Over at Nouriel Roubini’s EconoMonitor site, Ed Dolan has a post you might find interesting that brings up some points that aren’t mentioned frequently enough. The graph above, taken from the post, illustrates one of them—the cost in benefits of each $1,000 increase in imports from China:
Consumers benefit from free trade through lower prices and access to a wider variety of products. The impact on workers is more complex. Some lose jobs at factories that can no longer compete with imports. Waiters at local restaurants lose income when unemployed factory workers stop taking their families out to dinner. At the same time, new jobs open up as trade expands employment in export industries, and as lower prices of imported goods leave consumers with extra money to spend on local goods and services.
The impact on workers depends to a large extent on whether those who lose their jobs to import competition can find their way to the new jobs created elsewhere. To take an example from my last post, suppose consumers save $1.1 billion from cheaper imported tires at the cost of 1,200 jobs lost in the tire industry. At more than $800,000 in gains to consumers per job lost, that sounds like a huge net gain for the economy as a whole. But is it a net gain for Joe, the tire worker? Not unless he quickly finds a new job as good, or nearly as good, as the one he lost.
But what if Joe, after losing his job at age 45, never finds steady work again? What if has to get by for the rest of his life on odd-jobs, food stamps, and Social Security? If that is typical, then the net gains from trade in tires would be smaller, and the losses would be more concentrated on the directly affected industry and region, rather than spread widely via labor and product markets.
The post purports to be about the policy solutions to the problems it raise but, like most of its ilk, it’s long on the problem analysis and short on the solutions.
I don’t oppose trade. I don’t oppose free trade. I do think we need to view our notional “free trade” agreements with a more critical eye. What are the actual likely costs and benefits? Who pays the costs? Who reaps the rewards?
This observation from the post:
What can be done to mitigate the way the social safety net impedes adjustment to trade shocks? I am sure there are many places where tinkering with the rules could help, but here are two proposals that are more radical than mere tinkering.
One would be to move toward a system of universal health insurance that fully decouples coverage from employment, income, or place of residence. I discussed the advantages of such a system in this earlier post which discussed Sanders’ “Medicare for all†proposal and contrasted the US healthcare system with those of other wealthy countries.
but that just highlights one of our basic political problems. The party that presently tends to be most supportive of free trade also tends to be most resistant to any increases in federal spending and you can’t fund new federal programs without an increase in federal spending.
The type of analysis in the post is precisely what I’ve been harping on for some time. Getting past “it’s good for me, therefore it’s good.” I strongly suspect that, just on dollars, or the benefits of fostering product quality, innovation and reliability through competition, the pro-free trade position still wins out.
It seems to me the real discussion will be one of ethics. Does the specter of catastrophic job loss to a 45 year old with narrow skills outweigh the spending power benefit to 10,000 consumers? Says who, and who says the displaced worker was not enjoying monopoly power and benefit at the expense of consumers prior to displacement? Is the job of an American more worthy than a Mexican? If so, then should IL politicians advocate restricting trade with IA and IN? What are acceptable transition assistance costs to the displaced, and how should they be apportioned among purchasers or taxpayers?
It becomes disheartening when you think of how many measurements and arbitrary judgments would be required. And yet who could deny that $2/hr labor is so disruptive to trade dynamics that there is some imperative to grapple with the problem?
Our political class can’t organize a trip to the bathroom, much less these issues. Just look at the TPP. It’s not good when the choices behind doors number 1,2 and 3 are all bad.
A continuous net loss of jobs is like burning the studs of your house for firewood. It is a good way to obtain cheap firewood, but in the long run, it is a really bad idea.
Once all manufacturing is replaced with imported goods, where do the unemployed or underemployed workers get the money to pay for these goods?
Most of the free-traders are also anti-Keynesians, but free-traders and Keynesians are able to work because the US has an enormously large amount of stored wealth. I would like to see the free-traders work their magic in Venezuela, Nigeria, Cuba, Ukraine, or Greece. These places would be transformed into a worker’s paradise. For your excuses, you can just reference your political opponents because they will have already used them.
While others would see this, and call all you free-traders evil. I know that you are just too stupid to understand how the world works.
By the way dingbats, When China begins to use the dollar and all of its financial institutions are regulated by the same ones the US ones must follow, you can compare state to state. The last time I checked China was not using the dollar, but what do I know? I am not the financial genius.
They wouldn’t become paradises. Conditions would improve, though. You’ve got to be more careful than they are about subsidizing horribly inefficient practices which is what they’re doing in all of those places. Here, too, unfortunately.
There is only so much fat for a body to use, and then, it begin to use muscle as a food source. The US is like Bill Gates. Even if he begins spending like a drunken sailor, it will take a very long time before he feels the effects.
Europe might be at the point where their foolishness is about to bite them in the ass, but the US can probably hold out a lot longer. The analogy with imports would be taxes. Chicago has been importing more tax revenue into the government, but now, it is beginning to have a negative effect.
The free-traders have the same mindset as the “tax and spend” liberals. Both believe that the inevitable can never happen, and when it does, it is always the same. “Nobody could have known.”
My biggest problem with free-traders and conservatives in general is that their ideas and beliefs are a mish-mash of contradictory nonsense. I know because, I am philosophically what they claim to be, and not one of them would be what a non-contradictory belief system would require.
We can start with hard money, and I do not mean the Austrians version. The government presses metal coins. Period. All banking is private and unregulated. Hell, everything is unregulated. Before you eat that sandwich, you had better have a cast iron stomach or have checked the newspapers for any incidents of food poisoning from the sandwich shop, or you could join a private health inspection agency.
If you want exceptions, you will need to justify them on some rational and non-emotional basis. Otherwise, you are no different than the liberals you profess to be against.
By the way, free market capitalist who support free-trade do NOT support their country going to war in any shape or fashion. It is bad for business. It destroys both human and mechanical capital, and it disrupts markets among other things. War is only conducted if it affects business. Guess what? You are going to be siding with Code Pink on a lot of issues. Welcome to reality.