April 14, 2016
Charles Lane used his op-ed column in the Washington Post to repeat the line that is now quite popular in elite circles: the stagnating wages and worsening living standards of large segments of the U.S. working class were a necessary price for lifting hundreds of millions of people in the developing world out of poverty. Oh yeah, and also the richest one percent happened to get unbelievably rich in the process as well. So people like Bernie Sanders, who want trade policies that will help U.S. workers, are actually being selfish. It’s the one percent who are really serving the poor.
This argument is incredibly wrongheaded for many reasons, but let’s just focus on its basic structure. The story goes that in the last three and a half decades we have seen substantial growth in the incomes of the poor in the developing world. (Actually the bulk of this story is in East Asia, but we’ll leave that aside for the moment.) During this period incomes of ordinary workers in the United States, and to a lesser extent Europe and Japan, have stagnated. Therefore, stagnating wages for rich country workers was a necessary condition for hundreds of millions of people to escape poverty.
Obviously there was a link between these events, but the serious question (okay, that leaves the WaPo folks out) is whether it was a necessary link. Suppose that a natural disaster, like a flood or earthquake, devastates a major city. In response the federal government throws in tens of billions in assistance to rebuild the city. Ten years later, the city has a thriving economy.
In Charles Lane Eliteland the disaster was a good thing, because otherwise the city never would have been revitalized. But that is not the real question. The question is whether we could have had a path that allowed developing countries to prosper without impoverishing U.S. workers.
The simple answer is we certainly could have gone a different route and most of the story is textbook economics. I lay this out more fully in a piece that was solicited for the Post Outlook/Post Everything section, but never run there because they lost the ability to reply to e-mails.
The basic story is that there is no reason that we had to run large trade deficits with developing countries like China. In the economics textbooks, capital is supposed to flow from rich countries to poor countries to finance their development. That would mean we run trade surpluses with developing countries. Furthermore, the reason that our autoworkers compete with low-paid autoworkers in the developing world, but our doctors don’t compete with their much lower paid counterparts (trained to U.S. standards), is that doctors have much more power than autoworkers. And, we enriched our one percent, while making developing countries poorer, by making patent and copyright monopolies stronger and longer.
Anyhow the story that U.S. workers had to suffer to help the world’s poor is very comforting for the country’s elite, and let’s face it, they own the media outlets. This means that we can look forward to hearing it repeated endlessly, no matter how little sense it makes.
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