Ben Casselman’s NYT piece on economist Tim Kane’s run for a congressional seat in Ohio called my attention to an economists’ poll that I had missed. The poll posed the following question to a group of elite economists:
“An important reason why many workers in Michigan and Ohio have lost jobs in recent years is because US presidential administrations over the past 30 years have not been tough enough in trade negotiations.”
Of the whole group, 64 percent either strongly disagreed or disagreed. Only 5 percent agreed. (The rest were uncertain or didn’t answer.)
This outcome is striking because standard trade models absolutely predict that some people will be losers from trade. The basic story is that workers in an sector where the U.S. has a comparative disadvantage will end up with lower pay as a result of removing trade barriers.
To make it concrete, suppose the auto industry is protected by a 20 percent tariff barrier and we make the tariff zero. The expected result is that we would have fewer workers employed in the auto industry. The workers who lose jobs in the industry will, in general, get lower pay in their new jobs, as will the workers who remain employed in the industry.
The argument for free trade is that the gains in aggregate will be larger than what these workers lose. In principle, the winners can redistribute to the losers and make everyone better off, but there is no dispute that the workers in the auto industry are made directly worse off by the removal of the tariff taken by itself.
What is striking is that there is considerable research by many economists, most notably a group led by MIT economist David Autor, showing that workers in Michigan and Ohio were badly hurt by the trade opening to China in the last decade. In effect, these economists were asked whether they thought autoworkers were hurt by the elimination of a tariff on imported autos after they had been shown evidence of large-scale job loss and wage declines in the sector.
The vast majority still said “no.”
Ben Casselman’s NYT piece on economist Tim Kane’s run for a congressional seat in Ohio called my attention to an economists’ poll that I had missed. The poll posed the following question to a group of elite economists:
“An important reason why many workers in Michigan and Ohio have lost jobs in recent years is because US presidential administrations over the past 30 years have not been tough enough in trade negotiations.”
Of the whole group, 64 percent either strongly disagreed or disagreed. Only 5 percent agreed. (The rest were uncertain or didn’t answer.)
This outcome is striking because standard trade models absolutely predict that some people will be losers from trade. The basic story is that workers in an sector where the U.S. has a comparative disadvantage will end up with lower pay as a result of removing trade barriers.
To make it concrete, suppose the auto industry is protected by a 20 percent tariff barrier and we make the tariff zero. The expected result is that we would have fewer workers employed in the auto industry. The workers who lose jobs in the industry will, in general, get lower pay in their new jobs, as will the workers who remain employed in the industry.
The argument for free trade is that the gains in aggregate will be larger than what these workers lose. In principle, the winners can redistribute to the losers and make everyone better off, but there is no dispute that the workers in the auto industry are made directly worse off by the removal of the tariff taken by itself.
What is striking is that there is considerable research by many economists, most notably a group led by MIT economist David Autor, showing that workers in Michigan and Ohio were badly hurt by the trade opening to China in the last decade. In effect, these economists were asked whether they thought autoworkers were hurt by the elimination of a tariff on imported autos after they had been shown evidence of large-scale job loss and wage declines in the sector.
The vast majority still said “no.”
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It looks like another case where we have a skills mismatch. In a NYT column criticizing Sean Hannity’s housing investments, Bill Sapotio tells us that the housing industry:
“[…]still needs some 200,000 workers, with some of that shortfall no doubt linked to current immigration policy, or the fear of it. The need is so great that the Home Depot Foundation is putting up $50 million to help train and hire skilled workers.”
The problem with this story is wages are not rising especially rapidly in construction. According to the Bureau of Labor Statistics, the average hourly pay of production and non-supervisory workers in the sector rose 3.9 percent. That’s not bad, but before the recession, they were rising over 4.0 percent annually and sometimes over 5.0 percent.
Average Hourly Wage in Construction: Production and Non-Supervisory Workers
Source: Bureau of Labor Statistics.
If there actually is a shortage of construction workers as this piece claims, then we seem to have more evidence of employers who lack the skills necessary to do their job. They apparently don’t understand that if you want to hire more workers, you have to offer higher pay.
It looks like another case where we have a skills mismatch. In a NYT column criticizing Sean Hannity’s housing investments, Bill Sapotio tells us that the housing industry:
“[…]still needs some 200,000 workers, with some of that shortfall no doubt linked to current immigration policy, or the fear of it. The need is so great that the Home Depot Foundation is putting up $50 million to help train and hire skilled workers.”
The problem with this story is wages are not rising especially rapidly in construction. According to the Bureau of Labor Statistics, the average hourly pay of production and non-supervisory workers in the sector rose 3.9 percent. That’s not bad, but before the recession, they were rising over 4.0 percent annually and sometimes over 5.0 percent.
Average Hourly Wage in Construction: Production and Non-Supervisory Workers
Source: Bureau of Labor Statistics.
If there actually is a shortage of construction workers as this piece claims, then we seem to have more evidence of employers who lack the skills necessary to do their job. They apparently don’t understand that if you want to hire more workers, you have to offer higher pay.
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That is what readers of its lead editorial must be wondering. The editorial criticized Trump’s trade policies, pointing out that the policies are creating uncertainties for businesses.
It then notes that Trump appears to view uncertainty as being a positive outcome:
“Last month, in fact, the president all but confessed that he sees uncertainty as a weapon against them in talks over revising the North American Free Trade Agreement. ‘We can negotiate forever,’ he said. ‘Because as long as we have this negotiation going, nobody is going to build billion-dollar plants in Mexico.'”
The editorial then responds:
“Oh no? Canada and Mexico can, and do, hedge against Mr. Trump’s unpredictability by pursuing closer economic ties with China and Europe.”
It is not clear what sort of economics the Post is using here. In standard trade models, the United States benefits when the economies of our trading partners are stronger. If greater integration between Canada and Mexico and China and Europe allow them to grow more rapidly, they will be better customers for US products. Also, insofar as greater integration leads to increased efficiencies for their producers, it means that we will be able to buy lower-priced imports, benefiting US consumers.
If the Post has an economic model whereby we are supposed to be scared because our trading partners are becoming more integrated, it should share it with its readers. (Maybe it will get a Nobel Prize in economics.) As it is, this just looks like a cheap scare tactic to advance its trade agenda.
That is what readers of its lead editorial must be wondering. The editorial criticized Trump’s trade policies, pointing out that the policies are creating uncertainties for businesses.
It then notes that Trump appears to view uncertainty as being a positive outcome:
“Last month, in fact, the president all but confessed that he sees uncertainty as a weapon against them in talks over revising the North American Free Trade Agreement. ‘We can negotiate forever,’ he said. ‘Because as long as we have this negotiation going, nobody is going to build billion-dollar plants in Mexico.'”
The editorial then responds:
“Oh no? Canada and Mexico can, and do, hedge against Mr. Trump’s unpredictability by pursuing closer economic ties with China and Europe.”
It is not clear what sort of economics the Post is using here. In standard trade models, the United States benefits when the economies of our trading partners are stronger. If greater integration between Canada and Mexico and China and Europe allow them to grow more rapidly, they will be better customers for US products. Also, insofar as greater integration leads to increased efficiencies for their producers, it means that we will be able to buy lower-priced imports, benefiting US consumers.
If the Post has an economic model whereby we are supposed to be scared because our trading partners are becoming more integrated, it should share it with its readers. (Maybe it will get a Nobel Prize in economics.) As it is, this just looks like a cheap scare tactic to advance its trade agenda.
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Amazon, which fueled its enormous growth with billions in taxpayer subsidies, is trying to push the line that it is actually good for small businesses. Gene Marks, a consultant who blogs for the Post’s business section, noted the company’s claim that it actually is good for small businesses.
The basis for the claim is that 1 million small businesses use Amazon’s network to sell their goods throughout the world. The company claims it has created 900,000 jobs based on these sales.
As Marks points out, Amazon’s claims are not necessarily accurate since it has also put many businesses out of business. To get an accurate assessment of its impact, it would be necessary to ask how many of the items sold by Amazon’s small business clients would have otherwise been purchased from small business brick and mortar stores if they were not sold through Amazon. (Actually, if the question is just Amazon, most of these items likely would have been sold through some other Internet vehicle if Amazon did not exist.)
The real issue is why any Internet retailer should enjoy an effective taxpayer subsidy by not having to collect the same sales taxes as its brick and mortar competitors. Amazon now collects sales tax in every state in which it sells, although not county or local sales taxes. (Apparently, Amazon’s staff is not smart enough to work a spreadsheet with more than 50 rows.) The fact that it did not collect taxes in most states through most of its existence was an enormous subsidy to the company.
Even now, Amazon is not collecting sales taxes for its small business affiliates. We can think of this as a situation in which Amazon is splitting the taxpayer subsidy with its affiliates. At this point, Amazon should be able to survive in the market without special subsidies from taxpayers. Given the amount of money involved, we can think of Jeff Bezos as collecting food stamps on super-steroids.
Amazon, which fueled its enormous growth with billions in taxpayer subsidies, is trying to push the line that it is actually good for small businesses. Gene Marks, a consultant who blogs for the Post’s business section, noted the company’s claim that it actually is good for small businesses.
The basis for the claim is that 1 million small businesses use Amazon’s network to sell their goods throughout the world. The company claims it has created 900,000 jobs based on these sales.
As Marks points out, Amazon’s claims are not necessarily accurate since it has also put many businesses out of business. To get an accurate assessment of its impact, it would be necessary to ask how many of the items sold by Amazon’s small business clients would have otherwise been purchased from small business brick and mortar stores if they were not sold through Amazon. (Actually, if the question is just Amazon, most of these items likely would have been sold through some other Internet vehicle if Amazon did not exist.)
The real issue is why any Internet retailer should enjoy an effective taxpayer subsidy by not having to collect the same sales taxes as its brick and mortar competitors. Amazon now collects sales tax in every state in which it sells, although not county or local sales taxes. (Apparently, Amazon’s staff is not smart enough to work a spreadsheet with more than 50 rows.) The fact that it did not collect taxes in most states through most of its existence was an enormous subsidy to the company.
Even now, Amazon is not collecting sales taxes for its small business affiliates. We can think of this as a situation in which Amazon is splitting the taxpayer subsidy with its affiliates. At this point, Amazon should be able to survive in the market without special subsidies from taxpayers. Given the amount of money involved, we can think of Jeff Bezos as collecting food stamps on super-steroids.
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Heather Long has a piece in the Washington Post detailing the demands that Donald Trump is making on China in exchange for not imposing tariffs. As she rightly points out, the list essentially amounts to asking China to remake its economy.
It would have been useful to point out how ridiculous this list of demands is, given the limited ability of the US to hurt China with tariffs. The US currently is importing a bit more than $500 billion a year from China. On an exchange rate basis, this comes to about 3.6 percent of its GDP.
Suppose that Trump tariffs cut this volume of imports in half, which would be a huge reduction. This would be a reduction in Chinese exports equal to 1.8 percent of its GDP. That would undoubtedly be somewhat of a hit to its economy, sort of like the hurricanes that hit the United States last summer.
From 2008 to 2011, China’s trade surplus fell by 7.3 percentage points of GDP. That’s a decline averaging 2.4 percentage points of GDP for three years. Its economy continued to grow at close to a 10.0 percent annual rate through this period. If we take Trump’s big tariff scenario, it will hit China less than one-quarter as hard as the 2008–2011 drop in its trade surplus. I’m sure that President Xi is shaking in his boots.
Apparently, Trump has no clue of how limited the U.S. ability to influence China’s economic policy is, or he doesn’t care and is just making his tariff threats for show. The one thing we can say with a high degree of certainty is that China is not going to fundamentally change the way it operates its economy because of Trump’s threats.
Long makes another point in this piece that is questionable. She claims:
“The belief in Washington for decades was that more trade with China would be a win-win, but Trump has forced both parties to rethink that conclusion. As John Pomfret, a longtime journalist in China, chronicles in his new book ‘The Beautiful Country and the Middle Kingdom: America and China, 1776 to the Present,’ the old thinking was that more trade would cause the Chinese to become more capitalist and democratic. That’s not what happened.”
It’s not clear that anyone in Washington actually “believed” that they would transform with China with more trade, although this is something that many people said. There were powerful corporations that stood to make lots of money from expanded trade with China. It was useful for them to have people say that this trade would advance democracy in China.
The people who argued that more trade would advance democracy in China were well-paid for their efforts. We have no way of knowing how many actually believed this view.
Addendum
I forgot to mention that Trump’s list of demands against China doesn’t include anything about its currency. After running around the country for a year and a half denouncing China as a “world class currency manipulator,” Trump doesn’t even include it on his dream list of changes he expects from China.
Oh well, no one ever said that Donald Trump was consistent, or had a clue.
Heather Long has a piece in the Washington Post detailing the demands that Donald Trump is making on China in exchange for not imposing tariffs. As she rightly points out, the list essentially amounts to asking China to remake its economy.
It would have been useful to point out how ridiculous this list of demands is, given the limited ability of the US to hurt China with tariffs. The US currently is importing a bit more than $500 billion a year from China. On an exchange rate basis, this comes to about 3.6 percent of its GDP.
Suppose that Trump tariffs cut this volume of imports in half, which would be a huge reduction. This would be a reduction in Chinese exports equal to 1.8 percent of its GDP. That would undoubtedly be somewhat of a hit to its economy, sort of like the hurricanes that hit the United States last summer.
From 2008 to 2011, China’s trade surplus fell by 7.3 percentage points of GDP. That’s a decline averaging 2.4 percentage points of GDP for three years. Its economy continued to grow at close to a 10.0 percent annual rate through this period. If we take Trump’s big tariff scenario, it will hit China less than one-quarter as hard as the 2008–2011 drop in its trade surplus. I’m sure that President Xi is shaking in his boots.
Apparently, Trump has no clue of how limited the U.S. ability to influence China’s economic policy is, or he doesn’t care and is just making his tariff threats for show. The one thing we can say with a high degree of certainty is that China is not going to fundamentally change the way it operates its economy because of Trump’s threats.
Long makes another point in this piece that is questionable. She claims:
“The belief in Washington for decades was that more trade with China would be a win-win, but Trump has forced both parties to rethink that conclusion. As John Pomfret, a longtime journalist in China, chronicles in his new book ‘The Beautiful Country and the Middle Kingdom: America and China, 1776 to the Present,’ the old thinking was that more trade would cause the Chinese to become more capitalist and democratic. That’s not what happened.”
It’s not clear that anyone in Washington actually “believed” that they would transform with China with more trade, although this is something that many people said. There were powerful corporations that stood to make lots of money from expanded trade with China. It was useful for them to have people say that this trade would advance democracy in China.
The people who argued that more trade would advance democracy in China were well-paid for their efforts. We have no way of knowing how many actually believed this view.
Addendum
I forgot to mention that Trump’s list of demands against China doesn’t include anything about its currency. After running around the country for a year and a half denouncing China as a “world class currency manipulator,” Trump doesn’t even include it on his dream list of changes he expects from China.
Oh well, no one ever said that Donald Trump was consistent, or had a clue.
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I know we are supposed to view the AI and robot folks as great gurus of the future, but at the moment they look like people who have great difficulty with simple arithmetic. We just got new numbers on productivity today and they were not very good, and they were especially not very good in manufacturing, the sector where we are supposed to have the greatest fear of job-killing robots. And, it’s not just the last quarter I’m talking about.
Productivity growth in manufacturing has averaged well under 1.0 percent annually for the last decade. In the Golden Age from 1947 to 1973, it averaged well over 3.0 percent. Here’s the picture for the last three decades from the good folks at the Bureau of Labor Statistics.
Manufacturing Productivity
Source: Bureau of Labor Statistics.
Of course, we could see a sharp uptick in the future, which I think would be a great thing. It would allow for rapid wage growth like we had back in the Golden Age.
Anyhow, if folks want to worry about the robots taking all the jobs, don’t let me bother you with data. While you’re at it, you may want to keep on the lookout for invading Martians.
I know we are supposed to view the AI and robot folks as great gurus of the future, but at the moment they look like people who have great difficulty with simple arithmetic. We just got new numbers on productivity today and they were not very good, and they were especially not very good in manufacturing, the sector where we are supposed to have the greatest fear of job-killing robots. And, it’s not just the last quarter I’m talking about.
Productivity growth in manufacturing has averaged well under 1.0 percent annually for the last decade. In the Golden Age from 1947 to 1973, it averaged well over 3.0 percent. Here’s the picture for the last three decades from the good folks at the Bureau of Labor Statistics.
Manufacturing Productivity
Source: Bureau of Labor Statistics.
Of course, we could see a sharp uptick in the future, which I think would be a great thing. It would allow for rapid wage growth like we had back in the Golden Age.
Anyhow, if folks want to worry about the robots taking all the jobs, don’t let me bother you with data. While you’re at it, you may want to keep on the lookout for invading Martians.
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Many folks in the media seem to think it is part of their job to promote trade agreements like the Trans-Pacific Partnership (TPP), not only in opinion pages, but in the news section too. The NYT gave us yet another example of this effort in a piece on a hotly contested congressional race in Washington.
At one point the piece tells readers that the TPP: “…would have reinforced the nation’s embrace of free trade.” This is not true.
The TPP had relatively little to do with free trade in the sense of reducing tariffs and other traditional trade barriers. The United States already had trade agreements with six of the other eleven countries in the pact and trade barriers were already low with most of the other countries.
The main focus of the agreement was locking in commercial rules on items like Internet commerce. These rules would make it more difficult for countries to restrict privacy abuses like those recently committed by Facebook.
The TPP also would have imposed longer and stronger patent and copyright protections. These protections are forms of protectionism, as in the opposite of free trade.
They are also incredibly costly forms of protectionism, often raising the price of protected items (like prescription drugs) by factors of ten or even a hundred. This makes them equivalent to tariffs of 1000 percent or 10,000 percent. The cost in the case of prescription drugs alone is in the neighborhood of $380 billion a year, roughly 2.0 percent of GDP. The NYT may like longer and stronger patent and copyright protection, but it is dishonest to call them free trade.
The piece also reported, without comment, a grossly inaccurate number on the benefits of the tax cut claimed by Dino Rossi, the likely Republican nominee for the seat. Rossi is quoted as saying the typical household will get $3,357 from the tax cut. According to the Tax Policy Center, a family in the middle of the income distribution can expect to get $930 from the tax cut, less than one-third of Mr. Rossi’s figure.
Many folks in the media seem to think it is part of their job to promote trade agreements like the Trans-Pacific Partnership (TPP), not only in opinion pages, but in the news section too. The NYT gave us yet another example of this effort in a piece on a hotly contested congressional race in Washington.
At one point the piece tells readers that the TPP: “…would have reinforced the nation’s embrace of free trade.” This is not true.
The TPP had relatively little to do with free trade in the sense of reducing tariffs and other traditional trade barriers. The United States already had trade agreements with six of the other eleven countries in the pact and trade barriers were already low with most of the other countries.
The main focus of the agreement was locking in commercial rules on items like Internet commerce. These rules would make it more difficult for countries to restrict privacy abuses like those recently committed by Facebook.
The TPP also would have imposed longer and stronger patent and copyright protections. These protections are forms of protectionism, as in the opposite of free trade.
They are also incredibly costly forms of protectionism, often raising the price of protected items (like prescription drugs) by factors of ten or even a hundred. This makes them equivalent to tariffs of 1000 percent or 10,000 percent. The cost in the case of prescription drugs alone is in the neighborhood of $380 billion a year, roughly 2.0 percent of GDP. The NYT may like longer and stronger patent and copyright protection, but it is dishonest to call them free trade.
The piece also reported, without comment, a grossly inaccurate number on the benefits of the tax cut claimed by Dino Rossi, the likely Republican nominee for the seat. Rossi is quoted as saying the typical household will get $3,357 from the tax cut. According to the Tax Policy Center, a family in the middle of the income distribution can expect to get $930 from the tax cut, less than one-third of Mr. Rossi’s figure.
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The NYT had an interesting piece on how many cities are bringing in foreign teachers, under J-1 visas, because US citizens are not willing to work for the pay being offered. This is yet another example of how political power shapes the market and thereby determines the pay in different occupations.
If it were simply an economic question, there would be far more money to be saved by bringing in foreign doctors than foreign teachers. The average pay for doctors in the United States is over $260,000 a year. This is more than twice the average for other wealthy countries. The gap between doctors’ pay in the United States and pay in developing countries like the Philippines (the focus of this piece) would be even larger.
If economists actually supported free trade and maximizing efficiency they would be spending a huge amount of time working out arrangements that would allow for foreign doctors to meet US standards and then practice medicine in the United States under the same terms as doctors who were trained here. Unfortunately, the economics profession is more committed to redistributing income upward than to free market principles. (Yes, I am promoting my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
The NYT had an interesting piece on how many cities are bringing in foreign teachers, under J-1 visas, because US citizens are not willing to work for the pay being offered. This is yet another example of how political power shapes the market and thereby determines the pay in different occupations.
If it were simply an economic question, there would be far more money to be saved by bringing in foreign doctors than foreign teachers. The average pay for doctors in the United States is over $260,000 a year. This is more than twice the average for other wealthy countries. The gap between doctors’ pay in the United States and pay in developing countries like the Philippines (the focus of this piece) would be even larger.
If economists actually supported free trade and maximizing efficiency they would be spending a huge amount of time working out arrangements that would allow for foreign doctors to meet US standards and then practice medicine in the United States under the same terms as doctors who were trained here. Unfortunately, the economics profession is more committed to redistributing income upward than to free market principles. (Yes, I am promoting my [free] book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer.)
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The NYT described the problems that fast-food restaurants are having in getting and keeping workers as a result of lower unemployment. It describes several ways in which restaurants have been able to maintain sales with fewer workers. It also suggests that many restaurants are likely to go out of business since they will not be profitable if they have to pay the wages necessary to keep workers.
This is how productivity increases in a market economy. Some restaurants will be able to find ways to make a profit even while paying higher wages. Other restaurants, which are less productive, will end up going out of business. The workers that had been employed at these restaurants will mostly end up at businesses that make better use of their labor.
The growth of fast-food restaurants described in this piece is a drag on the economy’s productivity. When a larger number of workers are employed in very low productivity jobs, it reduces average productivity in the economy. If higher wages ends up reversing this process, it will mean more rapid productivity growth.
This is essentially the story of the transition of the United States from being a primarily agricultural economy to an urban one. Manufacturing and other industries in urban areas offered higher pay than was available in rural areas. This forced farms to either become more efficient or go out of business. This is mostly a positive story of rising living standards, although there always will be some people hurt in the process (e.g. farmers or restaurant owners going out of business.)
The NYT described the problems that fast-food restaurants are having in getting and keeping workers as a result of lower unemployment. It describes several ways in which restaurants have been able to maintain sales with fewer workers. It also suggests that many restaurants are likely to go out of business since they will not be profitable if they have to pay the wages necessary to keep workers.
This is how productivity increases in a market economy. Some restaurants will be able to find ways to make a profit even while paying higher wages. Other restaurants, which are less productive, will end up going out of business. The workers that had been employed at these restaurants will mostly end up at businesses that make better use of their labor.
The growth of fast-food restaurants described in this piece is a drag on the economy’s productivity. When a larger number of workers are employed in very low productivity jobs, it reduces average productivity in the economy. If higher wages ends up reversing this process, it will mean more rapid productivity growth.
This is essentially the story of the transition of the United States from being a primarily agricultural economy to an urban one. Manufacturing and other industries in urban areas offered higher pay than was available in rural areas. This forced farms to either become more efficient or go out of business. This is mostly a positive story of rising living standards, although there always will be some people hurt in the process (e.g. farmers or restaurant owners going out of business.)
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