US)
• Reduce illegal immigration

Well, their trade policies have been in effect for about 15 years. Let’s review the results:

• Declining real wages for 80% of working Americans (while healthcare, education, and childcare costs skyrocket)
• A record-high 46 million Americans who don’t have health insurance (due in part to declining wages and benefits)
• Illegal immigration out of control
• Soaring trade deficits, much with countries that use slave and child labor
• Personal and national debt both out-of-control
• Global environments threatened by lax trade deal enforcement

Economists Keep Advocating Policies That Aren’t Working

Upon seeing incontrovertible evidence of these negative trade agreement results, economists continue with Pollyannish blather. Some say, “Cheer up! GDP is up and the stock market’s doing fine.” Others say, “Be patient. Stay the course. Free trade will raise all ships.”

Even those economists who acknowledge problems with trade agreements offer us only half-measures—adjusting exchange rates, improving safety nets, and providing better job retraining. None of these will close the wage gap in America—and economists know it.

Why Aren’t American Economists Shouting From Street Corners?

America needs trade deals that support American families and businesses in terms of wage, environmental, and intellectual property abuses. Why aren’t economists demanding renegotiation of our trade deals? There are three primary reasons:

• Economists are too beholden to corporations and special interests that provide them with research grants.
• Economists believe—but refuse to admit—that sacrificing the American middle class is necessary and appropriate to generate gains in third world economies.
• Economists refuse to admit they make mistakes.

Economic Ambulance Chasers

Now more than ever, Americans need their economists to speak truth and stand up to their big business clients. Instead, economists sound like lawyers caught chasing ambulances: they claim they’re “doing it for our benefit”.

Arthur Eckart

Ultimately, the real economy is what's important. The U.S. created or accumulated and captured an "oversupply" or disproportionate global share of real assets and real goods, in part, through sound economic policies. Also, the U.S. has a high level of human capital. The U.S. is a fragmented and diverse society that promotes upward mobility. The U.S. also leads the rest of the world combined in the Information and Biotech Revolutions (in both revenues and profits), while U.S. Agricultural and Industrial Revolution firms shifted into higher quality goods with market power. Below is a link about U.S. living standards.

http://www.bls.gov/opub/uscs/report991.pdf

John Konop

Arthur Eckart


Get real the economy has been using blind eye credit standards to cover up the Iraq war spending and the race to the bottom labor standards. Now we have no money to pay the piper while economist like you looked the other way.

Why do you think Adam Smith was wrong when he insisted that labor must have the same legal rights as the owners or we would have distribution problem with wages?

Arthur Eckart

John Konop, the U.S. has plenty of money. The Fed can print an endless supply. The Fed is capable of inflating asset prices as high as you want. However, export-led economies bought dollars instead of U.S. goods. So, they have lots of worth less (although, not worthless) dollars (which also means their export-led economies are worth less). Also, subprime loans were needed to clear the market of "excess" assets. It's not accurate to assume a free labor market in equilibrium is a "race to the bottom." The U.S. operation in Iraq is a seperate issue. I suspect, the Bush Administration and its allies were fearful of a revenge attack (e.g. a dirty bomb or worse) in the future by Saddam or his sons (e.g. 10 or 20 years from now). Of course, that's not possible anymore. I suggest, you get real.

John Konop

Why did you avoid the question about Adam Smith?

Arthur Eckart

There are rights and duties for workers and rights and duties for owners, along with common or universal rights. I didn't understand the question. Also, I may add, the U.S. has little or no control over foreign economic policies. So, it's optimal for the U.S. to choose the best responses.

John Konop

Arthur Eckart

The trade deals you advocate have no protection for workers legal rights. Adam Smith was clear this was paramount in a free market system. The truth is you are advocating fascism not free trade. WHY DO YOU THINK ADAM SMITH IS WRONG ABOUT WORKERS NEEDING THE SAME LEGAL RIGHTS AS THE COMPANY?

John Konop

Back to the real world!

U.S. cites China for repression, torture

China, host of the summer Olympics, is an authoritarian nation that denies its people basic human rights and freedoms, harasses journalists and foreign aid workers and tortures prisoners, the United States charged Tuesday.

China is still among the world's human rights abusers despite rapid economic growth that has transformed large parts of Chinese society, the State Department said in an annual accounting of human rights practices around the world.

Portions of the report were obtained by The Associated Press ahead of its release Tuesday. The report gives a chilling account of alleged torture in China, including the use of electric shocks, beatings, shackles, and other forms of abuse. It includes an account of a prisoner strapped to a "tiger bench," as device that forces the legs to bend sometimes until they break.

http://www.msnbc.msn.com/id/23576671

Arthur Eckart

John Konop, you're making value judgments rather than explaining economic outcomes. Also, your statements above suggest trade agreements cause living standards to fall. Perhaps, you can state a theory why that would happen? I stated above, the U.S. has little or no control over foreign economic policies. A U.S. corporation and a Chinese worker don't have the same legal rights. Unfortunately, many poor foreign countries cannot afford high standards, since they face trade-offs, e.g. employment or worker rights/benefits. Of course, universal standards would be ideal.

John Konop

Arthur Eckart

The father of free market economics (Adam Smith) was clear that workers must have legal rights. Adam Smith was for tariffs to equalize trade agreements for violations. Smith was clear unless you do this the workers would get the shaft and you would see distribution problems with wages.

So what part of this economic theory from ADAM SMITH do you disagree with? This is a direct question I would think with your economic back ground you could understand.

Arthur Eckart

Here's what Adam Smith believed about free trade (in first section of link below):

"In Wealth of Nations Smith argues that everyone benefits from the removal of tariffs and other barriers to trade. Because of supply and demand, production will increase as demand increases. This may lead to new employment opportunities for the workforce and to collateral industries emerging in response to new demands. For example, an increase in France's wine production would also lead to an increased demand for bottles, for barrels, for cork, and an increase in shipping, thus leading to a variety of new employment opportunities. Adam Smith was convinced that the market would stimulate development, improve living conditions, reduce social strife, and create an atmosphere that was conducive to peace and human cooperation."

Also, Smith sums up China's economy well:

"Wealth of Nations represents a highly critical commentary on mercantilism, the prevailing economic system of Smith's day. Mercantilism emphasized the maximizing of exports and the minimizing of imports. In Wealth of Nations, one senses Smith's passion for what is right and his concern that mercantilism benefits the wealthy and the politically powerful while it deprives the common people of the better quality and less expensive goods that would be available if protectionism ended and free trade prevailed."

http://www.newworldencyclopedia.org/entry/Adam_Smith

John Konop

Arthur Eckart


An educated guy like you knows better than cherry picking what Adam Smith wrote.


The 18th century economist Adam Smith noted the imbalance in the rights of workers in regards to owners (or "masters"). In The Wealth of Nations, Book I, chapter 8, Smith wrote:

“ We rarely hear, it has been said, of the combinations of masters, though frequently of those of workmen. But whoever imagines, upon this account, that masters rarely combine, is as ignorant of the world as of the subject. Masters are always and everywhere in a sort of tacit, but constant and uniform combination, not to raise the wages of labour above their actual rate...
When workers combine, masters... never cease to call aloud for the assistance of the civil magistrate, and the rigorous execution of those laws which have been enacted with so much severity against the combinations of servants, labourers, and journeymen.

As Smith noted, unions were illegal for many years in most countries (and Smith argued that schemes to fix wages or prices, by employees or employers, should be). There were severe penalties for attempting to organize unions, up to and including execution. Despite this, unions were formed and began to acquire political power, eventually resulting in a body of labor law that not only legalized organizing efforts, but codified the relationship between employers and those employees organized into unions. Even after the legitimization of trade unions there was opposition, as the case of the Tolpuddle Martyrs shows.


http://en.wikipedia.org/wiki/Trade_union

Arthur Eckart

Adam Smith may have been talking about collusion. Are you saying Adam Smith did not hold those beliefs above on free trade?

John Konop

Arthur Eckart

You are smarter than asking a question out of context. Why not answer my original question? Why do you think Adam Smith was wrong when he insisted that labor must have the same legal rights as the owners or we would have distribution problem with wages?

Mr. Econotarian

"inflation-adjusted earnings have fallen in every educational category other than the 4% who hold doctorates or professional degrees."

However inflation-adjusted compensation has not. Real compensation per hour has risen 30% across the entire population from 1993-2007.

http://www.heritage.org/Research/Labor/images/b2040_chart5-lg.gif

More and more labor compensation is coming in the form of non-cash benefits.

Araba Yarışı

Get real the economy has been using blind eye credit standards to cover up the Iraq war spending and the race to the bottom labor standards. Now we have no money to pay the piper while economist like you looked the other way..

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Chicago liposuction

Thats gonna be ending no where unlike the situation people have faced years and years back.No one is gonna be benefited with this idea so there is no sense rethinking for the free trade. Instead of creating unnecessary disputes better not to waste time behind this.

Groovy Hellis

yep

firma rehberi

Also, I've stated before, the disparity between union and non-union wages has narrowed substantially, since union power peaked around 1960. U.S. real wages has generally been flat, although it rose in the second half of the 1990s, when U.S. actual output exceeded potential output. Currently, U.S. real wages equal real wages in the early 1960s (which were at a high level). However, U.S. real compensation has increased 70%, since the early 1960s.

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