Push Back, by Tim Duy: Free Exchange pushes back on my concerns about the widening trade deficit and the declines in manufacturing capacity. I appreciate that - I am well aware that I am taking an unpopular position. Not quite so sure it is "lazy," but definitely unpopular.

Regarding my disbelief that higher paid grocery clerks are the answer to declining manufacturing capacity, Avent writes:

This is a lazy and unpersuasive assessment of what's involved in service sector activity. Obviously there is much more to service employment, including work in financial, information, education, and health services, much of which is (and will increasingly be) tradable.

True enough, I oversimplified service sector jobs. Maybe. Yes and no. To begin with, it is not exactly clear that the expansion of the financial sector has yielded a good outcome, unless you believe that greater financial volatility and widening income inequality is good. More importantly, Avent is arguing that service jobs are just as tradable as manufacturing jobs, and therefore a job is a job. Refer to Alan Blinder's hypothesis back in 2007:

We economists assure folks that things will be all right in the end. Both Americans and Indians will be better off. I think that's right. The basic principles of free trade that Adam Smith and David Ricardo taught us two centuries ago remain valid today: Just like people, nations benefit by specializing in the tasks they do best and trading with other nations for the rest. There's nothing new here theoretically.

But I would argue that there's something new about the coming transition to service offshoring. Those two powerful forces mentioned earlier -- technological advancement and the rise of China and India -- suggest that this particular transition will be large, lengthy and painful.

It's also going to be large. How large? In some recent research, I estimated that 30 million to 40 million U.S. jobs are potentially offshorable. These include scientists, mathematicians and editors on the high end and telephone operators, clerks and typists on the low end. Obviously, not all of these jobs are going to India, China or elsewhere. But many will.

Avent is essentially arguing that the US has a comparative advantage in service sector jobs. Blinder views these jobs as very vulnerable to offshoring, suggesting a lack of comparative advantage. If Blinder is right, then America apparently has little left in the comparative advantage department.

Avent continues:

As far as I can tell, Mr Duy seems to want to embrace a crash programme of protectionism against China. I don't know how this is supposed to boost America's long-term economic fortunes or what evidence he can present that it will. I don't know why Mr Duy is convinced that another spurt of manufacturing capacity growth, similar to that observed in the 1990s, isn't a possibility. And I have no idea why he is so confident that a return to the manufacturing economy observed in the immediate postwar decades—a time when technologies were vastly different, when the global economy was vastly different, and when a much larger share of the world's population lived in dire poverty—is a good idea.

I will deal with the protectionism argument later. I don't view American manufacturing as incapable of rebounding. But there are no price signals to prompt that rebound. That price signal should be delivered via currency values. The dollar should adjust to spur a net increase in export and import competing industries. It is not complicated. For some reason, however, that process is not happening. Something is interfering with the adjustment. That interference prompts American firms to expect that any new innovation needs a China strategy for production, if you believe the Andy Grove hypothesis.

Also, whenever you stick your neck out and say that manufacturing might be important, you suddenly get accused of being a barbarian trying to reinvent the 1950s. Of course manufacturing technology has fundamentally changed, as well as the mix of goods produced. But in the past, that productivity growth yielded more overall output and more manufacturing employment, even if the proportion of manufacturing jobs decreased relative to overall jobs. I can even buy into that story when capacity is rising and employment is stagnant. But something very different happened this decade. Capacity stagnated as millions of jobs were lost.

Avent continues:

This is simply a very empty and disappointing view of the evolution of economic activity. Mr Duy is implying that there is only so much producing of good stuff that can go on, and America used to have most of it and now China is taking it all and America needs to fight to get it back. He's wrong. The movement of some kinds of economic activity to China is creating new opportunities in America. America's problem isn't that some jobs are leaving. It's that it's doing a poor job of preparing its workers to take advantage of the new opportunities.

If that is true, then there should be millions of jobs available to soak up the workers released from manufacturing, and wages should be soaring because we have a structural flaw in economy - the skills of the released workers do not match those needed by expanding sectors. That structural flaw should be sufficient to encourage workers to gain more education and employers to provide more on the job training. While I am sure that is true in a few sectors, in aggregate real wages and nonfarm payrolls have been stagnant for a decade. Where are these high wage paying jobs? Or even median wage paying jobs at this point? Silly me, I actually believe the unapologetic and unquestioning supporters of free trade need to answer this question. We are millions of jobs below trend, and we have lost millions of jobs in manufacturing - the manufacturing of goods that we still consume, no less. Moreover, these two trends occurred in the same decade, in concert with a third trend - the sharp rise in foreign official reserve accumulation. How can you not be even allowed to suggest that there just might be a connection?

As always, questioning the nature of trade patterns this decade means you are an ignorant protectionist. Blinder tried to get ahead of this argument:

What else is to be done? Trade protection won't work. You can't block electrons from crossing national borders. Because U.S. labor cannot compete on price, we must reemphasize the things that have kept us on top of the economic food chain for so long: technology, innovation, entrepreneurship, adaptability and the like. That means more science and engineering, more spending on R&D, keeping our capital markets big and vibrant, and not letting ourselves get locked into "sunset" industries.

What is amusing about the whole analysis is that I believe free trade works, but I also believe we don't really have free trade. In reality, foreign central banks manipulate currency levels such they accumulate massive amounts of foreign exchange reserves that effectively recycle Dollars back into the US to support consumption activities, and thus impact the dynamics of trade flows in an obviously mercantilistic fashion. This has been accomplished with the full acceptance and even cooperation of the US Treasury. It was an outcome of the strong Dollar policy, and it is why China has not been named a currency manipulator since 1994. But those central banks are immune from criticism on free trade because they interfere in the financial side of the external accounts, not the current transactions side. Indeed, one cannot even question the negative impacts of this dynamic. Avent essentially falls back on the same argument I lamented about last week:

... every right minded economist and policymaker knows unequivocally that free trade is good, and to even question that assumption makes one an ignorant heretic who has never heard of Smoot-Hawley. Therefore, the examination ends. Manufacturing's decline simply cannot be a problem if it is consequence of international trade because everyone knows international trade is good.

Another version of this argument: International trade is driven by comparative advantage. If manufacturing jobs are lost from international trade, is must be the result of a relative comparative disadvantage. The financial side of the account is irrelevant.

If you fall back on the pro-free trade argument that service sector jobs will compensate for the offshoring in manufacturing, you ignore the fact that the currency manipulation that impacted manufacturing will have the same impact on the service sector jobs if they are truly tradable. If service sector jobs are just as offshorable as manufacturing jobs, then Blinder's prescription is destined to fail unless there is a concerted, sustained effort to control the accumulation of reserves among foreign central banks.

I very much recommend Michael Pettis for an another view of what I consider to be the same problem:

...As net capital exporters try desperately to maintain or increase their capital exports, and deficit Europe sees net capital imports collapse, the only way the world can achieve balance without a sharp contraction in the capital-exporting countries is if US net capital imports surge. And at first they will surge. Foreigners, in other words, will buy more dollar assets, including USG bonds, than before.

But remember that an increase in net US imports of capital is just the flip side of an increase in the US current account deficit. This means that the US trade deficit will inexorably rise as Germany, Japan and China try to keep up their capital exports and as European capital imports drop.

I have little doubt that as the US trade deficit rises, a lot of finger-wagging analysts will excoriate US households for resuming their spendthrift ways, but of course the decline in US savings and the increase in the US trade deficit will have nothing to do with any change in consumer psychology or cultural behavior. It will be the automatic and necessary consequence of the capital tug-of-war taking place abroad.

The US, in other words, is not likely to face the “nuclear option” of a Chinese disruption of the US Treasury bond market. It is far more likely to be swamped by a tsunami of foreign capital. This tsunami will bring with it a corresponding surge in the US trade deficit and, with it, a rise in US unemployment. It will also force the US Treasury to increase the fiscal deficit as more of the jobs created by its spending leak abroad.[Emphasis added]

Therein lies the problem. A reduction in net foreign capital inflows means a welcome decline in the US trade deficit, but the US is likely to see just the opposite. Foreign capital will push desperately into US markets and as an automatic consequence the US trade deficit will surge. So the problem isn’t too little capital inflow or a sudden boycott of USG bonds. On the contrary, the US will see too much capital inflow.

All this may turn out to be very bad for the US economy, but in the past massive capital recycling has usually been very good for asset markets. Might we see a surge in the US asset markets, at least until next year when Congress starts getting tough on the trade deficit? I would be willing to bet that we do.

The patterns of capital flows and how those flows have impacted production and consumption location outcomes is a critically important issue. Even more so if the flows into the US are simply supporting consumption spending via fiscal deficits but creating relatively few jobs because that spending is quickly directed overseas, and the pace of that direction accelerates as industrial capacity contracts. Yet if you even suggest the shift in production outcomes is creating very serious and long lasting problems, your thoughts are considered "fairly poorly reasoned."

Bottom Line: When I express concerns over free trade, I am really expressing immense frustration over an international financial architecture that sustains and maintains global imbalances that yield outcomes that I believe are very difficult to justify and yet are accepted due to a blind faith in free trade. In essence, the ability to manipulate capital flows has made a mockery of the free trade crowd. I know. I used to be in that crowd, and in many ways still am. But I can no longer wrap myself in the free trade flag to justify the negative impacts of financial account manipulation. And if the US cannot seriously address financial account manipulation on a global basis - and if the Pettis article is correct, the US Treasury will fall short of what is needed even with the announced adjustment to Chinese currency policy - what choices are you left with? Either accept continued economic stagnation, or act unilaterally on the current transactions (tariffs) or financial (reciprocative devaluation or capital controls) side of the accounts. None of which are pleasant options.

Posted by Mark Thoma on Thursday, July 15, 2010 at 12:42 AM in China, Economics, International Finance, International Trade | Stumble, Digg, del.icio.us, Reddit, Tweet, Share, Like | Permalink Comments (106)

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gordon said...
At The Bellows, the post "Manufacturing, Cont." (Jul. 14)

http://www.ryanavent.com/blog/?p=2327

apparently continues the argument from the point of view of the free-trader. That post is in the Links for 14 Jul., but given this post by Tim Duy it seems sensible to comment on it here.

The “Manufacturing, Cont.” post from The Bellows is interesting not only for the author’s continuing insistance that manufacturing isn’t the answer to the US’ trade balance or growing inequality, but also for how few policy ideas he actually puts forward.

As an alternative to tariffs and rebuilding US manufacturing employment, he suggests education (not further elaborated), and “…things like wage subsidies (to worker or firm), and possibly cyclical work-sharing programs…”. That's pretty vague.

To be fair, he also proposes “…a safety net that can both protect workers against economic volatility and provide the room for quality mid-career training”. But that suggestion just reproduces his assumption that, given the right training, full employment will follow. It doesn’t answer the question “training for what?”

The author dodges that issue by saying: “…we have no idea what the jobs will be in ten years anyway…”. I’m afraid that attitude just invites the response that the author has no idea if there will be any jobs at all in ten years. It seems pretty inadequate to insist that the jobs (and full employment) will come, but at the same time admit that nobody knows how that will happen.

I think that people who want to challenge the tariffs/employment position and defend free trade need to work harder than that if they want to be taken seriously.

Reply Thursday, July 15, 2010 at 12:17 AM

paine said in reply to gordon...
safety net ??
thats like
"we're under attack people are getting shot "

we are categorical pacifists so
we can only

"build more hospitals train more medical personel"
and of course in the long run

come up with new human prot types that can't be shot

what a response response

Reply Thursday, July 15, 2010 at 06:29 AM

Min said in reply to gordon...
"It seems pretty inadequate to insist that the jobs (and full employment) will come, but at the same time admit that nobody knows how that will happen."

It is not as though we do not know how to do it, it is that we are not doing it. We hope that it will eventually happen, but, given our current inaction, when and how is anybody's guess.

Reply Thursday, July 15, 2010 at 07:48 AM

Markel said in reply to gordon...
The free trader cultists have never been serious.

Start with "Assume competitive advantage." Why? Why should this exist on the level of nation states, especially when you are often talking about two modern industrialized economies? The world doesn't run on Italian pasta and German beer.

What "competitive advantage" does China have in manufacturing, other than poverty?

Reply Thursday, July 15, 2010 at 10:02 AM

Sasha said...
Tim Duy: "I believe free trade works, but I also believe we don't really have free trade ... the ability to manipulate capital flows has made a mockery of the free trade crowd"

Thank you Tim Duy!

The term "free trade" is so powerful that it's totemic, but just because it's called free trade doesn't mean that it actually is free trade. To clarify the whole free trade debate I suggest the following new terminology:

FT1: actual free trade, as advocated by everyone from Ricardo on.

FT2: whatever somebody calls "free trade", regardless of whether it has any resemble to FT1. Example: the current trade regime.

Reply Thursday, July 15, 2010 at 02:12 AM

btg said in reply to Sasha...
FT1 - Ricardian Free Trade - which assumes that there are NO flows of Capital - so therefore there actually must be goverment controls stopping all flows of capital, or everything is in fact bartered directly with no currencies involved.

FT2 - practical free trade - capital flows freely, unlike FT1, particularly from rich countries to poor ones, but there is no manipulation of currencies or neo-mercantilistic policies in place

FT3 - manipulated free trade - what we currently have, with currency manipulation etc.

Reply Thursday, July 15, 2010 at 06:53 AM

Sasha said in reply to btg...
I like it! We really need to improve the terminology.

Reply Thursday, July 15, 2010 at 07:24 AM

Min said in reply to Sasha...
How about "Cheap Trade"? ;)

Reply Thursday, July 15, 2010 at 07:51 AM

paine said in reply to Min...
corporate free trade

Reply Thursday, July 15, 2010 at 08:16 AM

OrganicGeorge said...
I guess it's only a coincidence that the decline of the US middle class tracks the rise of the service based economy.

Anne...am I right?

Reply Thursday, July 15, 2010 at 02:20 AM

Bruce Wilder said...
Tim Duy: "Avent is essentially arguing that the US has a comparative advantage in service sector jobs. Blinder views these jobs as very vulnerable to offshoring, suggesting a lack of comparative advantage. If Blinder is right, then America apparently has little left in the comparative advantage department."

Ricardo's "comparative advantage" argument is not, I think, the same as Adam Smith's "specialization is limited by the extent of the market" argument.

Comparative advantage is an attractive argument, analytically, precisely because it is also, in practical terms, a very, very weak argument. Very weak, and very basic. Even if I were better at absolutely every task than my neighbor, there would still be some tasks I handled better than others. And, consequently, I would be willing to specialize and trade with my neighbor. Even though my neighbor is less productive than I at absolutely everything, we could both have more, if I let him do some things for me, and I could then concentrate on things that I do particularly well, by standard of comparison to myself.

Tim Duy, I'm sure understands that the comparison in comparative advantage is with one's self, and that it really isn't possible to have "little left in the comparative advantage department" or to lack "comparative advantage. The classic comparative advantage argument pitted highly productive England against poor, unproductive Portugal. It was a case of "I can do everything better than you." But, Portugal still had a comparative advantage.

Ricardo didn't win his argument. It was a stupid argument in many ways. You have to be a theoretician to really appreciate the virtues of weakness in an argument -- that a weak argument can also be highly robust. The real political arguments were about land rents, and the high price of food. That argument was won by the starvation to death of two million Irish, and the rising power of the manufacturing Cities.

Economists, in generation after generation have laboriously proven that "comparative advantage" does not have much, if any, explanatory power for international trade. There's no strategic advantage in exploiting your "comparative advantage" in manufacturing or services, where sunk cost capital investments, technology, increasing returns, co-location externalities and network effects dominate.

Besides, practical people worry about the terms of trade, not comparative advantage.

Reply Thursday, July 15, 2010 at 02:33 AM

Sasha said in reply to Bruce Wilder...
"The classic comparative advantage argument pitted highly productive England against poor, unproductive Portugal."

The telling thing about the classic wine-and-wool example is that it involved things where key factors of productivity (climate and soil) are static and immobile. I suppose Mr. Ricardo would have had trouble explaining why factories couldn't be profitably located in Germany or the US.

"Economists, in generation after generation have laboriously proven that "comparative advantage" does not have much, if any, explanatory power for international trade."

Leontief paradox? Oh well, only scientists let pesky things like data get in the way of a good theory. A classic example of how all too many economists are anything but scientific.

Nevertheless, while I agree with your criticisms of free trade theory, Duy's argument bypasses that debate: even if you believe in free trade, that has little to do with the debate over current practices. As Duy put it "we don't really have free trade ... the ability to manipulate capital flows has made a mockery of the free trade crowd".

Reply Thursday, July 15, 2010 at 05:08 AM

paine said in reply to Sasha...
comparative advantage is a theory of universal exchange its inclusive of everyone
we all can sing in the opera

it is utterly beautiful
that it was framed as international exchange
only allowed it to be commandeered by corporate trading outfits in the final stages
of earth wide raw primal pillage
that task as marx suggests was completed by the penetration of china and japan
and the settling of the north american west and australia

i'll not hear of weak or strong here

this notion is the very soul of universal
interdependent socialization thru product exchange

Reply Thursday, July 15, 2010 at 08:28 AM

Min said in reply to Bruce Wilder...
Thanks for the explanation, Bruce. Very clear. :)

"Comparative advantage is an attractive argument, analytically, precisely because it is also, in practical terms, a very, very weak argument. Very weak, and very basic. Even if I were better at absolutely every task than my neighbor, there would still be some tasks I handled better than others. And, consequently, I would be willing to specialize and trade with my neighbor. Even though my neighbor is less productive than I at absolutely everything, we could both have more, if I let him do some things for me, and I could then concentrate on things that I do particularly well, by standard of comparison to myself.

"Tim Duy, I'm sure understands that the comparison in comparative advantage is with one's self, and that it really isn't possible to have "little left in the comparative advantage department" or to lack "comparative advantage. The classic comparative advantage argument pitted highly productive England against poor, unproductive Portugal. It was a case of "I can do everything better than you." But, Portugal still had a comparative advantage."

Like many technical economic terms, this seems to say something that it does not. Let us say that my neighbor is better than I at everything but writing poetry, and I am better at writing poetry than at anything else. That does not mean that he is going to buy my poetry. He is more likely to pay me to weed his garden, no? What comparative advantage do I have? (In terms of the vernacular.)

Reply Thursday, July 15, 2010 at 08:05 AM

paine said in reply to Min...
min you still don't fully get it
your neighbor can be better at everything

but you are not equally better at everything then your neighbor
get it ???

its about ratios and ricadro thanks to the reductivism of a labor theory of value
got to the core
hours against hours
say you humans can only produce two things
i can buid a unit of a in one hour
you take an hour and a half
i can build one unit of b
in 10 minutes you take 20 minutes
i specialize in b
you specialize in a

that is incomplete of course because we haven't included each of our preference strenghts
for a and b in consumption
markets emerge to "discover the final ratios"
thru a series of contracts
much arbitrage and uncertainty may occur
of the neo-classics
the great and odd mr edgeworth is best at
these just so narratives

Reply Thursday, July 15, 2010 at 08:35 AM

paine said in reply to Bruce Wilder...
w" some tasks I handled better than others"
in value added of course not units
which opens its own kettle of fish
as well noted here
the ricardian reduction to barter essentially
assumes away reality completely
we best retire comparative advantage until we have a closed mechanism
that is a one world market
with one currency
and one market price everywhere
for every fully commodified product

Reply Thursday, July 15, 2010 at 08:21 AM

john c. halasz said in reply to Bruce Wilder...
It's worth remembering the historical context in which Ricardo made his comp ad argument. It basically is just a derivative of his theory of rent when combined with his theory of wages, (whereby wages and profits are paid out in inverse proportion from the same productive surpluses, and the minimum subsistence wage, required to reproduce the work force, is primarily determined by the price of agricultural output). Hence Ricardo was concerned that advances in productivity from capital investment would get drawn off by landlords, due to high food prices, ergo wages, depressing industrial profits and thus inhibiting further capital formation. IOW the argument arose at a specific historical conjuncture in support of a specific class interest. But once one realizes that rents don't just apply to land or natural resource endowments, but also to the organization of production, (with concentration of production in market dominant firms with increasing returns, network effects, etc.), then one could say that what the theory is really about is the (re)arrangement of rents.

Reply Thursday, July 15, 2010 at 10:47 AM

roger said in reply to Bruce Wilder...
"Even if I were better at absolutely every task than my neighbor, there would still be some tasks I handled better than others."

I'm reading this as there would still be some tasks I handled worse than others, right?

Reply Thursday, July 15, 2010 at 11:05 AM

anon said...
"...As net capital exporters try desperately to maintain or increase their capital exports, and deficit Europe sees net capital imports collapse, the only way the world can achieve balance without a sharp contraction in the capital-exporting countries is if US net capital imports surge. And at first they will surge. Foreigners, in other words, will buy more dollar assets, including USG bonds, than before."

I don't buy this argument. The natural outcome of net capital exporters "desperately trying to increase" their investment in the U.S. is a dollar devaluation and a fall in U.S. real interest rates.

The Fed can and should expedite this process by announcing a long-term 3% inflation target and engaging in unconventional monetary policy. We used to think that 2% inflation was enough of a buffer to avoid the zero nominal bound, but as it turns out we were wrong.

Reply Thursday, July 15, 2010 at 02:42 AM

Min said in reply to anon...
"The Fed can and should expedite this process by announcing a long-term 3% inflation target and engaging in unconventional monetary policy. We used to think that 2% inflation was enough of a buffer to avoid the zero nominal bound, but as it turns out we were wrong."

Why not a 4% target? That might help restore balance between debtor and creditor, so that we are less likely to have an economy that runs on consumer debt.

Unfortunately, Bernanke has already said that a higher inflation target would damage the credibility of the Fed. :(

Reply Thursday, July 15, 2010 at 08:14 AM

Bruce Wilder said...
I find the economists with "free trade" religion as frustrating to talk to as the philistines, who are convinced that low-wage labor drives it all.

What I see is that financial manipulation makes investment in manufacturing (or services) in the U.S. unattractive, while it makes investment in manufacturing in, say, China, very nearly risk-free.

And, I see that the U.S. absorbed those manipulated financial flows, and blew a housing bubble and a consumption spending binge, while manufacturing declined, starved of investment funds.

If we could see the U.S. capital stock, I think we would see that it dwindled over the last decade. I don't think America has the tools to go to work productively, as a consequence.

I look with absolute horror the idea that we would consider for a moment subsidizing low-productivity employment, as an ameliorative measure.

Reply Thursday, July 15, 2010 at 02:46 AM

ilsm said in reply to Bruce Wilder...
Bruce,

"subsidizing low-productivity employment, as an ameliorative measure."

Look at the US war machine.........

Some call it militarist Keynesianism!

The profits go to congress sifted through the PAC's and the excess margins from their influence.

Reply Thursday, July 15, 2010 at 05:49 AM

paine said in reply to ilsm...
the US gun lobby has a better claim
on public funds then the US class room lobby

check out which is growing faster in the total oecd
the class room lobby of course

but uncle as hegemon
is unique he has a clear global trend defying
advantage
if he invests in better and greater gunmanship

Reply Thursday, July 15, 2010 at 08:45 AM

ilsm said in reply to paine...
War machine hegemons

Philip, and Richard I top rulers
hegemons dealt with creditors

they did plunder others' stuff
US needs a more feudal turf

already have vassalage but to the pillagers
are just not the feast givers

Loh, the goose the golden egg laid
pate for the rich ever made

deficits bring out the hawks
classicals used the gibbet gawks

Reply Thursday, July 15, 2010 at 10:53 AM

paine said in reply to ilsm...
skeltonics ???

Reply Thursday, July 15, 2010 at 12:01 PM

Michael Cain said in reply to Bruce Wilder...
"I look with absolute horror the idea that we would consider for a moment subsidizing low-productivity employment, as an ameliorative measure."

About 18 months ago I was listening to a state legislative committee hearing on the topic of job creation. At one point, after yet another business person explained how, if the state would give him a certain kind of tax break, he could create large numbers of minimum-wage jobs, the chair just lost it. "Enough! I don't want to hear any more testimony about how many minimum-wage jobs you can create! We need jobs that pay enough so the workers pay taxes, not consume public services!" None of the rest of the people signed up to testify did so; apparently they were all there to explain how they could create lots of low-productivity jobs...

Reply Thursday, July 15, 2010 at 08:35 AM

paine said in reply to Bruce Wilder...
"philistines, who are convinced that low-wage labor drives it all."

is this a denial of the labor theory of exchange value
or just a statement that
the law of gravity has off sets
tides exist but eddies do to

i tend to see capitalism surviving on perpetual disruption of the labor theory of exchange value
by revolutionizing production
faust as world historical ideal type
bourgeois culture
has hamlet and faust looking forward
don q and madame bovary looking back

Reply Thursday, July 15, 2010 at 08:40 AM

Fred C. Dobbs said in reply to Bruce Wilder...
What to do is to get something invented here
first, and capitalize on manufacturing it.
One suspects that many countries are already
thinking along these lines, if not US.

Reply Thursday, July 15, 2010 at 08:40 AM

paine said in reply to Bruce Wilder...
you make us sound like spain
under phillip the second

Reply Thursday, July 15, 2010 at 08:41 AM

Bob said...
Up to now the increase in the US Trade Deficit has largely been "financed" with middle and lower skilled jobs as noted in the post. Federal Politicians, the only with the power to apply government restrictions on trade, have embraced free trade. Why? Well, have you called a tech support line lately that was not in India or the Philippines? Name your favorite Chinese brand? Cant? That's because, though it sometimes seems that literally everything is made in China, the companies have been OEMs for name brand US firms. It's been the little guys who have suffered, not corporate decision makers. Acquisitions like Lenovo are a vanguard.

In the long run, we're all dead and free trade can cause very painful adjustments on the downside. So far we have taken comfort in the notion that "higher value" functions like engineering, design and marketing have stayed here. However, as mentioned, eventually the design, marketing, and production as well as corporate shareholders and managers will all be foreign. Then we're Chad.

Reply Thursday, July 15, 2010 at 03:50 AM

Sasha said in reply to Bob...
"eventually the design"

Eventually? It's already happened to a large extent. Even advanced R&D is moving (e.g. Applied Materials new solar cell research facility in China).

Reply Thursday, July 15, 2010 at 04:45 AM

paine said in reply to Sasha...
basic creations will still come from our university hospital
and corporate research complexes

if we support them
we have the best big chunk of earth

we have hollywood and wall srteet too

no wonder nueva york and the city of angels
are the twin capitols of the planet

the american liberty empire
will reign over planet earth
for a thousand years....

Reply Thursday, July 15, 2010 at 08:49 AM

ken melvin said...
I do believe the good Mr Avent hath hoisted himself atop his on petard. Oh, and, such as 'it is common knowledge' is an euphemism for koolaid. Anyone who advocates the exporting of another 30- 40 million jobs is a sadist.

Reply Thursday, July 15, 2010 at 04:04 AM

ken melvin said...
Thanks Prof. Duy. What you, and too few others, are doing, is the most important thing going on in economics. heresy is not a bad word. 'Tis always the heretics that lead us forward.

Reply Thursday, July 15, 2010 at 04:13 AM

Sasha said in reply to ken melvin...
Duy isn't a heretic, and doesn't need to be to decry the current trade regime.

Tim Duy: "I believe free trade works, but I also believe we don't really have free trade ... the ability to manipulate capital flows has made a mockery of the free trade crowd"

The biggest problem isn't free trade, but that we don't have free trade or anything approaching it. Calling the current regime "free trade" is Orwellian.

Reply Thursday, July 15, 2010 at 04:50 AM

ken melvin said in reply to Sasha...
True, actual 'free trade' is much much worse.

From Wiki:

Free trade is a system of trade policy that allows traders to act and or transact without interference from government. According to the law of comparative advantage the policy permits trading partners mutual gains from trade of goods and services.

Under a free trade policy, prices are a reflection of true supply and demand, and are the sole determinant of resource allocation. Free trade differs from other forms of trade policy where the allocation of goods and services amongst trading countries are determined by artificial prices that may or may not reflect the true nature of supply and demand. These artificial prices are the result of protectionist trade policies, whereby governments intervene in the market through price adjustments and supply restrictions. Such government interventions can increase as well as decrease the cost of goods and services to both consumers and producers.

Reply Thursday, July 15, 2010 at 05:13 AM

Sasha said in reply to ken melvin...
"True, actual 'free trade' is much much worse."

How is a policy of "no government interference" worse than a policy that actively tries to screw most Americans?

Reply Thursday, July 15, 2010 at 05:27 AM

paine said in reply to Sasha...
cuts both ways here guys
it gets to old hegels insight
what is real is rational

only you gotta master his science of logic
--the everest of modern bourgeois philosphy ---
to discover the genetic truth of that phrase

Reply Thursday, July 15, 2010 at 08:56 AM

Min said in reply to ken melvin...
Is it free trade without the free movement of labor? Somebody who makes widgets in country A is paid more than somebody who does the same work in country B because other workers in country A are paid more than other workers in country B. Labor competition is limited by borders while capital competition is not (with exceptions, OC).

Reply Thursday, July 15, 2010 at 08:25 AM

paine said in reply to Min...
min i agree
total free international movement of labor

no international movement of capital funds

Reply Thursday, July 15, 2010 at 12:00 PM

paine said in reply to Sasha...
duy by saying he believes in free trade
is fooling himself
we aren't simply a fair forex system
away from free trade
not by a long shot
as bruce wilder private detective
we got very complex institutional barriers to free trade
and they are not all there to reduce total social welfare
or just to crush the exploited majority

Reply Thursday, July 15, 2010 at 08:52 AM

Sasha said in reply to paine...
"we aren't simply a fair forex system away from free trade"

No, but it's the biggest problem there is.

Reply Thursday, July 15, 2010 at 11:05 AM

paine said in reply to Sasha...
wel its the best way to trigger welfare enhancing trade wars

Reply Thursday, July 15, 2010 at 11:58 AM

ilsm said...
Concentration of power in banks, standing war machines and related sellers to the monopsony of big government discretionary buyers put most economic theory out the window.

There are no markets with interventionalist banking, monetarism.

The government of the US socialized 9-11% of the US economy through discretionary spending devoted to "private" corporations who take the blue jeans and coke form the working classes and cannot be stopped because the concentration of good socialized, non market margins in the hands of a shrnking number of large conglomerates (looking like the Kruppes) makes them "owners" of government fidscal activity.

Would it have been lazy to point out most economic theory is not applicable because the conditions for markets and trade are not met.

Note I left off free in from of market and trade.

Reply Thursday, July 15, 2010 at 05:45 AM

Sasha said...
R.A. (at "Free Exchange" criticizing Duy): "This is a lazy and unpersuasive assessment of what's involved in service sector activity. Obviously there is much more to service employment, including work in financial, information, education, and health services, much of which is (and will increasingly be) tradable."

Talk about an old canard! As a commenter at "Free Exchange" points out "trade numbers for May, our goods deficit was about $54 billion. Our surplus in private services was about $6 billion".

In other words our vaunted surplus in services is a whopping 11% of our deficit in goods. And it's hovered around that level for many years. Any notion that our vaunted services surplus will ever compensate for our goods deficit is beyond fantasy. No surprise there - services are generally much more labor intensive than manufacturing, and often require less infrastructure and so forth. I especially love R.A.'s reference to "health services". We have the world's most expensive healthcare - the comparative advantage favors other countries!

Reply Thursday, July 15, 2010 at 05:46 AM

Doc at the Radar Station said...
Tim Duy and Michael Pettis are spot on. They've got their fingers on precisely what is wrong with the global economy. Just remember, that things that can't go on, don't. This is going to be one very weird ride, when everything goes through a forced "re-balancing".

Reply Thursday, July 15, 2010 at 05:46 AM

paine said in reply to Doc at the Radar Station...
"things that can't go on, don't."
time scale please !!!

Reply Thursday, July 15, 2010 at 08:58 AM

Sasha said in reply to paine...
Long enough to do plenty more damage, and short enough to worry about.

Reply Thursday, July 15, 2010 at 11:11 AM

paine said in reply to Sasha...
exactly

Reply Thursday, July 15, 2010 at 11:57 AM

bakho said...
Trade deficit is only one of the problems for the manufacturing sector. Large increases in productivity have eliminated many mfg jobs. One worker today can produce as much steel as 7 workers could 2 decades ago. The automation of manufacturing has been aided by computerization and robots to do repetitive tasks. The number of low skill tasks are diminishing because of automation and because those can be moved offshore. Some mfg sectors must be downsized, auto for instance. In the Bush decade, BigAuto had a policy of supply push to maintain market share. This meant that many units had to be sold at a deep discount (loss) in order to clear the inventory. That model is unsustainable and has been replaced by a demand pull strategy that produces maybe 60 percent as many cars. This switch is necessitated by a longer financing cycle (5-7 years) compared with the shorter cycles 3 years of 2 decades ago. This has little to do with offshoring, but a lot to do with failed business models.

The higher productivity tasks of design and programming robots, data analysis and other math requiring jobs are not being supported by our disgraceful K-12 education system. The US leaves the K12 education up to the standards and resources of local communities. If local communities are poor or lack resources, the education can be very poor. NCLB was enacted to punish and kick the poor school districts rather than putting resources in place to address the problem.

Obama preached "Green jobs". However these potential businesses face enormous barrier costs and gigantic subsidies for their dirty energy competitors. A switch is going to require years of billions of dollars of investment in the infrastructure and business climate to make this new sector work. The US is already way behind competitor nations in the technology. What we get from Obama is baby steps and nothing like the massive investment in infrastructure and workforce training that is required. These kind of projects are massive in scope and require BigG investment because private companies are too small to capture the needed ROI. Only the public as net beneficiary is large enough to capture ROI. Meanwhile our competitors in China and Europe have no difficultly in committing the public funds to invest.

Comparative advantage does not 'Just happen". Comparative advantage requires investments in infrastructure and workforce to improve competitiveness. States compete all the time for industries and the jobs they bring. In a global economy, countries must also compete. The US cannot have a hands off policy for public investment if other countries are massively investing their public funds to out compete us. We will lose. We need a labor and investment policy that is large enough to move us into the future. Obama talks big but plans too small and too timid. The Obama administration has been terribly disappointing with the half measures and unwillingness to push for big plans and win big parts of them. Instead they push for weak, timid half measures and then negotiate with themselves to whittle them down to nothing.

Reply Thursday, July 15, 2010 at 05:53 AM

Sasha said in reply to bakho...
"Trade deficit is only one of the problems for the manufacturing sector."

True, but it's the mother of all problems. While I agree with some of the other points you made, it's all moot unless you do something about currency valuation. There is no other way to fight a competitor which has a currency that's undervalued by 40%.

Reply Thursday, July 15, 2010 at 06:15 AM

ken melvin said in reply to Sasha...
And $3/day labor, what percentage undervalued?

Reply Thursday, July 15, 2010 at 10:06 AM

paine said in reply to bakho...
"Large increases in productivity have eliminated many mfg jobs."
but the point isn't to create jobs in manufacturing
the point is to reduce trade in manufacturing
insolate our national wage structure from unfair foreign competition
hey we can have full emplyment here any time we want
trade however must be a residual
we set our wage structure
and see what trade border conditions
we need to maintain that wage structure
AND balanced trade too

get it
we the job cl;ass run this n ring circus
not that guy in the silk jock
and the armani overcoat
and the silver handled whip

Reply Thursday, July 15, 2010 at 06:45 AM

Min said in reply to bakho...
"In a global economy, countries must also compete. The US cannot have a hands off policy for public investment if other countries are massively investing their public funds to out compete us. We will lose."

You do not understand. "We" are not the people, "we" are the multi-national corporations. Nationalism is so 20th century. It is bad enough that the MNCs have to compete with China, they should not have to compete with the U. S., too. Besides, they need to U. S. for subsidies and bailouts.

Reply Thursday, July 15, 2010 at 08:34 AM

save_the_rustbelt said...
Send Advent to Michigan.

Flint has 30% unemployment.

Detroit has maybe 50% unemployment (so dysfunctional it is tough to even get a number).

Reply Thursday, July 15, 2010 at 05:58 AM

Sasha said in reply to save_the_rustbelt...
"Send Advent to Michigan."

Come now, he knows what a factory looks like. He once saw a picture of one in an economics text.

Reply Thursday, July 15, 2010 at 06:16 AM

paine said in reply to save_the_rustbelt...
wage rigitity
if they'd take what world market "forces"
require thenm to take
ie what their services are worth
then flint would still be making buicks
what wage rate is world market competitive

maybe 12 dollars a day

Reply Thursday, July 15, 2010 at 06:37 AM

paine said in reply to save_the_rustbelt...
yikes under two dollars an hour ???

of course we could make the rest up
with a healthy eitc of say ...10 dollars an hour

errr
is there a few unconnected wires
in this circuit design

Reply Thursday, July 15, 2010 at 06:40 AM

paine said...
"Blinder views these jobs as very vulnerable to offshoring, suggesting a lack of comparative advantage. If Blinder is right, then America apparently has little left in the comparative advantage department"
this is a very serious jumble up
in our pure models where the notion of comparative advantage "lives"
there can be no bordered trading area
without a comparative advantage

comparative advantage has a very clear special meaning
in trade theory models
however
the real systems of trade out there
correspond to these models ..not at all

to begin with as paul samuelson pointed out often enough
without full employment conditions across all production factors thru out all bordered regions
ricardo's theorems collapse
and openning up to second bests
is pretty much so far
openning up pandora's box

policy claims become a free for all where what else
might makes right

Reply Thursday, July 15, 2010 at 06:15 AM

paine said in reply to paine...
hadn't read prior comments

at the point i wrote this
i got too anxious to blurt out my belch
so a skipped over the cages ahead of me
bad move always
unless your laff

btw any of you ever suffer from
a similar compulsion to have your say ??

Reply Thursday, July 15, 2010 at 09:17 AM

paine said...
not to add confusion

but border effects are not simply generated by forex fiddles
we have corporate market segmentaion and price dispersion
that utilizes protections themselves as part of the asrbitrage game
oh these corporations
why if you didn't know any better
you'd think they event this trading system themselves
some time way back maybe just b4 columbus or something
and as it developed and evolved
got gubmints to change the rules
you now on the fly
improvise then formalize then legalize
make the f'er up as you go along

Reply Thursday, July 15, 2010 at 06:34 AM

Andy Harless said...
The Michael Pettis quote is depressing, and not just in the psychological sense:

"I have little doubt that as the US trade deficit rises, a lot of finger-wagging analysts will excoriate US households for resuming their spendthrift ways..."

That's enough of a problem if US households actually cooperate by consuming more, but why would we expect them to do so? At present, a more likely outcome seems to be that we will have a continuing deficiency of demand in the US, leading to what one could euphemistically call an adjustment in the real exchange rate: severe deflation -- or more likely, mild deflation kept in check by heroic Fed policies.

Reply Thursday, July 15, 2010 at 06:39 AM

paine said in reply to Andy Harless...
andy you got this right i think
but recall the absorption rate here
even if relative price levels remain as they are
if chindia grows enough faster then the oecd
our trade balnce improves

germany and japan both have used the slow domestic growth strategy to retain their fetish goal
a trade surplus

in our case
how much faster chinia must grow
without the US having to contract some combo of price level and output ???

for now the course is moderate we only stagnate ala germany and japan

some little bird keeps telling me for us that might not be enough

Reply Thursday, July 15, 2010 at 09:04 AM

NKlein1553 said...
A lot of people complain about China's currency manipulation, but few have concrete suggestions about what steps to take to counteract it. Steve Randy Waldman suggests "capital account protectionism," as a solution here:

http://www.interfluidity.com/v2/540.html (see point three about half way down the post)

Mr. Waldman proposes gradually introducing a tax on the purchase of domestic financial assets other than zero-interest cash by nonresidents. This can be accompanied by any number of financial transaction taxes on off-balance-sheet arrangements, clever swap deals, etc...designed to circumvent the initial financial asset tax. Sounds like a good idea to me. It avoids the pitfalls of goods and service protectionism while still addressing the underlying issue.

Reply Thursday, July 15, 2010 at 06:45 AM

paine said in reply to NKlein1553...
capital controls
avoid any need to change the forex rate

i question any remedy un willing to confront the forex distortions directly
we had wrong forex with japan and germany from the early 50's on till the great doctor milhouse
busted up that yankee capital as hegemon scam
of course only to replace it with another
form of yankee captal hegemony

rany is smart but he isn't using
an oecd job class pov

Reply Thursday, July 15, 2010 at 09:09 AM

acerimusdux said...
My only problem with this argument, is I am not yet convinced that workers in countries like China and India are less in need of jobs than those in the U.S. Has this new mercantilism really been bad for the global economy?

According to the World Bank ( http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20040961~menuPK:34480~pagePK:64257043~piPK:437376~theSitePK:4607,00.html ):

"Between 1981 and 2005, the share of the population in the developing world living below US$1.25 a day was halved from 52 to 25 percent. This amounted to a trend decline of one percentage point per year in the aggregate poverty rate, reducing the number of poor by 500 million (from 1.9 billion to 1.4 billion) between 1981 and 2005."

"The decline in poverty between 1981 and 2005 varied considerably across regions. Led by China, the East Asia and the Pacific Region made dramatic progress, with poverty incidence dropping from 78 percent to 17 percent, using the US$1.25 a day poverty line at 2005 prices. At the other extreme is Sub-Saharan Africa (SSA) with a poverty rate of 51 percent in 2005—not much lower than in 1981. The poverty rate fell in South Asia, Latin America and the Caribbean and Middle East and North Africa during the same period, although the number of poor has remained static (Figures 1 and 2)."

So the net result of these "unfair" practices, has been that wages and incomes have stagnated in the US, and income inequality increased there, while the chief culprits meanwhile have seen their populations go from 78% living on the equivalent of $1.25 a day or less, to "only" 17% living at that level. I admit to not being very patriotic, but I'm not terribly offended by this outcome.

Reply Thursday, July 15, 2010 at 06:53 AM

Sasha said in reply to acerimusdux...
"I admit to not being very patriotic, but I'm not terribly offended by this outcome."

In other words, it's not your job on the line.

That's very humanitarian of you, but don't you think that US politicians and economists should be more honest about this? "Sure, most Americans will get screwed by this, but the plutocrats will get richer and it may be one strategy to help some of the world's poor?" Want to put odds on the next time we'll hear that in a campaign speech, or even some economist writing an Op-Ed for a major paper?

I'm also not convinced that the current approach is the only, or even the most effective, one to help the world's poor. See paine's 6:45. I've no problem with countries using import substitution to promote high value-added industries, as the US did for so much of its history. I do have a problem with severely unbalanced trade. Historically it has always lead to grief, often more for the surplus country than the deficit country (see US in Great Depression vs. China today).

BTW, don't the more honest free trade advocates admit that there are distributional problems, but that they can be ameliorated by support measures for those who get hurt? Ever see any of those support measures included in a trade bill? How do you think the plutocracy would react to the higher taxes levied on them for these support measures? How do you think the public would react when politicans and pundits explain that those measures are necessary because most Americans will get screwed by the trade aspects of the agreement?

Reply Thursday, July 15, 2010 at 07:49 AM

Min said in reply to Sasha...
"In other words, it's not your job on the line."

In the long run, it seems to me, we are better off with greater economic equality around the world. If trade helps us accomplish that, fine.

Meanwhile, pace Bruce Wilder, is it not better to foster trade by supporting wages at home? Not as a palliative measure, but as a prerequisite?

Reply Thursday, July 15, 2010 at 08:42 AM

Markel said in reply to Min...
If the permanent loss of your job helps achieve greater global income equality, I'm fine with it, too.

Of course, there is a wee problem with building global productive capacity to meet first-world demand that was simultaneously destroyed by offshoring that very productive capacity.

Reply Thursday, July 15, 2010 at 10:36 AM

Sasha said in reply to Markel...
"If the permanent loss of your job helps achieve greater global income equality, I'm fine with it, too."

I'll second that!

Reply Thursday, July 15, 2010 at 11:13 AM

paine said in reply to Markel...
that is why
gearing up of chindian demand
is goal one for MNCs these days

Reply Thursday, July 15, 2010 at 11:56 AM

paine said in reply to Sasha...
improving the lives of land starved peasants by converting them to wage workers
is not part of a zero sum game

where to make it happen there
wage workers here
must lose
this is what's happening
but its not all that can happen

we'd need to change a few things however

Reply Thursday, July 15, 2010 at 09:12 AM

Sasha said in reply to paine...
"not part of a zero sum game"

I agree, which is why I wrote that the current regime is not the only, and not the best, approach to "improving the lives of land starved peasants".

Reply Thursday, July 15, 2010 at 10:40 AM

paine said in reply to Sasha...
i knew u knew
just wanted to underline it some

the general theory liberated us from lump of labor
both at the national and global level

china can macro itself to full indutrialization with balanced and smakk trade flows
if they could have free access to technology
and enough of the oecd markets to get honed to a frontier production edge

Reply Thursday, July 15, 2010 at 11:54 AM

acerimusdux said in reply to Sasha...
Oh yeah, if any politicians admitted to this line of reasoning they might not have much chance of getting elected. Not that there are likely any actually thinking this anyway.

But if many of the op-ed writers and economists were thinking along these lines, I think they at least would have had little reason not to bring up the argument. I do think it is the best economic argument that can be made for free trade, but I'm not surprised to see it so seldom used. I suspect that for many of the free trade advocates, some of the global benefits are more an unintended consequence, then the reason for their support of current policy. Call it collateral almage.

Of course if you think it through, the global economy is much like any national economy, in that workers won't get their fair share of gains until you get to near full employment.

So how long do you think it will take to get to near global full employment? And if we ever get there, what policies do you think would be supported then by these Op-Ed writers?

Reply Thursday, July 15, 2010 at 09:55 AM

Sasha said in reply to acerimusdux...
"But if many of the op-ed writers and economists were thinking along these lines, I think they at least would have had little reason not to bring up the argument."

You're kidding, right? Op-eds are generally written to promote an idea, and you don't promote an idea to the American public by telling them they're gonna get screwed.

"I do think it is the best economic argument that can be made for free trade"

What is this "free trade" of which you speak? It means many things to many people. Refer to the post at 6:53 for the new unambiguous terminology.

"if you think it through, the global economy is much like any national economy"

Not even close. National economies are part of nations, which have governments (preferably of the representative variety). There is not even a vague equivalent to a global government, nor is their likely to be in the foreseeable future (especially of the representative variety). Without a government, the global economy is rampaged and arbitraged by MNC's.

Reply Thursday, July 15, 2010 at 10:50 AM

Fred C. Dobbs said...
'My only problem with this argument, is I am not yet convinced that workers in countries like China and India are less in need of jobs than those in the U.S. Has this new mercantilism really been bad for the global economy?'

This was the 'noblesse oblige' p.o.v. that got US into
Globalization, not that long ago. Unless it was a
Corporatist idea, a way to 'make a few bucks.'

It has indeed made more than a few bucks for a few US citizens, it may have been good for some of the world economy, & it has definitely been good for Corporatism.

Reply Thursday, July 15, 2010 at 08:31 AM

Fred C. Dobbs said in reply to Fred C. Dobbs...
(It has been wretched for many, many Americans.)

Reply Thursday, July 15, 2010 at 12:00 PM

rjw said...
A point worth asking is WHY the east asian countries are engaged in reserve accumulation. It's not just China. It's a host of others.

Maybe their last experience of not having adequate FX reserves back in the late 90s (Asian crisis) affected their risk assessment, and their willingness to rely on the IMF to tide them over currency crises ? Can't really blame them, tbh.

On the subject of trade, I'd lie to point out that there is no developed economy that has got there without trading with other nations. But also no developed economy I can think of that successfuly industrialised under 'free' trade. Britain didn't (we maintained industrial tariffs till the mid 19th century, when we had industrial dominance). The US didnt (tariffs were 30% ? untill post ww2, and were at this level BEFORE Smoot-Hawley in the early 30s). Germany didn't (they heavily protected heavy industry well into the 20th C). Japan didn't. The list is endless.

But the pattern is ... AFTER developing adequate industrial competitiveness to derive benefits from more liberal trade, all these countries suddenly became 'free traders'. Coincidence ? I don't think so.

Now, there are MANY good arguments for free trade .... we have Adam Smith (extending the market to allow wider division of labour)... ricardo (comparative advantage), as well as a host of arguments about the benefits of technology exchange etc etc.

Moreover,, managing any protectionist policy risks establishing vested interests that engage in rampant rent seeking. So I'm no rampant knee - jerk protectionist.

BUT ... we should recognise that adherence to "free" trade, however much theoretical support it gets, can sometimes be a little blind to history, which shows a rather clear correlation between countries that developed industrially and those that adopted measures to protect their own markets.

Reply Thursday, July 15, 2010 at 08:43 AM

fred said...
The problem, I must point out again, is not so much the plutocrats, as the little RENTIERS, using that term broadly to mean anyone whose stream of income and benefits does not derive from labor. Anyone receiving a pension which pays back more than what was saved (that is, where there is actual or implicit real return on savings) is a rentier. Anyone whose income is the result of government regulation which restricts competition (the legal, medical and similar guilds, the civil service plus the military) is a rentier. Anyone whose income is the result of control of the levers of political power (the Fed itself, the pundits, save_the_rustbelt's example of WWII veterans who spent 40 years building up a road paving business which is soon to be destroyed by onerous death taxes and whose income is the result of campaign donations and selective hiring so as to benefit certain politicians) is a rentier. All of these LITTLE RENTIERS benefit from a system whereby prices are kept low and damn the effect on the rest of american workers.

That is, we do indeed have an oligarchy, but it is an oligarchy of the top 10% or even top 30%, and not yet the top 1%. This being the case, it is not clear to me that fixing the trade deficit (though I am in favor of that) is actually going to do anything about the plight of the lower 90% or 70% of the population. If manufacturing is brought back, I doubt if the workers are going to be making the sort of wages (in real terms) that americans made in the auto and steel factories of the 1950's. More likely, they'll get the sorts of wages and working conditions that lettuce pickers and meat-packing workers get now.

Reply Thursday, July 15, 2010 at 08:46 AM

save_the_rustbelt said in reply to fred...
So anybody who owns a business is evil?

The RENTIERS I worked for in the construction business created hundreds of jobs and paid very healthy UNION negotiated wages and benefits for several decades.

Reply Thursday, July 15, 2010 at 09:13 AM

fred said in reply to save_the_rustbelt...
You can't work for a rentier, per se. Rentiers don't engage in labor--that is the essence of being a rentier. The owner of a business is typically a combination of rentier and laborer (engaging in managerial or entrepreneurial labor). The more the business environment approaches perfect competition, the less important the rentier aspect, and contrarywise. In perfect competition and with an abundance of capital, the rentier aspect is eliminated (euthanasia of the rentier), and the return to the business owner is purely a matter of managerial and entrepreneurial labor.

Whether or not rentiers are "evil" is another subject entirely. "Capital" definitely has its own agenda, which may be quite different from the agenda of the people living in a society, including the rentiers themselves (when considered as humans rather than mere abstractions for whom return on capital is all that matters). It is quite possible for capital left unchecked to result in the impoverishment and eventual destruction of an entire society. "Capitalists will sell us the rope to hang them with" and all that. Sounds pretty evil to me.

Reply Thursday, July 15, 2010 at 09:51 AM

NotLouDobbs said...
Where is Lou Dobbs when we need him?

Reply Thursday, July 15, 2010 at 09:01 AM

save_the_rustbelt said...
During the NAFTA push Clinton/Rubin promised a flood of "high value service jobs" to replace lost manufacturing jobs.

The former tool-and-die maker selling fishing licenses at Wal-mart begs to disagree.

Reply Thursday, July 15, 2010 at 09:09 AM

Sasha said in reply to save_the_rustbelt...
Give it up rusty, I'll bet a lot of people, especially "free trade" cheerleaders, don't even know what a tool-and-die maker is.

Reply Thursday, July 15, 2010 at 11:16 AM

paine