Trade Sequence Part 3 – The Tribulations of the Working Class


James K

James is a government policy analyst, and lives in Wellington, New Zealand. His interests including wargaming, computer gaming (especially RPGs and strategy games), Dungeons & Dragons and scepticism. No part of any of his posts or comments should be construed as the position of any part of the New Zealand government, or indeed any agency he may be associated with.

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166 Responses

  1. Avatar Murali says:

    This is good. I wish there was some equation with which we could show that if you liberalise trade by this much, ceteris paribus it will decrease prices by that much and wages and profits will change by so much. If we can show it mathematically, then no one can argue with it right?Report

  2. Avatar James K says:

    Your naiveté is charming.

    In any case it would take a hard core General Equilibrium model to answer a question like that.Report

    • Avatar Murali says:

      Do people do research on such general equillibrium models now or is it seen as a fools errand?Report

      • Avatar James K says:

        You see some GE modelling around the place, but it takes a lot of time and effort, and that means you need to have a good ongoing use for it. I know some agencies use them in forecasting.Report

        • Avatar Murali says:

          What about in public policy think tanks, economics departments, public policy departments, pol science departments etc? Surely they would have an interest in seeing how far and how well they can model stuff? I was thinking that it could be a good way to set off research agendas too. If particular kinds of models are not performing very well, then we can see where the fundamental assumptions go wrong. Or is this more of my charming naivete showingReport

  3. Avatar BlaiseP says:

    When jobs move from country to country, there’s lots of friction. Middlemen always seem to benefit the most from such moves: curiously, these enterprising middlemen and labour subcontractors all seem related to someone in government.

    Ricardo’s old Portugal wine and English cloth proposition has been chewed on for centuries. Labour’s not the only factor: intermediate components and transportation costs are now the big deal in international manufacture. Labour’s been reduced as a cost of business. And labour’s not fungible, see first paragraph.Report

    • Avatar James K says:

      The model this post is based on is post-Ricardo, for that matter it’s post-Hecsher-Ohlin, which is what the Stolper-Samuelson theorem is based on. It’s premised on labour being heterogeneous and non-fungible.Report

      • Avatar BlaiseP says:

        Well sure. You’re preaching New New New Trade Theory. Or however many News are required for sufficient Newness. I’m just pointing out there’s a great deal of Ricardian Oldness in this stuffReport

        • Avatar James K says:

          Hey, you’re the one who brought up Ricardo.Report

          • Avatar BlaiseP says:

            Ricardo still holds water. Or wine, in this case. Ricardo’s still taught because we can point out why free trade in the real world is as mythical as unicorns. Give Ha-Joon Chang’s Bad Samaritans a look-see.Report

            • Avatar James K says:

              Chang seems to have run into the problem of attribution (called cum hoc ergo propter hoc if you prefer Latin). Just because rich countries did something doesn’t mean they are rich because they did it.

              As for the Infant Industry Argument (the main argument I noticed in the blurb), I’m saving it for part 5.Report

              • Avatar BlaiseP says:

                Unfortunately, history does adequately demonstrate the rich nations actually did these things. If Chang has a problem, it’s that his examples are old. Nowadays, a clever nation will simply put its foot down on a Strategic Industry, thereby knocking more holes in the free market, cf. Solyndra trying to compete with China’s state-supported solar industry.Report

              • Avatar James K says:

                Sure they did it, the question is should they have done it? But I’ll leave it there for now, sine I’ll be addressing this later.Report

          • Avatar MikeSchilling says:

            And he has a lot of ‘splainin’ to do.Report

  4. Avatar Ramblin' Rod says:


    Regarding distributional effects, it was noted in Elias’ un-ending thread that social mobility in the U.S. is still okay but with the exception of lower quintile males. I get what you’re saying about workers moving to other industries, etc. But what if those other industries simply don’t exist?

    What I see happening is that not just particular industries, but our entire manufacturing sector, has taken a huge, and reportedly irreversible hit over the last three decades. Those jobs (or “jerbs” as DD so charmingly refers to them) were the precise mechanism by which those lower SEC males achieved some mobility. You started out sweeping the factory floor and steadily worked your way up. With some pluck, luck, and talent you could work your way into a supervisory or even management position and a solidly middle-class lifestyle. That route just seems to not exist for too many anymore.

    I just don’t see the new* service economy providing that same path, nor do I see the kind of guy that could flourish on the factory floor being constitutionally able to do the same working big-box retail.

    BTW, I want to thank you for this series. Unfortunately, like you, life got in the way for me when you posted your second installment. I have a separate and more involved comment to make, hopefully later today. I was going to post it in response to #2 but I think it’s apropos to this one as well.

    * The “new” service economy as opposed to the “old” service economy of the early 20th and prior. While doing some genealogical research I discovered that my grandmother had spent some time while a young woman as a live-in household servant. And this was in rural Kansas, vice some wealthy urban area. Perhaps we’ll see a return of the maid, butler, and gardeners?Report

    • Avatar Matty says:

      I suspect some servant jobs have been eliminated by technology. Why pay someone to get up early to light the fire to boil water for your morning coffee when you can flick a switch on the electric coffee maker?Report

      • Avatar Will H. says:

        The end result is that technology leads to greater specialization.Report

      • Avatar Ramblin' Rod says:

        No doubt. I was just riffing on all the talk in the ’80s and ’90s about how we’re just shifting from the “old” industrial economy to the “new” service economy, when in fact the notion of a service economy is actually quite old. And sorta quaint.Report

    • Avatar James Hanley says:


      I get your concern, but there’s at least one other factor that’s crucial. A larger proportion of women now get college degrees than men. A larger proportion of women get law degrees now than men. I think the same is true, or is rapidly trending toward becoming true, in medicine. Increasingly, young single woman are likely to have a higher income than young single men. Hooray for the women, and I wouldn’t want to reverse their successes, but the important question is why men aren’t keeping up. The women aren’t doing anything the men can’t do. The puzzle is why men aren’t.Report

      • Avatar Kim says:

        I dunno, maybe because we stopped treating doctors like petit nobility? ;-PReport

        • Avatar James Hanley says:

          I have a real fear that your statement is largely true. And I mean that with utter seriousness.Report

          • Avatar Kim says:

            No need to be scared of the truth. Women make better doctors anyway– have a better mind for it. (insert all the standard bullshit about bell curves, and the difference between a man and a woman being well inside three sigma for both curves…)Report

            • Avatar James Hanley says:

              I’m not at all afraid of women doing well (I have three daughters, remember). I’m only afraid of men giving up.Report

              • Avatar Kim says:

                Giving up is something solvable with more opportunities. I hope we can do better than drug dealers, personally… (and I know you do too!)Report

              • Avatar James Hanley says:

                But my point is that they don’t seem to be taking advantage of the opportunities that currently exist, at least not at the rate women are.

                Maybe T-Frog, below, is right about the reason.Report

              • Avatar Kim says:

                Yes, I think there are plenty of ways of creating opportunities, and that there’s no need to force people to take ones that they are relatively illsuited for.Report

            • Avatar Ramblin' Rod says:

              I’ve always liked women’s bell curves…Report

      • Avatar Troublesome Frog says:

        I’ve always thought that a big part of it is the fact that if you don’t know that you want to go to college and get a professional degree by the time you’re 15 or so, it’s a lot harder to go to college and get a professional degree.

        If your grades are junk in the first couple of years of high school, the road to bouncing back and getting a law degree is a lot longer. One of the engineers in my office went the “Blow off early high school and then work up through community college to grad school” route. He had a much harder time of it than those of us who realized that we wanted to go to engineering school early on and had the grades for it when we graduated, all because he was a couple of years too late in realizing what his goals were.

        Adult men and women may be at the same levels of emotional and behavioral maturity, but my experience is that at that critical age, the girls are ahead and are more likely to think about the future, sit down, and study. It’s too bad that we make so many important life choices in our mid teens when we’re often too young to realize that we’re making them.Report

      • Avatar Ramblin' Rod says:

        Is it that men are regressing or just that women are advancing? Perhaps the new, more service-oriented, economy is just producing opportunities that are more in line with women’s strengths. For instance, although it seems to be improving somewhat, there still seems to be some resistance to men entering good-paying fields that have traditionally been reserved for women, such as nursing.

        Personally, I wanted to change careers and go into the bra-fitting business. Alas, my wife was sorta opposed.Report

    • Avatar Kim says:

      One of America’s great dilemmas is what to do with the slavedrivers. Those are the foremen you’re talking about, the people in charge of rassling up a bunch of mostly shiftless plebs (lower management, if you must) Well, we ain’t got jobs for them no more.
      But they still love to harangue and harass and dominate.Report

    • Avatar James K says:

      I go into the dynamics of industries in part 2, old industries may die, but new ones spring up, otherwise foreign producers are giving your country stuff for free, and that seems unlikely. They may be in a different part of the country, but they’ll be there.Report

      • Avatar James Hanley says:

        They may be in a different part of the country, but they’ll be there.

        And in a large country, that can, unfortunately, be a real problem. That’s one production factor that just doesn’t flow to new places as readily as the ideal market model demands. I can’t even persuade unencumbered recent college grads to get their asses out of Michigan. And they’re not the ones with kids in schools, mortgages, etc.Report

        • Avatar Jesse Ewiak says:

          Damn human beings, having connections to their hometowns and crap. Why can’t they be emotionless rational libertarian robots and all move to where the jobs are!Report

          • Avatar James Hanley says:

            Good lord, Jesse, I’m pointing out a real problem, one that liberals agree with me is a real problem, and all you can do is turn that into an anti-libertarian screed.

            Could you be more pathetic?Report

            • Avatar Jesse Ewiak says:

              I was actually trying to be funny. Sorry you didn’t like the joke.Report

              • Avatar James Hanley says:

                It’s all in the delivery. If you had a history of joking about that, it might have worked. When your deadpan sounds exactly like your normal critique, there’s no way for it to work. Mike Schilling could have made that line work, because he doesn’t say that same thing in seriousness all the time.Report

              • Avatar MikeSchilling says:

                If there’s one thing I will not stand for, it’s being the good example.Report

              • Avatar James Hanley says:

                Then start being less funny. You’re definitely not serious enough to be a bad example.Report

  5. Avatar GordonHide says:

    Your contention that those who do non-tradeable service jobs will not be seriously affected by free trade is not necessarily the case. Many small service providers rely on business from large international competition vulnerable industries like steel. It has been known for entire communities to become derelict because the main employer has gone out of business sometimes because of more efficient international competition.Report

  6. Avatar clawback says:

    Offering assistance with retraining or moving to other parts of the country will help the people adversely affected without trying to hold your entire economy in stasis.

    Ah, my favorite part of the free trade story. Warms the heart. Sadly, we live in a society where displaced workers are offered not assistance but only lectures about thrift punctuated with bad metaphors about hammocks. What then?Report

    • Avatar M.A. says:×19

      You knew we were for free trade. You knew it when you endorsed us five
      years ago.

      Yeah, ’cause you told us we might lose old economy jobs – shoe manufacturing
      – to some dirt-poor country, but if we trained ourselves we’d get better
      jobs. Now they’re being vacuumed out of here, too.

      We’re going to fight for more job training, more transition assistance…

      I have members on their third and fourth career. What are they supposed to
      train for now, nuclear physics? Cello playing? Or should they just give up
      and bag groceries for minimum wage?

      For some reason, that seems very germane to the discussion.

      “Assistance with retraining” only goes so far in a down economy and only goes so far when workers are having to compete with new, incoming workers. Assistance with moving to other parts of the country can only have a limited effect – there are a lot of people who are tied down to a house with an upside-down mortgage trying to sell, or are tied down to a location with spouses’ jobs or elderly parents to help take care of or children who they’d have to uproot from schools.

      Are there solutions to some of those problems? Well, bankruptcy can get rid of the upside-down mortgage, but the other economic effects of declaring it can actually destroy the chances of the person finding a job when they move, given propensities of employers to run credit checks on their employees these days. Convincing the parent to move? That’s a hard sell. Uprooting the kids in the middle of semester? Great way to paint a giant bulls-eye on their backs in the new school. And I’ve known not a few marriages to be destroyed by the “one spouse moves for work now, other spouse and kids will follow in summer” theory of job seeking.

      Simplistic-sounding solutions never last 5 seconds with reality.Report

    • Avatar Roger says:


      Your comment begs the reply of “compared to what?”

      We can move forward with economic prosperity with the above effects and supplement it with safety nets, or…. What exactly? Should we have frozen it in place two hundred and fifty years ago and eliminated our current prosperity and which had a few billion less of us?

      Or should we just thank our ancestors for playing the game and then abandon our descendants by dismantling the machinery?Report

      • Avatar clawback says:

        Roger, perhaps it wasn’t clear but I accept the logic of free trade. You don’t want your economy frozen in amber. The OP is exactly right. But an essential component of the political economy of this process is the need for helping those adversely affected by free trade. This is not optional because those affected, and those who fear they may be affected, still vote.

        Sadly, though, our politics is dominated by those who would rather lecture those affected than help them. So no.Report

        • Avatar James Hanley says:

          Can we then also have policies for helping those affected by protectionism?Report

          • Avatar clawback says:

            No need, because no doubt conservatives and libertarians are totally on board with the plan for free trade with dislocation assistance.Report

            • Avatar James Hanley says:

              I’m serious. I hear liberals regularly talking about assistance for those negatively affected by free trade. Fine. It’s not their fault their factory shut down, so let’s help them out.

              But if the protectionist crowd gets their way, are you going to clamor for assistance for them? I haven’t seen anyone clamoring for assistance for the thousands of candy workers in the U.S. who lost their jobs over the last two decades due to sugar tariffs.

              Why isn’t that equally as important? Do those people matter less? Or are they just easier to overlook?Report

              • Avatar clawback says:

                Do those people matter less?

                No, they don’t; which is why sugar tariffs should be eliminated … simultaneously with assistance for those dislocated. But given the impossibility of such assistance in light of the power of the right in this country, it won’t happen. That’s sad, but don’t blame liberals.Report

              • Avatar James Hanley says:

                I do blame the liberals. Because we do have protectionism in this country and I don’t see liberals asking for help specifically for those dislocated by it. I saw people advocating for assistance for steel workers dislocated by free-trade imports, but when Bush imposed steel tariffs I didn’t see a damn person advocating for assistance for the steel-using industry workers that were dislocated.

                It’s not that I think liberals don’t care about those folks if they hear about them. It’s that I think liberals only tend to see dislocation as a consequence of free trade, and wholly overlook it as a consequence of protectionism.Report

              • Avatar clawback says:

                There’s been a consensus for many decades among elites of both parties about the efficacy of free trade, although such faith tends to break down (on both sides) when the going gets tough. My purpose was not to engage in some pointless historical blame-placing contest. You’re welcome to pursue that with someone else.

                I was only pointing out that this post’s heartwarming holiday season story about how we all get together and agree to drop all trade restrictions, while generously setting aside some of the resulting surplus in order to assist those dislocated, is unrealistic because of the political power of the right. You haven’t disputed that.

                I do blame the liberals … when Bush imposed steel tariffs …

                I guess we’re done here.Report

              • Avatar BlaiseP says:

                In the clamour of voices, those with the biggest bullhorn generally win. Look at who benefits from the sugar tariffs, Louisiana mostly. But then we’re also converting corn into syrup and suchlike.

                You want to take on tariffs? Don’t blame the Liberals. We think sugar tariffs are a bad idea because they impact countries like Haiti who could produce sugar for a third of the current price. Brazil grows sugar cane so cheaply they can turn it into ethanol for their cars. We’re so stupid, here in America we’re converting corn into ethanol, a much less efficient process.

                Free markets being what they are, you greatly err in blaming the Liberals. We’re out there trying to get little projects going, growing high end coffee, getting workshops going a long way off the beaten path in the Third World. We’re trying to keep people from starving to death. We care more about Free Trade than you do, you and your sweatshops. If I don’t pay my workers in Guatemala as much as I would have to in the USA, that’s a function of how much more expensive it is to live here. Riddle me that: the answer may have something to do with the fact that sugar costs three times more in the USA than in Guatemala.Report

              • Avatar James Hanley says:

                You want to take on tariffs? Don’t blame the Liberals.

                Oh, I know that it’s not liberals advocating for sugar tariffs. But in sustaining an on-going criticism against free trade, they help make the world safe for sugar tariffs. You can’t attack them on principle, you can only attack them because you care more about Hatian sugar cane growers than you do Archer Daniels Midland.

                We care more about Free Trade than you do, you and your sweatshops

                Oh, that’s a hoot. I see you’re taking your usual path here, so I’ll let this be my final response.Report

              • Avatar BlaiseP says:

                Oh James. There are plenty of dumbass Liberals out there, trying to get us to do stupid things and screw with the market system in unwise ways. So stipulated. The fact is, we pay three times too much for sugar and yes, ADM and the sugar lobby are big players in Washington and you can bet they are NOT Liberals. They’re of no political persuasion, they’ll donate to anyone who backs those protectionist tariffs.

                You and your sweatshops. You said it, now I’m holding you to it. Probably the dumbest thing you ever said.Report

              • Avatar James Hanley says:

                I have no idea what your last paragraph means, but I’m pretty sure you couldn’t persuade me you’re right.Report

              • Avatar Troublesome Frog says:

                The cost of protectionism is already fairly broadly distributed. A steel tariff subtly increases prices for all of us. Having a US steel mill go under lowers prices for all of us while creating unemployment for a handful.

                That’s not to say that steel tariffs are good. Just that the two situations aren’t analogous. If the point of a safety net is to spread the pain a bit to minimize acute suffering, then tariffs already perform that function.

                I’m firmly in the “free trade + a healthy safety net” camp. An artificial safety net in the form of economic stagnation is not a good alternative.Report

              • Avatar James Hanley says:

                I don’t buy it, T-Frog. When Joe at the Amana appliance company loses his job because the price of steel went up, that’s a new pain inflicted on him, without anything new to compensate for it. When Bob at U.S. Steel loses his job because the price of steel went down, there’s a new pain inflicted on him without anything new to compensate for it.Report

              • Avatar Troublesome Frog says:

                James Hanley:

                I think we have to be careful what the “natural” state is in this thought experiment. The two outcomes I’m thinking of in my model are:

                1) Tariffs keeping an existing industry in place–no change to trend supply and demand compared to when only the local industry existed. We’re not talking about rising steel prices causing unemployment. We’re talking about “not falling” prices preventing what would otherwise have been an economic expansion.

                2) Deleting a local industry and causing and immediate increase in unemployment for long term gains to everybody.

                One case is, as you called it, “new pain” and the other is a persistence of a suboptimal (but avoidable) state. The level of unemployment may not be improved in case (1), but humans respond to rates of change and to levels, not just to levels.

                More broadly, I think that people are phrasing it badly when they say that we need a safety net “for” people who are displaced by free trade or “for” people who suffer as a result of protectionist stagnation. A safety net should be agnostic and “for” everybody. In either regime, the right people will fall into it. The government should be planning the safety net’s size, not centrally planning which industries receive it.Report

        • Avatar Roger says:


          “Sadly, though, our politics is dominated by those who would rather lecture those affected than help them.”

          You mean other than the almost trillion dollars in means tested support?Report

          • Avatar clawback says:

            Your endorsement of the current safety net is gratifying, Roger. If I’m not mistaken this is a departure for you, and a welcome one. But to answer your question, yes, I mean in addition to the current flimsy safety net. Freer trade would, we are told, provide a large surplus. If you want political support for that policy, some of that surplus should be set aside to assist those affected. This seems like basic sound political strategy.Report

            • Avatar Roger says:

              Nope, I have been singing the praises of safety nets for as long as I can remember. I would agree though that this is probably about as poorly designed of a safety net as you could build with a trillion dollars. Sometimes it has even been perverted into a safety trap.Report

              • Avatar clawback says:

                So the case you would like to make to someone potentially losing a job to free trade would be that you should vote for a policy that is likely to kill your job, and the current safety net will be dismantled; but don’t worry, we promise we’ll construct a new one and it will be awesome; and anyway, someone else will benefit from free trade even more than you suffer from it, so be happy.

                Do you think this argument will be a winner politically?Report

              • Avatar Roger says:

                I am not interested in the political rhetoric and spin necessary to pacify the masses. I will let the political lizards worry about that.

                I am however interested in social and economic progress. I know I cannot convince the average worker that they OWE their current job and standard of living (and almost certainly their very life and that of their kids) to free markets, and that the cost of this is to play the game fairly. And playing fairly involves not seeking special protected status.

                Nor am I willing to BUY them out with payoffs to losers and a bidding war going to the greatest rent seekers.

                I am however, a firm believer in impartial safety nets as Frog alludes to above. We have great safety nets in America, which is why our poor are better than the average in most of the world. Unemployment insurance and various aid programs add up to hundreds of billion in aid. I wouldn’t spend more, though I would be fine with spending what we do much better.

                If you disagree and want to spend more, please do so. I am quite tolerant.Report

              • Avatar Murali says:

                We have great safety nets in America

                Not really. There are ways in which you could structure your safety nets so that they require less money and/or do a better job of cushioning blows that arise from the vissicitudes of the globalised economyReport

              • Avatar Tom Van Dyke says:

                With all due respect, Singapore is a city-state that sits astride lucrative sea lanes. Like ancient Athens. There’s no excuse for anything but a thriving polity.

                Come to think of it, Athens 2012 has all those groovy safety nets in place, yet…Report

              • Avatar Roger says:

                I think the rest of my paragraph already agreed with the first part of your reply.

                I am not sure I agree with the second part though. I do not think it is wise to turn a safety net into a hammock. Two years of unemployment insurance is probably way too much.

                I know a LOT of people that are free riding today, milking unemployment insurance and disability and college aid. It is actually worrisome.Report

              • Avatar Murali says:

                Roger, better cushioning from the economic downturns does not mean turning it into a hammock. As previously discussed, one of the big problems in America is moving to where the jobs are, or finding new jobs because the current skill set is not well suited to the job market. I’m open to the idea that through just poor and inefficient management of funds, the US government isn’t doing an adequate job of providing these services. I know that the current healthcare provision system is broken and deeply inefficient. I know that your social security system is as inefficient as hell. And your unemployment assistance is probably over provided in some places and completely inadequate in others.

                My first best solution is to correct all of this, making it cost less, do more where necessary and do less where unnecessary.

                My second best solution is just keep it doing the same thing more or less and making it more efficient by maybe means testing the whole thing (leaky bucket and all).

                Then I change that to my thrid best solution as my new second best solution is to do that plus cover areas that are genuinely inadequate. All 3 are pareto improvements on the status quo, and getting people back on their feet is important. getting people a roof over their heads is important and making sure that at least children are adequately nourished is important as well. Yet, for all the money you guys spend, I see a lot of homeless and jobless guys in Tucson. with 45% of your budget spent on entitlements, where the hell is your money going? Why do your public schools suck so bad?Report

              • Avatar Roger says:


                I certainly am not arguing that we couldn’t spend our trillion substantially more efficiently. But asking a bureaucratic monopoly to spend money wisely is like asking a child molester to watch your kids. We get exactly what you and I expect it… It wastes money, subsidizes rent seekers within and without and actively seeks to propagate the very problem the casual observer would assume they are intended to solve.

                I doubt any are pareto improvements. Rent seekers, politicians and bureaucrats will all loose out.

                All that said, our poor are quite well off. Good nutrition, good health, better consumption than the middle lass of a generation or two ago. Thei problems are in education, and once again note the incompetent bureaucratic monopoly.

                We could learn a lot from Singapore.Report

              • Avatar Kim says:

                Because power wheelchairs cost so much more than cars??
                Oh, wait, I thought we wanted these people to become self-sufficient!

                Your words belie your morals. I question both at the same time.Report

              • Avatar Kim says:

                Most of the “jobless” guys down there went back to Mexico years ago.
                As to why you see so many? Because they’d rather not have their feet freeze off in Pittsburgh. It’s a hell of a lot easier to live under a bridge in Tucscon.

                Now, if you want to know why you have theoretical physics graduates manning a McDonalds… that’s a different story.Report

              • Avatar clawback says:

                Right, and your position nicely illustrates the attitude typical of the right. Yeah, we want free trade, but anyone dislocated by it is a lazy moocher, so we’re not willing to dedicate any of the surplus from free trade to ensure its benefits are shared widely. Thank you for illustrating the naiveté of the post, which reflects the attitude typical of technocrats who discount the importance of political realities.Report

              • Avatar Roger says:


                I am not of the right. I did not say anyone dislocated is a lazy moocher. I did not say we should not ensure the benefits of free markets should not be used to build safety nets.

                If you are interpreting what I wrote that way, you really are not trying to read what I wrote. Seriously. Are you interested in having an honest discussion? Please let me know one way or another, it can save us both a lot of time.Report

              • Avatar clawback says:

                Roger, my purpose was to make a simple point about the political difficulties standing in the way of free trade. You helpfully stepped up and illustrated my point precisely, so thank you.

                As to your specific objections, you didn’t say lazy moocher, but you referred to “free riding” and to “milking” this or that and even something about “hammocks”, which is close enough. You certainly did say nothing should be set aside for those dislocated by free trade since you ruled out any expansion of the safety net. I don’t care how you self-identify; all of your positions and rhetoric on this issue are entirely consistent with what one could find on right-wing TV or talk radio.

                But again, I’m not interested in debating you on this issue, just grateful for your stepping up to illustrate my point.Report

              • Avatar Roger says:

                Can I point out a minor little logical gap in your thought process? You have repeatedly assumed away the assistance and benefits that displaced workers already get.

                Your argument basically simplifies down to… If you give displaced workers more than they already get today, even if they were beneficiaries of free markets in the past, then we can buy off their complacency.

                Let me challenge you… can you imagine possible counter arguments to your position that are well intentioned? Go ahead, see how creative you can be.Report

              • Avatar clawback says:

                No thanks, Roger, I think I’ll pass on guessing how you think someone could have already benefited from a policy that isn’t in place yet.

                Again, if you’d read my comments you’ll find that you don’t have to convince me of the benefits of free trade. I was exploring the political aspects of the issue, which you’ve already said you’re not interested in.Report

              • Avatar James Hanley says:

                can you imagine possible counter arguments to your position that are well intentioned? Go ahead, see how creative you can be.

                No thanks, Roger, I think I’ll pass on guessing how you think someone could have already benefited from a policy that isn’t in place yet.

                As several of my profs told me over the years, if you can’t make your opponents’ critique of your own position, then you don’t fully know your own position.Report

              • Avatar Kim says:

                I find it far more fascinating to look at somewhat more friendly arguments. My opponents are far more predictable, and depressingly self-important than my friends.Report

              • Avatar clawback says:

                Kim has it exactly right.

                James, I guess you forgot the part where your profs told you that if you have time to try to make a logical case for an illogical position you need to find something better to do with your time. In any case, since you’ve already agreed with me:

                I hear liberals regularly talking about assistance for those negatively affected by free trade. Fine. It’s not their fault their factory shut down, so let’s help them out.

                that makes Roger your opponent as well. So maybe you’d like to take a shot at turning his position into something coherent. I’m sure the exercise would help you to fully know your own position.Report

              • Avatar James Hanley says:


                It’s Friday, so I don’t want to make this ugly (let’s get the weekend off on a good footing, eh?), but I have two very significant disagreements with your response.

                I guess you forgot the part where your profs told you that if you have time to try to make a logical case for an illogical position you need to find something better to do with your time.
                You are assuming that a libertarian position is illogical. But as I noted, you are unwilling to take the time to explore it well enough that you can actually make the libertarians’ argument for them, so it’s premature to declare it illogical.

                In any case, since you’ve already agreed with me:
                “I hear liberals regularly talking about assistance for those negatively affected by free trade. Fine. It’s not their fault their factory shut down, so let’s help them out.”
                that makes Roger your opponent as well.

                You misunderstand that kind of agreement. I accepted your point for the sake of argument. That is, I didn’t want to get hung up on arguing about that particular point, but wanted to address something else. So for the sake of argument I accepted your premises and asked about what (it seemed to me) ought to logically follow from them. That doesn’t mean I’m actually wedded to that particular point.

                And to the extent I phrased it well enough to make it sound like I believed it, it’s because I understand it well enough that I can present that liberal argument fairly, without snark or mis-representation. Which is all I’m suggesting that you should do.

                It doesn’t matter if you see us as an enemy. The old saying is “know thine enemies,” and good military strategists can vouch for that (see, for example, Sun Tzu’s chapter on the use of spies to gain knowledge of an enemy. The less well you understand libertarians, the easier it is for us to not take you seriously–and since you’re obviously intelligent I’d much prefer that you keep making it necessary for me to take you seriously.Report

              • Avatar Kim says:

                Bullshit. You I can count as a friend. There are others (Koch among them) that I will never count as a friend. You can make reasoned arguments in good faith, and good ones to boot.

                But dashed if I’ll ever count you as the enemy.Report

              • Avatar Kim says:

                I know my enemies, and you ought to as well, for they’re yours as well. 😉 Both liberals and libertarians will get only laughter from me, if they mock themselves up as enemies. Two sides of the same coin, tilting at windmills from two sides.Report

              • Avatar James Hanley says:


                Ideological enemies, not personal enemies.Report

              • Avatar Kim says:

                Brin would put it better than I shall, no doubt. But to mistake two squabbling ideological siblings for enemies is to make a grave mistake indeed! They both look forward, tinkering and fiddling with everything, with that strange and fickle confidence that they can make things better. And with the idea that by experimenting, by numerical validation, they can arrive at “good solutions”. Not by mere oration, not by mere persuasion.Report

              • Avatar clawback says:

                James, again, I was interested solely in examining the narrow issue of the political difficulties in implementing free trade. I’m not interested in any broader issue of doing battle with the libertarian enemy or some such. I think I’ve made it clear that on the specific issue of international trade I’m in almost complete agreement with most libertarians. My sole area of disagreement is my contention that free trade is politically impossible in the absence of a robust safety net.

                But, heh, since I’ve clearly failed to get anyone else interested, I’m happy to let it drop.Report

              • Avatar James Hanley says:

                My sole area of disagreement is my contention that free trade is politically impossible in the absence of a robust safety net.

                Well, I do think that’s an interesting question. I won’t pretend I know the answer. England managed to do it in the late 1700s without anything approaching a safety net, but that was before people became aware of the real potential of governmental safety nets, so it’s probably a wholly irrelevant example today.

                I think an argument could be made that in the long run it’s possible, because the more dynamic the economy is, the more quickly declining sectors can re-boot. But that doesn’t get to the up-front, here-and-now, issue.

                Of course we free traders could just shoot all the opponents (cheer up, that would include most capitalists!), then we wouldn’t have to worry about the political opposition.Report

              • Avatar clawback says:

                Hmm, yeah, early Industrial Revolution England seems like a special case, since surely it’s easy to argue for free trade when you’re the first industrialized economy and you’re sucking up raw materials far faster than can be produced locally and spitting out finished goods to a world eager to get them. But my grasp of that history may be superficial.

                I think regarding manufactured goods I’m cautiously optimistic about US prospects for free trade, primarily because the large, politically powerful industrial companies are far less influential than they were several decades ago. I know my own Midwestern city has more small, export-oriented manufacturers than we had thirty years ago, and these have neither the means nor the motivation to push for protectionist measures. Meanwhile the former large industrial behemoths are far less influential either politically or economically. This evolution hasn’t been accompanied by widespread disruption, honestly; just the well-known fact the new jobs don’t pay as well and require specialized skills, which brings me back to the safety net. But the evolution has been somewhat gradual; I think any sudden changes in trade policy would be more disruptive in the absence of a more robust safety net.

                On the other hand, agricultural trade barriers are, in my view, a huge problem. Your sugar tariff example is the poster child — just a horrible policy; but the elaborate system of subsidies and barriers throughout the system are equally bad. No idea what can be done about it; this result seems baked into the American political system, with its out-sized influence going to rural states.Report

              • Avatar Roger says:

                “My sole area of disagreement is my contention that free trade is politically impossible in the absence of a robust safety net. But, heh, since I’ve clearly failed to get anyone else interested, I’m happy to let it drop.”

                I basically agree, though I would say it is “less politically practical.”Report

    • Avatar James K says:

      Use whatever influence you have to change that fact. And if you have no influence, then why bother discussing second-best solutions at all?Report

    • Avatar Will H. says:

      Moving expenses are deductible in full from income under the tax code.
      That’s one of those on the first page of 1040– you don’t even have to itemize.
      You have to shell out the money in advance, but the amount of assistance given is the same as the marginal rate.Report

  7. Avatar James Hanley says:

    I think a lot of James’ post implicitly incorporates Bastiat’s argument about what is seen and what is not seen. Some effects are just more visible than others, but to really understand the effects of a policy change we have to look at the less obvious effects, too. That’s why he breaks down the class-based analysis more finely, and why Blaise P. is right to note the role of intermediate components.

    Bush’s steel tariffs are a classic example. Intended to protect the steel industry against an influx of low-cost foreign steel (well, probably intended to protect against job-loss induced vote loss in steel-producing states), the tariffs increased costs for steel using industries, which have a lot more jobs than the steel producing industries. The net effect of the tariffs appears to have been a net job loss–those jobs saved in the steel producing industry were more than offset by those lost in the steel using industries. And most of those lost jobs in the steel using industries went overseas, because that’s how the firms could keep getting the steel at lower cost. The tariffs were only on raw steel, not the steel in finished goods.Report

    • Avatar Stillwater says:

      The net effect of the tariffs appears to have been a net job loss–those jobs saved in the steel producing industry were more than offset by those lost in the steel using industries.

      I know you’re an empirical guy, so I wonder two things. The first is whether and how a conclusion about a complex system like the foreign/domestic steel industry could be reduced to only a single causal variable (tariffs); and what the empirical evidence that you base your judgment on? (Note: I don’t need a detailed argument here, since I don’t understand econ-ese. A short take is good enough.)

      It seems to me that the first order job losses from not imposing a tariff are the loss of domestic steel-manufacturing jobs. But there is a second order effect from those losses which directly follows: the loss of jobs in firms that rely on steel-manufacturing firms and the loss of non-steel manufacturing jobs in communities depending on steel manufacturing income. It’s this total that needs to be balanced against the loss of jobs from steel-using industries, it seems to me – and of course, the correlated losses from those firms closures/cutbacks. I know in the real world this stuff gets horribly complicated. So I guess that’s why I’m asking.Report

      • Avatar James Hanley says:

        Economic estimates. The U.S. steel industry was struggling, had been for a while. It was still reliant on late 19th century technology, and was only slowing modernizing. (In fact not all steel producers favored the tariffs–the ones that had modernized weren’t in need and didn’t support them.) Looking at how much steel was being imported gave a rough estimate of how much U.S. production was potentially being replaced (although since the U.S. also exports steel, it probably overstated how much would be replaced), which gave an estimate of how many jobs would be lost without the tariffs, hence how many were saved.

        On the steel-using side, looking at the reduction in jobs in those industries during that time, including looking at the number that were outsourced, gives an estimate of how many jobs were lost.

        As to the second order job losses–you can probably assume it’s roughly equal. Whether it’s a steel industry worker losing his job or an appliance manufacturing worker losing her job, they reduce their spending in the local economy in similar ways. But since steel using industries, being mid-point or end-range product producers, rather than initial input producers, probably support more affiliated jobs. That is, there’s not that many input jobs into steel manufacturing, beyond mining for ore and coal. But appliances, cars, etc. have a lot more inputs than just steel, so reductions in their production probably have bigger ripple effects. (E.g., the concern about saving GM recently wasn’t just about GM employees, but also about the large amount of jobs among auto parts suppliers–there’s not a single car factory in my town, but there are several firms that supply inputs to the auto industry, including Delphi, PPG, and two chemical manufacturers).Report

        • Avatar Kim says:

          I can look all up and down the river, clear out to West Virginia and Greenwood back east, and see the folks that lived for steel (or glass, in the good ol’ days).

          Not to say that you aren’t right, just that steel was an awful lot of work. Coal yes, but coke too, and wood, and mining to get the ores…Report

        • Avatar Stillwater says:

          Nice. And thanks!Report

          • Avatar James Hanley says:

            You’re welcome. And you’re right that it gets complicated, which is why I rely on others to do the hard work, then just repeat the things they say.Report

  8. Avatar Roger says:

    Excellent James

    Science, sports, and free enterprise are structured, constructive, competitive-cooperative activities that have been discovered to add value within their domains.

    They add value or solve problems by a process of competing to cooperate, and cooperating to compete within a set of structured rules. In science, scientists compete to be the first and best to explain natural phenomena to the satisfaction of the other scientists. They compete to create and share knowledge. In sports, athletes compete to win the game for the entertainment of either themselves or an audience. In markets, people and firms compete to solve consumer problems better than others. They compete to cooperate with consumers better according to the agreed upon rules.

    As James clarifies, markets lead to rising levels of prosperity. They actively produce it. Each generation becomes better off than that before it. Rising tide, etc. Indeed at two percent annual growth, our ancestors will all be millionaires, and today the poor live better in many ways than dukes and earls of Adam Smith’s time.

    However, competition implies winners and losers during the game. Some scientists are the second to discover a theory, and they get little or no respect or acknowledgment. Some athletes fail to score, some teams have losing seasons.

    In markets, some firms fail, some sellers lose sales opportunities, some applicants miss out on jobs, and so on. Market’s require structured competition to create value, but the competition requires losers as well as winners. The problem is that nobody wants to lose, so they try to rig the game so they get special protection. They try to give special status or rules for themselves at the expense of the value creation mechanism. This is especially prevalent with incumbents.

    As James points out, we do need to worry about losers, and we do need to worry about every one of us actively trying to rig the game for our own special advantage. That is where safety nets come in, which do not have to be market based, though they often can and should be.Report

    • Avatar James Hanley says:

      Indeed at two percent annual growth, our ancestors will all be millionaires,

      Come again? 😉Report

      • Avatar Roger says:

        Let’s change that one to “descendants”Report

        • Avatar zic says:

          Even with the change, it feels like the mantra of the 2000’s: real estate prices will not fall. This is bubble logic, and needs to include a passage on the potential of bubble bursts.

          I don’t believe in the possibility of perpetual growth any more then I believe in the potential for perpetual motion machines. Yet that’s what you’ve laid out here. It only works if you limit your view of time to the point before the resources begin exhausting.

          As a gardener/farmer, it seems you’ve posed the very definition of a pest or invasive species on overworked land. Sometimes, things need to rest, they need to be fallow.Report

          • Avatar James K says:

            At some point he Laws of Thermodynamics are going to get in our way, but we’re a long way from that constraint. There’s enough resources in the Solar System to make us a lot richer than we are, even without accounting for how much more efficiently we could learn to use those resources.Report

            • Avatar Roger says:

              And considering that a virtual hell requires as much energy as a virtual heaven, and considering that GDP is becoming increasingly virtual, I am not even sure that thermodynamics gets in our way.

              Most of my day is spent in the virtual world… Reading, Internet, networks, music, gaming. In another generation or two, one can only imagine the possibilities.Report

    • Avatar Murali says:

      2% will barely keep up with the inflation rate. Even if that 2% is real and not nominal, since inflation hurts the poor more than the rich, you are going to need more than a 2% real growth rate to even have a chance of lifting all boats. What needs to be done to get the US to say something like a 4% growth rate or the inflation to less than 1%?Report

      • Avatar Ramblin' Rod says:

        … since inflation hurts the poor more than the rich…

        This statement always bothers me. Why? Because it didn’t used to, although I concede it might now. In prior eras (basically before the Nixon Shock, see my overly long screed below), price inflation was closely matched by wage inflation, so for the average guy inflation was basically a wash. It was the wealthy who were sitting on bags of money that were most hurt by inflation and who squealed the loudest about it. An increase in the rate of inflation tended to hurt creditors (e.g., banks holding mortgages) while benefiting the borrowers. Any constant rate of inflation could just be factored into interest rates offered so that was basically a wash as well; it was just a change of rate that affected current creditors and debtors.

        Now? You may be more correct since wage inflation doesn’t seem to be matching price inflation any more. Thank-you Alan Greenspan. Jerk.Report

        • Avatar Kim says:

          Yes, thank Greenspan. But point your finger at the current CEOs, who seem to think that they can escape the workers, rather than deal with them fairly.Report

          • Avatar Roger says:

            If there is a problem with a few CEOs, we can probably assume we have a problem with a few CEOs. If we have a problem with many or most CEOs, I would assume we have a problem with incentives or institutions.Report

            • Avatar Kim says:

              Indeed. I can propose many incentives that will help to convince CEOs to not stiff the workers. The first among many would be to remove the current oligarchy/cabal where folks who ruin one business are guaranteed a new job at a different business. The second is to enforce competitive CEO pay rates, via democratizing 401ks (come on, you know you want to short something! Pick gold!).Report

            • Avatar Kim says:

              And, as with all things, there are problems and then there are Problems.

              Certain people attempting to crush the middle class to the point where they can behave as they will (effectively dismantling the modern state, from education to health care to veterans benefits, to women’s sufferage)? That’s a Problem.

              I can point you to a few people if you’re interested in helping solve that particular problem. 😉Report

      • Avatar Roger says:

        In Mark Penninton’s new book, Robust Political Economy, he mentions that if the US had maintained a one percent lower per capita growth from 1870, that our current standard of living would be roughly equivalent to Mexico.

        Growth eats egalitarianism for lunch.Report

  9. Avatar Stillwater says:

    Nice post, James. I think most of my worries on this issue arise from your second point 3: The game changes if you liberalise many goods at once.Report

    • Avatar James K says:

      But it changes in a good way – the odds of anyone losing out falls as the gains from trade are distributed more evenly.Report

      • Avatar BlaiseP says:

        That might be true in the Very Long Run, but in the long run, we are all dead. There is such a thing as too much liberalisation in this proposition, I hope you’ll admit. You’ve sort of addressed this in saying workers ought to be retrained — but to what end? Without a destination for those workers, how should they be best trained?

        In electronics, there’s a term of art called risetime, the time required to turn a bit from zero to one. Though it might be small, it’s not instantaneous. You worry about an economy in stasis, I worry about an economy in catastrophic hysteresis.Report

        • Avatar James K says:

          Economic adjustment is much faster than you suggest – think years not decades.Report

          • Avatar Kim says:

            What do we do with all the people out of work? All the people who can’t get the “Better Jobs”? What do we do when the “Better Jobs” are reduced to something that a dimwit can solve?Report

            • Avatar James K says:

              From the empirical studies I’ve seen, this isn’t really a problem.Report

              • Avatar Kim says:

                I’m seeing it as a problem. Citing the Tea Party as one sink for malcontents whose skills are illused in the current economic system.
                I’m seeing engineers fleeing America looking for work. Maybe you don’t see that as much of a problem, I dunno…Report

          • Avatar BlaiseP says:

            Well, the devil in the details resolves to the degrees of freedom in Free Trade. If a job goes to a country where child labour is a reality and workplace safety is nil, as in the recent sweatshop fire in Bangladesh, is that really Free Trade?

            The Triangle Shirtwaist Fire was the basis for many workplace safety rules. I’m not here to troll the ancient carol of poor victimized folks, but those cheap goods you praise have ancillary costs. The producer of those export goods may gain, but at whose expense? The sad thing is, as those industries expand, they will progressively move the cheapest sources of labour. So much for the old Career Path argument.

            Generally speaking, freedom is the goal when it comes to markets. But if an industry is being subsidised in one exporting country, who can blame the importing county from imposing a tariff on those goods? Why should we allow our un-subsidised industry to die — and furthermore burden ourselves with the cost of retraining those workers to do something else — only to have the cycle repeat itself? It’s economic trench warfare. We have frameworks like WTO to deal with them. We want to maximise freedom, yes. But at whose expense, and whose national expense?Report

            • Avatar North says:

              I hate to disagree with you BlaiseP but sweat shops are part of the equation of economic development both historically and currently. They typically move in and use (Prey/exploit say the liberals, munificently benevolently elevate say the conservatives) cheap labor in a host market. The reason that the workers are clamoring to get in the door, sadly, is that the alternatives are even worse. Scavenging through poisonous garbage, prostitution or starving for instance.

              Eventually as labor costs in the host country rise I agree indeed that those perfidious sweat shops pull up stakes and move elsewhere. Where I disagree is that this is a bad thing. The reason that sweat shops experience rising labor costs is that there’re better jobs cropping up offering better wages and better working conditions. The sweat shops leave because the host country isn’t as poor or desperate as it was (and part of the reason for that change is because of the sweat shops). This isn’t some munificent act on their part; they’re ruthless people grinding businesses on the prowl for the marginal buck but the macroeconomic outcome is highly beneficial. So the old career path argument stands, just not within the same company. I’ll note that China of all places is beginning to show green shoots of just this phenomena. Take for instance this article:

              To your last paragraph certainly merit that vigilance against ridiculous subsidies is warranted but it’s important to keep in mind what national subsidies amount to in practice: they are essentially other countries giving the buyer country (us) free stuff. That’s very helpful to us. Why should we allow a non-subsidized industry to die? Well it depends, sometimes our workers could do better doing something else. Obviously that’s a hard position to take vis a vis a traditional (or community upholding) company but it may be the least painful truth. I’d also disagree that it’s economic trench warfare. When we’ve liberalized our trade we’ve enjoyed higher standards of living and our trade partners have pulled up out of grinding poverty. Our workers stopped making steel and instead started investing in high tech. Now we’re getting so advanced it’s beginning to look like high end manufacture could be coming back home to the U.S. while the trade partners are happy to make our low end geegaws. On the other hand trade protectionism has given us sky high sugar costs (as you aptly noted elsewhere the Brazilians grow sugar cheap enough to fuel their cars) and in retaliation poor countries uphold barriers against products we could sell them (financial services for instance) and both of us lose. If anything is trench warfare it seems to me like subsidies and other methods of protectionism fit the bill better.Report

              • Avatar Kim says:

                Manufacturing never left.
                In all this increasingly juryrigged “global economy” I see very little thought spared for peak oil.
                An unwise investment if you ask me.Report

              • Avatar North says:

                Yes yes you have a point. The US never stopped manufacturing the outputs but the massive numbers of manufacturing jobs did leave. We make more stuff now with many fewer people (and many more robots) than we did back in manufacturing’s heyday.
                And now, with 3-d printing starting the emerge even more of that manufacturing is becoming plausible for the US again.Report

              • Avatar BlaiseP says:

                That’s all true, in a partial sense. A certain number of the world’s people live in garbage dumps and some burn to death in locked factories and suchlike and there’s always going to be some of that going on. But why do we have to tolerate so much of it in the name of progress? These are arguments out of the Gilded Age. At some point, a level of revulsion was reached and we put an end to that sort of thing here in the USA with the Progressives.

                We’re beyond reasoning with these abusers, North. When we shine a light on them, they all scuttle away like so many cockroaches. Is it so hard to say “Goods imported into the USA must not be made by children smearing toxic glue onto the soles of shoes.” ? Confronted with the reality, the scope and magnitude of these crimes against persons, everyone suddenly develops a conscience. But let the confronter say “there is a moral imperative to all this”, lo, here comes the cavilling and weaselling and Free Marketeers to tell us that’s a crock and to tell us those children work in those factories in a consensual relationship with their employers. They manifestly do not. One hundred and twelve women burned to death in an unsafe factory and goods they made are on the shelves of Walmart and Sears this very minute.Report

              • Avatar North says:

                I would agree absolutely and with no caveats that without our own polity and the territory we administer the government is 100% justified, empowered and indeed morally obligated to enforce rules against sweatshop practices here. We need not forget, of course, that the US inhabited a different economic and technological world than current developing economies do now.

                That said enforcing rules against sweatshop labor on our trading partners strikes me as impractical. We truly cannot enforce those rules on foreign businesses with any assurance of success and our efforts in this area would be viewed by those other nations as both arch protectionism and imposition of our laws on their nations. You and I both know that such actions would be fiercely resisted and retaliated for with retaliatory trade protectionism which would usher us towards the trench warfare of a trade war. The proposed cure, I fear, is worse than the disease. We know, from our own experience and from recent history, that the disease of sweat shops can be most effectively cured by fostering economic development and responsible governance in the countries where they set up shop. Fortunately sweat shops marginally increase the former and economic development in turn tends to produce pressure for responsible governance.

                I do, however, endorse the idea of non-governmental forces working to fight sweat shop. If first world countries could create a buyers culture that supports a market for humanely manufactured consumers goods then much good could be generated by the industry that would spring up to service it. Foreign governments could not retaliate against non-governmental advocacy groups (though doubtlessly they’d obfuscate and struggle against them anyhow) and such a movement could accelerate the positive process of development in the developing world. Organized labor may even have a place in this, if they could only export their ideals and methods to other countries.

                We mustn’t forget, in the justifiable indignation we feel at the deaths of people in the way you describe, that we in this very country went haltingly through the very same steps that these other developing nations now are embarking on. We did not have some outside power descend upon us and force us to institute humane working conditions. No, the rising tide of economic development and our own evolution as a moral people gave rise to the organized labor and public attitudes that forced the sweatshops off of our shores. I see no reason why we should expect that other nations of people would meekly bend their necks to us forcing them to adhere to our labor laws. I’ve read your magnificent writing about the fierce independence of the people in Afghanistan and Pakistan. I think that deep in your heart you don’t think foreigners would let us rule them this way either.

                Our goal shouldn’t be to try and force developing nations to go through the motions we went through; it should be to smooth the path so they can pass as swiftly up the steep stairs of economic development to join the first world and then for both of us to repeat the process until every nation on the planet is part of the first world. Then, finally, the sweatshops will have nowhere left to scuttle off to and they’ll perish from history with none to mourn them.Report

              • Avatar BlaiseP says:

                Why the reticence to extend this moral imperative any farther than our own shores? Really, North, it doesn’t need to be a matter of settled law. You know those laws which say an item must bear the country of origin? Why not take things that much farther along, say, write up a regulation which says the destination country could stop by to take a look at working conditions and take pictures and interview the workers?

                That would solve the problem quite nicely. As you say, we can’t enforce EEOC or our own workplace safety rules, but merely Shining the Light on them would be enough of an ethical constraint to give shoppers pause.

                I contend the straw which broke the camel’s back during the Civil Rights struggle was the televising of the riot on the Edmund Pettus Bridge. It changed everything, North. River Rouge changed everything. Stonewall changed everything. The forces of evil are utterly dependent upon the rest of us making excuses for them. Oh, it’s not happening within our borders. Oh, they’re just poor people glad enough to get a job. Oh, it’s the Free Market at work, we can’t do anything, the problem is too large, the proposed solutions too impractical. This is all so much fearful hand-wringing of the most pernicious sort. There is a moral imperative which applies to us all as human beings. It is embodied in the Rights of Man.

                The problem of civil rights was not solved haltingly. It happened, as does every evolutionary breakthrough, as a catastrophe, an explosion. At some point, ordinary people will reach a sufficient level of revulsion and it will all spew forth and it won’t be a pretty sight. It’s evil which progresses slowly, crab-walking its way into the world, picking off its victims one by one by one, quietly casting aspersions on any who dare to oppose it.Report

              • Avatar North says:

                Call it a reticence to extend our moral imperatives by force beyond our shores then Blaise. Call it a prudent hesitation to mess with what has worked tolerably well. More information? I’m 100% for it but frankly as long as it’s a government that’s demanding to be the one providing it other governments will resist that. I’m all for shining the light, I just think NGO’s could do this with a lot less difficulty than our own government can.

                Your point about incrementalism is well taken but I submit that low wage manufacturing (aka sweat shops) is a step in economic development that we lack the power to get other developing countries to skip over (frankly I doubt that, short of annexation into a first world country, it’s even possible for developing nations to easily skip this step). We didn’t skip it, we went through it. Japan and South Korea didn’t skip it, they went through it. We levied no special sweat shop targeting penalties at those nations and yet the sweat shops ended up moving to new locales. Assuming that such a process repeats itself is it worth the screaming and trouble to interfere with the process where it’s occurring in China and other nations? I can agree that the horrible abuses that happen in sweatshops are vile but I hesitate to place them in the same category as outright slavery.

                And indeed, we can talk about the moral imperatives embodied in the right of man but if we go down that path then where does it take us and our limited resources? Not to Asia to crusade against sweat shops, no it’d point us to Africa to crusade against slavery, child soldiers and other horrors. It’d take us to the Middle East to try and strike the shackles off the women there.

                I don’t mean to make excuses for these things; it brings no joy to my feeble luke warm liberal heart and I value the free market not an iota beyond my assessment that it works more productively than any other system we’ve tried out. That said I don’t see a trade war over sweat shops being in our interests or in the interests of those we are purporting to help.Report

              • Avatar BlaiseP says:

                Has it been tolerable? I’m not convinced it’s worked all that well, even on a financial basis.

                Lest I again invoke the tiresome spectre of BlaiseP telling yet another Personal War Story to prove his point, I’ll first accept the notion that low wages in some far-off land is not a violation of human rights. But there are limits to that stipulation. When MacArthur was rebuilding Japan, he introduced the trade union. The Japanese workers, to MacArthur’s consternation, promptly leapt into bed with management.

                In my own life, I’ve previously said I’ve owned a restaurant in Guatemala for many years, where I pay my employees rather better than the surrounding businesses. Still, in fairness, those employees aren’t even earning a quarter of what it would take to live in the USA. Things are cheap there, what can I say?

                There’s a difference between a workshop and a sweatshop. Paying people a living wage really doesn’t cost that much more. The problem isn’t some Greedy Multinational Corporation attempting to grift and demean the lowly worker in some far-off land. The abusers are the native middlemen. They treat these workers so abominably and most of the time the GNC doesn’t even know it’s happening. They go down to the Port of Los Angeles and open the shipping containers. That’s about it. Half the time, they’ve subcontracted the manufacture to another corporation entirely.

                Look at Apple and its relationship with Foxconn: Apple’s now going over there and sorting that mess out because those abuses are bad for Apple’s image and brand. That wasn’t the result of the US government going there and inspecting the factory. That was worldwide news, when those workers started jumping off the buildings. But Apple can’t control Foxconn.

                These abuses happen in silence. The First World Guy goes over there in good faith, builds a factory, but he doesn’t actually hire the workers or even the guys who built his factory. That’s all done via middlemen, per government regulations on their end. Now if they get to insist on their rules and their bureaucracy, we can push back along exactly the same vector. And yes, it will take some intestinal fortitude from the US government. NGOs can only do so much. NGOs start snooping around, the foreign government revokes their visas.

                Look, these countries want the jobs. They’re all competing for them. Give them some positive incentive to cooperate and some negative incentives if they don’t.Report

              • Avatar North says:

                I suppose it’s possible Blaise, hell, you’d have a better idea than I. My skepticism lies in that I’ve seen and read about countries developing and the sweat shops taking off. I haven’t read about the US successfully exporting their humane labor standards abroad by the force of trade agreements. Now maybe that only means that there hasn’t been a politician tough or savvy enough to force this or maybe that means that a developing nation is gonna fight like crazy against those kinds of impositions. Remember of course that our own companies will fight like mad against it too and so will whatever party is in opposition so our hypothetical tough politician is getting it from three different directions.

                Your story about Japan strikes me as pertinent. I mean we were literally running the country and things still didn’t play out as the American backed temporary dictator has fancied. Even imagining some kind of trade deal you and I both know a developing nations enforcement is going to be utterly lax and if we’re talking about a US agency going out there and poking about then are we not then talking about creating another new Federal agency? What’s the over/under on the regulatory capture there? And unless we cut this deal with every developing country (somehow) the sweatshops just pop up in the ones we don’t. As you yourself observed these phenomena are local. The natives do it to their own and the corporations just get the numbers on the spreadsheet.

                I dunno, I can just go on protesting because the problems strike me as myriad and again I keep unhappily wondering “Is this gonna work?” and “Is the return in human lives improved going to be big enough to justify the cost?” and god(ess?) help me I can’t even convince myself for sure that we’d break even in the human lives improved department with such a setup. And again that’s assuming an utterly astonishing politician to somehow make it happen.Report

              • Avatar Kim says:

                we don’t need trade agreements to export labor standards. China is adopting them itself, purely to create a more stable country. See minimum wage, for example.Report

  10. Avatar zic says:

    It just sounds like so much equality, finally, when all the world’s a strip mall and all countries have risen/sunk to the same economic level.

    Rather reminds me of The Lathe of Heaven, where he dreamed everyone was equal, and woke to a world filled with grey men.

    I do not believe the equations of efficiency. They’re for a the Matrix Machine world, not the world of living, breathing people. Inefficiency in trade, in production, in price provide work, provide security, for individuals, for families, and for communities. It’s seriously undervalued.Report

    • Avatar James K says:

      Often inefficiency brings security in the sense of “you will always be poor, so you can count on it”. Medieval serfs had a lot of life stability (until they hit a year where their highly inefficient agriculture produced too little food for them and their family to survive). A lot of the “insecurity” of a modern economy is the risk that you’ll only be 20 times richer than pre-industrial people, rather than 100 times richer.

      I don’t believe inefficiency generally improves security at all. Buying local makes you more vulnerable to adverse local conditions, production inefficiency means there’s less to go around, price inefficiency means there are more surpluses and shortages.

      To the extent a modern economy is too insecure, there are better options than damaging the thing that has pulled us out of the mud.Report

      • Avatar Kim says:

        Yes we have no Bananas!
        … does that help to make it clear?
        If not, I’ll reference just in time, a NOTORIOUSLY fragile “efficient” system that even it’s creator worries about.
        One day’s worth of food in Manhattan at any given time. Two-Three days in most major cities.Report

  11. Avatar Ramblin' Rod says:

    Here’s my big post on trade, as promised. I’m a huge fan of both trade and free markets. Sure would like to see me some. While I agree in principle with the libertarian ideal of no tariffs, quotas, etc., I’d also like to see them pay some attention to the huge subsidies we currently lavish on foreign imports. It’s all about money and the Federal Reserve. To understand where I’m coming from, let me develop the argument:

    Ricardian Comparative Advantage is basically a theory of barter. English cloth for Portuguese wine. Each country’s comparative advantage lay in a combination of natural advantages such as climate and developed expertise in the respective industries. These advantages are really differential advantages in productivity. TMK, it didn’t address the question of absolute advantages in such things as wage levels. And, as noted above, it didn’t really address the issue of trade conducted through the medium of money.

    Smith, on the other hand, explicitly addressed the latter issue and the concerns of mercantilists who worried about all the money going overseas due to trade deficits. It’s important to note that Smith was a strict metallist about money. To him, money was gold and gold was money, full stop. So in a sense, Smith’s theories were also about barter with gold serving as the universal trade commodity. It’s often claimed that Smith definitively proved that trade deficits didn’t matter. That’s not really the case. Actually, Smith’s thesis was that trade surpluses and deficits were self-correcting and therefore no governmental intervention was necessary. The mechanism was fairly simple. If country A was running a trade surplus with country B then money (gold) would pile up in country A and become relatively scarce in country B. This would cause the general price level to rise in country A and fall in country B, which would then make exports from B to A more attractive until a new balance was achieved. A second part to his argument was that trade is never really just bilateral and so it’s silly to worry about trade balance with any particular country since gold can and would be repatriated by more circuitous routes.

    Of the two arguments, the second is the most sound. Just as you’re not going to lie awake nights worrying that the grocery store that you’re constantly spending money in rarely if ever buys anything from you, there’s no reason to worry about the balance of trade with any particular country (i.e., China). However, there’s a big problem with this first argument. Perhaps he didn’t understand the dynamics or just chose to ignore them* but, to put it succinctly, deflation sucks. Big time. As a corrective mechanism it’s fairly brutal, causing an economy to plunge into punishing bouts of recession and depression. When money is becoming more valuable and prices are falling, consumers are incentivized to hoard cash in the hopes that the price of whatever they may want to buy will be cheaper next week, next month, or next year. Consumer demand drops, production falls off, unemployment rises, even fewer people have money to spend, and it just all goes into a death spiral. Eventually, prices bottom out and the economy recovers, but in the meantime a lot of people suffer.

    Recognizing that this dynamic was less than ideal, yet desiring the gains from international trade, the major industrial economies of the world entered into a post-WWII agreement, largely devised by Keynes, called the Bretton-Woods accords. It established a system of fixed exchange rates relative to the dollar which, in turn, was pegged to gold at a value of $35/ounce. This also established the IMF which served as a mechanism for smoothing out imbalances in trade and currency flows. I’d be lying if I said I totally understood exactly how this all worked. But the result was that from the signing of BW, until it’s eventual repudiation by Nixon in 1973, the U.S. maintained an overall trade balance, with only little temporary blips of surplus and deficit.

    Was it a good plan? In the sense of doing what it was designed to do, yes. During that time we experienced no major deflationary recessions, certainly nothing like what we’ve seen since then. But my sense of it is that it was unsustainable long-term, and many (most? all?) economists believe it was responsible for restraining growth. Personally, I think it’s a case of right diagnosis, wrong cure. And that wrong cure was motivated by a continuing belief in “sound”, metallic-based, currencies, a belief that almost no reputable, mainstream, economist currently holds.

    Since the collapse of B-W in 1973 at the unilateral hand of Nixon (dubbed the Nixon Shock), the U.S. has run a perpetual and growing trade deficit. That’s also the exact point, that I term the Great Divergence**, where a number of important indicators suddenly shifted. Wages, which had previously closely tracked productivity growth, stagnated. The overall CPI, which had for the entire post-war period ran at a pretty consistent 2.3% rate of inflation, suddenly shifted permanently to 4.3%. This is also the point at which the CPI for professional services–medical, legal, educational, financial, etc.–diverged sharply from the overall CPI. I’ve posted the graphs before and they’re stunning. Just this really sharp knee-bend from one constant rate to a different subsequent constant rate. Inequality, as expressed by the GINI coefficient, which had been steadily declining over the twentieth century started to sharply rise in the ’80s. The correlation with the Nixon shock isn’t as clear, but given all the other indicators I find it hard to believe that it isn’t a lagging indicator from the same root cause.

    So what’s the mechanism that ties all this together? Well, it’s interesting to note that the latter half of the ’70s were characterized by an economic phenomenon that had the econ professors scratching their heads. Stagflation. A period of relatively high inflation and high unemployment, despite high interest rates (typical mortgage rates were in the low teens). These aren’t supposed to go together. It wasn’t until Volker took over the Fed under Reagan, clamping down on the system with high Fed funds rates and triggering the ’82 recession that inflation was brought under control. I’m not entirely sure what all the Fed was doing in that period (since the Fed’s operations are notoriously opaque) and subsequent that’s different from earlier eras, but the result has been relatively modest base interest rates combined with a strong dollar policy.

    This strong dollar policy is precisely the stealth subsidy to imports that I referred to way, way, way up above (sorta gave up on me getting back to that, huh?). Have we had stronger growth? Maybe. That’s not clear. But we sure have had bubbles, huh? My own pet theory here is that the Fed is managing money basically the same way it always used to without really taking advantage of the fact that our currency is now fiat. But that failure isn’t accidental, since the Fed is owned by banks and our financial sector (Wall Street) has done very well under this new regime, thank-you very much.

    So what would real free trade look like under a fiat currency regime assuming the goals of B-W still operated (i.e., avoiding punishing deflationary recessions)? Simply allow dollars to flow overseas and make up the difference through deficit spending without calling it that. Just spend whatever extra you need from printed dollars to keep the domestic money supply stable (with a modest inflation bias) and don’t figure it as debt that has to be repaid. Because it doesn’t need to be.

    The result of such a policy would be dollar devaluation overseas which would make imports more expensive and exports more competitive, realizing the mechanism outlined by Smith oh so many years ago, while avoiding the harsh medicine of domestic deflation. You couldn’t do something like that with gold-backed currency but there’s no reason not to do it with fiat money.

    * Smith was pretty plugged into the moneyed elite of his day. Deflation is great for creditors like banks, so it’s easy to understand if he had a blind spot for that.

    ** Various writers use this term to describe the divergence between productivity and wage growth and others use it to describe the subsequent rise in inequality that became evident in the ’80s moving forward.Report

  12. Avatar Citizen says:

    Tribulations, severe trial, and suffering. What do you say to a laborer who has moved 28 times in 2 decades. Why would you ask him to train for the umpteenth time? What do you tell the children who will lose yet another set of friends? The kids become melancoly, eyes glazed over muck like soldiers that have had to many explosions occur to close.

    East coast/west coast has had it reasonably easy. Central and south are looking for the music and bonfires to start. When hope dies for “next year” people, there is no vision of next year.Report

    • Avatar James Hanley says:

      The only people I know who’ve job hopped that much are those who can’t make themselves keep a job, not ones who were forced out of job after job by circumstances beyond their control. I have a friend of a friend who’s one of those people. Went without a job for an entire winter–no water in the house, no heat, the family sleeping huddled on the living room floor. Not that he was looking that hard for a job. When he found one, his very first purchase was satellite radio to listen to on his drive to work, not getting the heat back on in the house. He was also immediately planning his next great career move, and couldn’t wait to get out of the job he’d just gotten.

      I feel bad for his kids. I don’t feel bad for him at all.Report

    • Avatar James K says:

      I have to question how often that actually happens and to what extent trade is responsible.Report

  13. Avatar Murali says:

    What do you say to a laborer who has moved 28 times in 2 decades.

    A number of things:

    1. Think more carefully about where you want to move next and don’t go around moving like a headless chicken


    2. Maybe the problem is not with free trade, but with you.

    Because, while it is not impossible that over 2 decades someone would be unable to keep their job for less than a year on average through no fault of their own, it is really unlikely. It may not be the workers’ fault all the time or even most of the time, but at least some of the time, it is. And when you have moved 28 times in 20 years, the probability that it is your fault is very high.Report

    • Avatar Citizen says:

      It has taken some time to realize I have lived the majority of my life in the poorest regions of this country. 1. and 2. ring very hollow for many reasons. I guess you have to live it in color.

      The point is that a problem exists. How it may be reasoned away or ignored is not my interest.

      BTW, excellent series James K., I’ll stay quiet for the rest.Report

      • Avatar James K says:

        There’s a question of attribution here. While I’m sure there are people in as much trouble as you say, it’s very important we figure out why. Unless we understand the root cause, any attempt to fix the problem will almost certainly fail.

        What you’re describing doesn’t sound like a trade-related problem to me.Report

    • Avatar Kim says:

      umm… bullshit? I can cite you some nice Mexicans who routinely spend winter away from Pittsburgh. That’s moved twice a year, to avoid Seasonal Affective Disorder (and to go see da family).Report

      • Avatar Murali says:

        Kim, reread the context.

        The mexican worker kind of doesn’t count. That’s just seasonal work. The family stays in one place and the worker moves back and forth. It is regular and semi-stable. That’s just the job he is able to get. The job is waiting for him when he gets back.

        Citizen’s example is a guy who goes from job to job bringing his family along with him never staying at any single job for long. The superficial similarity about moving often is all that relates the two.

        Also, niceness is not always the issue. Sometimes its about trustworthiness. Some people are just so incompetent that they cannot be trusted to do any job. Sometimes its just a lack of drive. There are lots of people I know who are driven who are not very nice. I have known people who are not driven who are very nice. In fact what makes some people nice is their complete lack of drive. They will help anyone whenever they can. These are the people who will donate money even when they are living at the margins. They are very nice and in some ways bordering on saintly. But no one wants to hire them because they are not that attached to the job. They cannot be relied on to complete the job because they will drop everything including their work responsibilities to help their friends (or maybe even complete strangers) out anytime.Report