October 17, 2018
I don’t especially want to defend nationalism, given the folks who wave this flag these days, but Matt Yglesias gets a few things wrong in criticizing John Judis’ NYT piece earlier this week.
To start with he quotes Judis:
“As long as corporations are free to roam the globe in search of lower wages and taxes, and as long as the United States opens its borders to millions of unskilled immigrants, liberals will not able to create bountiful, equitable societies, where people are free from basic anxieties about obtaining health care, education and housing.”
…and then tells us “this is flatly untrue.”
Okay, let’s take a step back. Is Yglesias really arguing that if we had open borders, so that literally hundreds of millions of people from the poorest countries on the planet could come to the US, that it would not mean a decline in living standards for the workers already here? That seems more than a bit far-fetched.
Of course, we did not have open borders, so the real question is did the levels of immigration we had prevent us from having a generous welfare state? Here Yglesias would be on solid ground in saying no. Most research indicates that immigration of the level we have seen has not hurt the wages of native-born workers, although it does depress the wages of earlier immigrants, making the catch-up process longer than it otherwise would be.
I should also mention that I have not seen research that attempts to incorporate the impact of rents on real wages. Cities that have large inflows of immigrants (e.g. New York, Miami, and Los Angeles) have seen much sharper increases in rents than places like St. Louis and Cleveland. Given that the least-educated workers who face the brunt of the competition from immigrants may be spending 50 to 60 percent of their income on rent, this could be a very big deal. I don’t know if this would change the story, but I have not seen analysis that attempts to incorporate the impact of differential rent increases.
The trade point more generally needs the qualification that our policy has been very selective in what items we choose to open to trade. We don’t have free trade across the board. We decided to make manufactured goods open to trade, which puts downward pressure on the wages of manufacturing workers, and thereby the non-college educated segment of the workforce. We have maintained or increased the protections for doctors and other highly paid professionals. This is not a problem of free trade, it is a problem of selective free trade that was designed to redistribute income upward.
Yglesias is also much too generous in his discussion of what he concedes are the failures of globalization, the euro and the admission of China to the WTO. While he seems to view these policies as the result of ignorance, at the best they reflected a lack of concern about the interests of workers, if not a deliberate effort to reduce their power.
The failure of the euro as a currency block was predicted by economists ranging from Paul Krugman to Martin Feldstein. What the euro did was cripple the ability of the eurozone nations to implement full employment fiscal and monetary policy. Since these warnings were widely made in advance of its adoption, there was at the least a conscious decision to ignore them. Alternatively, we could say this was the point.
The same applies with PNTR. Yglesias tells us:
“…subsequent research has shown that the economic consequences of granting Permanent Normal Trade Relations (PNTR) with China were larger than Clinton administration officials realized they would be.”
Here also there were plenty of warnings, and as massive job loss in manufacturing was occurring in the years 2000 to 2007 (pre-crash), the Clintonite economists were almost completely silent. The best that can be said here is that they didn’t care. It is inconceivable they would strike a trade deal that would do comparable harm to Citigroup and Goldman Sachs.
Finally, Yglesias turns logic on its head when he writes:
“…the economic relationship with China also brought the United States very low borrowing costs in the 2000s that gave the federal government an enormous fiscal opportunity.”
The key point here is that the economic relationship with China (i.e. the trade deficit) gave us the enormous gap in demand that is now known as “secular stagnation.” Of course, we could fill this gap with additional government spending in areas like education and infrastructure, but if we want to call this gap a gift, the collapse of the housing bubble and the Great Recession gave us an even larger gift of this type.
Again, this is not wrong. A severe downturn frees up lots of resources that can be put to productive uses in principle, and so does a trade deficit. Unfortunately, we are just very bad in doing this, in large part because we have a cult of budget deficits being bad, with the Clintonite economists being leading promulgators.
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