Over at Moody’s Analytics Adam Ozimek writes about economists’ reconsideration of the net value of trade:
While some politicians think that the answer to the costs of trade lies in tariffs or in subsidies to struggling industries, those ideas ignore the net benefits of trade and risk imposing costs by just delaying the inevitable. There is also the risk that political considerations could make these programs poorly targeted and protective of unproductive or uncompetitive firms.
However, there are better options. Policies should be aimed at re-employing those who lose jobs to trade. There are costs for pursuing such policies, but the evidence from David Autor, David Dorn, and Gordon Hanson shows that the employment losses themselves cost money. The following chart from their study shows that each $1,000 in Chinese imports per U.S. worker increases the cost of government benefits by $57.73. It is worrisome that these costs show up in disability benefits and retirement benefits, suggesting permanent, not temporary, labor market losses. Trade Adjustment Assistance, which is meant to help those who have been harmed by trade, is a smaller cost than disability benefits.
Let’s not confuse the situation with handwaving about free trade. We haven’t enacted a free trade agreement in my lifetime. What we have enacted are managed trade agreements and those, necessarily and intentionally, help some people at the expense of others.
The yardstick I use is that any trade agreement must help more than it hurts and it must help more people than it hurts. How high a hurdle is that? The top 1% is about a million households, the top .l% 100,000 households, the top .01% 10,000 households, and so on. You be the judge.
[B]ut the evidence from David Autor, David Dorn, and Gordon Hanson shows that the employment losses themselves cost money.
Nooooo shit. I’d have never guessed that losing a job costs someone money. What a world, what a world….
Seriously, if all the world’s economists died from Ebola in the next month, would the world be any worse off?
The problem with free trade is not that the two parties in the value-for-value transactions are not located in the same place, speak the same language, or drive on the same side of the street. The problem is when one of the values is being transmitted in a currency that is a commodity rather than a store of value.
What the free-traders fail to grasp is that there are few uses for dollars outside the US, and therefore, competing with foreign manufactures is not competing on the factory floor, only. It is competing with the foreign manufacturer and the foreign currency trade distortions. This is in addition to the observable burdens placed upon domestic manufactures.
Currency should be a neutral entity. It should not have any value, but this is not the case. The currency is not being used to purchase a US good manufactured at a physical factory. The currency is being used to purchase a possible US good manufactured at a financial engineering firm, and that good is also being sold to the domestic buyers.
The value-for-value transaction results in a net loss for the US. The foreign good is purchased using debt created from the value being traded for it. Basically, we buy store brands using store credit cards, and as the goods become cheaper, the available debt becomes cheaper. The decrease in income is supplanted by the increase in debt, and the cheap goods allows the equilibrium to remain for some time.
Even to the most ardent free-trader, it should be obvious that there will be a reckoning. The debt load will eventually overtake the debtors ability to repay, and at some point, the non-performing debtors will outnumber the performing debtors. The system will need to create more new debt faster than old debt can go bad. Why this is even disputed is beyond me.
The only question is whether the US has reached this tipping point. Part of the problem in the US is that all the major countries have credit backed currencies, but they are not all of the same quality. On the other hand, the US could be the best of the really bad, and when the sh*t hits the fan, everything could flee here for safety.
Over the past eight years, many well educated, white, middle class men have reconsidered the party crap they spouted for the previous twenty years. Standing in the unemployment line with no prospects of ever working again has a funny way of sobering up a person. Suddenly, their new mantra is, “I used to think like that before I lost my job.” Next, they need to learn what it is like living in the sh*tholes nobody else wants to acknowledge exist.
(If things go the way I think they will, a lot of people are going to join the party. Many rich people are not as well off as it may seem. Many are in debt to their eyeballs, and their wealth is on paper only. They are one bad day away from the poor house.)
I remember years ago when my dad ran into a buddy from his days at 14th & Clark, a very rough, hard-scrabble St. Louis neighborhood in those days, who had founded what is today one of the largest finance companies and was extremely wealthy to say the least. He made a remark that stuck with me: “I never know where my next interest payment is coming from.”
That’s an attitude you hear reflected in the philosophical way that Donald Trump talks about his bankruptcies.
Funny thing, the only thing that I feel has changed about my positions are their urgency.
@Icepick
I have seen way too many comments over the last eight years that began with, “I used to think that way until I …” lost my job, house, 401(k), etc. (The 401(k) is probably the second or third time they got clobbered.) It is in relation to immigration, free-trade, wages, financial sector, and any number of other issues.
Many of these issues are Tea Party, Occupy Wall Street, Trump, and Sen. Bernie Sanders issues with a little Black Lives Matter regarding the police militarization and Drug War issues.
When I used to travel extensively, almost every engineer (or any STEM person) I interacted with was the same. They could spout the Republican platform better than any politician, and they could go through the supposedly irrefutable logic of their positions. Now, it is their job that no American will do, and surprise, surprise, their old buddies accuse them of being whiners. Their old buddies give them the bootstraps speech.
In a year or two, their buddy loses his/her job, and suddenly, the scales fall from his/her eyes. Of course, the whiners have a new convert.
Traveling in certain circles, I’d make a bet. But no one could ever verify it. In terms of raw numbers, most “rich” people, especially those who are but you don’t know it, don’t have any debt. Or if so, it’s one kind only: a home mortgage.
The super rich who use debt generally also hive that debt off into a series of manageable legal entities, and also use the bankruptcy code. For sure, the people with too much (unfurnished) house, two BMWs in the driveway and $50k in credit card debt exist. But I suspect they are fewer in number than you think.