One of the most interesting passages in Listen, Liberal is Frank’s characterization of the Republicans as the party of 1 percent—nothing new here—and the Democrats as the party of the 10 percent—which is the interesting part, and a new idea, at least to me.
What does he mean by “the party of the 10 percent”? It is generally agreed that back in the days of FDR, Truman, and Johnson the Democrats were the party of the Working America (even if the leaders were often recruited from the “aristocracy”, like FDR). Today, however, they are the party of “professionals”: “doctors, lawyers, the clergy, architects, and engineers—the core professional groups—the category includes economists, experts in international development, political scientists, managers, financial planners, computer programmers, aerospace designers, and even people who write books like this one.” And college professors. (Parenthetically, although I and my university colleagues would surely object to be called the “elite”, that’s how the fly-over America thinks of us. We are branded as the “East Coast Liberal Elite.”)
Returning to Frank’s point, the 10 percent are the technocracy, the credential class, the meritocracy (“meritocracy is the official professional credo—the conviction that the successful deserve their rewards, that the people on top are there because they are the best”). They believe in the power of education. “To the liberal class, every economic problem is really an education problem, a failure by the losers to learn the right skills and get the credentials everyone knows you’ll need in the society of the future.”
Much of Frank’s book is a historical account of how the Democratic Party abandoned the 90 percent and became the party of the professionals (the “10 percent”). One important chapter in this story is how Bill Clinton rammed the NAFTA (North American Free Trade Agreement) down the throats of the (then) reluctant Democratic legislators.
The agreement was not a simple or straightforward thing: it was some 2,000 pages long, and according to the reporters who actually read it, the aim was less to remove tariffs than make it safe for American firms to invest in Mexico—meaning, to move factories and jobs there without fear of expropriation and then to import those factories’ products back into the U.S.
Frank’s “favorite” group of professionals are the economists, “a discipline that often acts as an ideological cartel set up to silence the heterodox.” Back in the 1990s 283 economists signed a statement declaring that the NAFTA “will be a net positive for the United States, both in terms of employment creation and overall economic growth.” In 2010 a study calculated that almost 700,000 American jobs were lost thanks to the treaty.
Economists tell us that globalization—free trade, free movement of capital and people—is an unalloyed good. Not true. It all depends on the details. In fact, economists know that—in technical papers, published in academic journals, they discuss under what conditions free trade between countries could benefit their economies, and under what conditions some countries lose, while others gain. But when economists talk to the press, they suddenly forget all the nuance, and turn into free market fundamentalists. It’s an interesting topic, and perhaps I will address it in a future post. But what’s important for the issue in hand is that the American workers are not stupid and they know that they are fed bullshit. When you go to a meeting with your company’s CEO and other corporate officers and they tell you that you either accept a pay cut, or they will move the factory to Mexico—who are you going to believe, your own experience or the Theory of Comparative Advantage? And then, a couple of years later, despite you having agreed to a wage cut, they still move the factory to Mexico.
The problem with NAFTA and other free trade agreements is that they were written by the corporations, for the corporations. Is it surprising that the Democratic Party has been losing the support of the Working America?
[…] Part II here […]
“In 2010 a study calculated that almost 700,000 American jobs were lost thanks to the treaty.”
A calculation done in a non-peer-reviewed article by the EPI, a think tank.
A more serious assessment by Dani Rodrik is here:
http://rodrik.typepad.com/dani_rodriks_weblog/2017/01/what-did-nafta-really-do.html
Also see the first comment by DeLong in the Rodrik post.
Thanks for the link. A good Dani Rodrik post, and a good reply by Brad DeLong. But the “distributional issue” is key. The “average” averages over the CEO and the worker. The CEOs gain (as we well know). The lower skill workers lose (as we also know).
And all of this is beside the point. Workers in the Rust Belt are not going to delve into the arcane calculations published in an academic journal. They have immediate experience and it tells them that they are hurting. That’s where the established elites failed them and that’s what political entrepreneurs capitalize on.
Brilliant analysis. And funny. I am going to have to share this with my friends.
Hayek says that the Social Democrats before the fascist takeover were seen to be aligned with the interest of skilled labor (as opposed to the Nazis who he says were aligned with lower skilled workers interest). As a result of this alignment of interests the Social Democrats were in bed with management and were unable to effectively oppose their Nazi enemies ….
http://cnqzu.com/library/Philosophy/neoreaction/Friedrich%20August%20Hayek/Friedrich_Hayek%20-%20The_road_to_serfdom.pdf
Nothing new under the sun.
The illustrated Road to Serfdom is great
http://www.davidmhart.com/blog/C20111228141034/E20120629095727/index.html
Situation is not exactly equivalent. Donald Trump is not a strong man elected to implement a plan that works, he is ripping up the deliberate (not improvised) corporate plans of Hayek’s planners, who were not planning for Hayek’s socialist nation but a fascist one world government in which straight white men are the scapegoat minority.
I can’t even begin to get my head around the idea that the Republican part is the 1% and Democrats the 10%. Both parties have been pushing the same agenda for years.
You may very well be right that 2000 page regulations were in great part written for the benefit of various special interest groups, including corporations, and that this is wrong. But I disagree with much of your second to the last paragraph.
Economists tend to value the elimination of barriers to trade because over the long haul, a larger network of economic exchange can support more specialization, larger scales of production, more research, automation and innovation, more constructive competition, and comparative advantage. In addition, it tends to undermine harmful rent seeking cartels (producers, workers, etc) and provides exit options and variety to mitigate regulatory mistakes and political rent seeking.
Economists are extremely aware that this process creates short term creative destruction and that this affects real people and real lives. Their larger message though is that it is this creative process (combined with science and good governance) which generates increasing standards of living. And over the long haul that is exactly what it has done. Living standards are up at least 20X in liberal states (those roughly following this model) and probably substantially more than this when you add in life span and quality of life measures.
In the last 30 years or so, the headline story of our planet has been the incredible catch up gains of people in areas previously excluded from free markets being allowed to prosper like the previously privileged people of Europe, Japan and North America. The outsized rewards to freer trade have come not to the manufacturing workers in the Midwest and North Carolina, who started (and are probably still) in the top Five percent of global incomes but to the billion people in China and Southeast Asia and other parts of the world who have seen their lifespan, education, freedom, and incomes increase at a faster pace than at any time ever seen since the emergence of the human race.
Do I need to provide links on the last generation’s global improvements in living standards, escape from poverty, increase in education, subjective well being, Human Development, sanitation, clean water, freedom and so on?
I hope we can both agree it is appalling to see someone defend rent-seeking cartels of the top ten percent of global income workers at the expense of the bottom global quintile. I fail to grasp any ethical system which privileges the privileged at the expense of the underprivileged just because they live on the wrong side of a geographic border or wall.
What economists would add to your example is to consider the unseen, secondary, tertiary and longer term effects. These include the worker and her family in Mexico who gained a much better job and much higher income, the business which didn’t go bankrupt and the retiree who depended upon its success for his retirement benefits, the consumers who gained by spending less on cars, the producers and retailers who gained additional sales leveraged by the money saved by the lower price. On an even longer scale what we don’t notice is the new jobs created for the higher skilled workers in North Carolina which better use their abilities, and the peaceful networks of interdependence which contributes not just to global prosperity and fairness but also global peace.
An American worker should have zero incumbency rights in his job unless he and his employer mutually agreed to it. Giving him said right is effectively giving him a privilege over you, me, the employer, the investors, 300 million American consumers, and 7 billion people globally, most of whom are substantially less well off than the one we gave the unfair privilege to.
To the extent your article is arguing that trade agreements should not privilege special interest groups, then I wholeheartedly agree. I hope you will join me though in condemning any policies which foster global inequality and unfairness and which kills off long term economic progress. And in general “freer” trade is the solution, not the problem, and if more people understood this then we would all be better off. Protectionism and Mercantilism are, at best, penny wise and pound foolish. They are longer term dead ends, and economists need to do more, not less, in getting this message out.
I am sorry, Roger, but you don’t convince me. I am familiar with Economics 101, but in the real world things usually are different. It’s a big topic, and not one to deal with in a blog post response.
Have Mexican workers really gain from NAFTA?
Thanks for the response,
It looks like per capita GDP is up over 25% and unemployment continues to be low. So yeah, it looks like free trade has been great for Mexicans. Of course we don’t actually have a counterexample of what would have happened with the population growth rates absent freer trade. The US and Mexico have both performed well over the past generation (the US is the frontier economy and has grown faster than most of the other advanced economies despite historic tendencies of followers to gain on the frontier).
As for your dismissal that the real world is different, of course it is. That is the point. Your example of job outsourcing is a perfect demonstration of the mistake of oversimplifying complex activity. The value of economics is to avoid this type of oversimplification, even if it requires abandoning one’s comfortable ideology.
I also need to add that my comment was addressing the messy real world rather than your imaginary one dimensional point in time story. As I noted, actual living standards, percent rising out of poverty, education, subjective well being, human development index, life span, health, clean water and access to sanitation have all improved dramatically globally during the last generation. That is the real world. Do you dispute this?
Freer trade and liberalism combined with the widescale implosion of blind faith in state controlled Socialism clearly contributed to this growth.
If life is so good for the lower classes in Mexico, why have their millions been flocking across the border to work picking fruit in the US?
Seems to me that life’s not quite as good in Mexico as you think and that your use of GDP to demonstrate social advance is thoroughly obscurantist.
With a bit of introspection I think the answer is both obvious and implied in my initial answer.
In no case did I ever imply that living standards were anywhere near the level of the US. Thus immigration is still welfare enhancing for some Mexicans. It would have been even MORE enhancing absent the 25% gain and the jobs created. I pretty much implied that in my comment on historic counterexamples.
The rate of immigration is obviouosly caused by more than one thing. One factor is the job situation and economic growth rate in Mexico. Another is the job growth and growth in the US. Another is enforcement and immigration policy.
This reminds me of another incovenient truth (for Socialists and progressives) about Economic prosperity in the US. Not only does the US continue to have the highest real standard of living of any large nation now or ever before in history, and not only does it continue to grow as fast or faster than other developed nations, it continues to do on a per capita level despite the entrance of 40 million low wage immigrants pulling down the statistical averages.
Nope. The GDP per capita increase is an aggregate effect of national accounting estimates, which were drastically increased by the laundering of cartel money in New York investment banks (via NAFTA), thereby newly counted (out of the “dark economy” and into quantifiable streams). With respect to National accounting estimates, ask any Mexican economist: the national accounting estimates have a considerable margin of error… to the point where trends must be questioned because of the volume of illicit money that supports the present division of labor. FDI and trade imbalance have only increased since 1992, the proportion of the population in the labor force considerably declined, and real incomes declined substantially. Don’t hesitate to consult INEGI’s website for thorough econometric analyses with data provided. As for the US, if demand has actually grown for labor in certain sectors (as opposed to a shrinking labor market) then why havent wages increased? The answer is obvious. The US growth with respect to NAFTA is merely a result of aggregate national accounting estimates from FDI at the cost of other jobs whose value have evaporated in the face of a labor market saturated in cheap labor. This structural re-adjustment has long term effects that Krugman’s comparative advantages cannot sustain without govt subsidies.
The thing that astounds me, is that every major manufacturing power (America, Germany, Japan, Korea, China) became so under a regime of protectionism (with maybe England the exception, although they had no competition). So why is the concrete historical evidence discounted in favor of some theory?
Most of this baloney goes right back to Ricardo, who was conducting economic when wholescale capital flight was inconceivable. Well, it isn’t today, and globalization is nothing more than labor arbitrage. Without borders and protection, there will be a great convergence with the third world, and there are more of them then there are of us, so they will go up slightly, and we will suffer an abysmal collapse in living standard (and, given levels of debt, a financial crisis which will rock the world). Obviously, what is not sustainable won’t be, but we are in for a real ride, in the 1917 Russia/1932 Germany sense.
You have a bad theory, which fails because it does not properly account for all the variables, but serves the interests of corporations, and thus, gets the megaphone and the resources. Unfortunately, we are headed for an avoidable disaster, but the greed and short-termism restricting policy making will ensure the disaster.
yup, we’ll all be rooned, as the locals say. homo sap only thinks he thinks, and he only ever thinks about himself, family and clan. may be a fatal weakness.
“The thing that astounds me, is that every major manufacturing power (America, Germany, Japan, Korea, China) became so under a regime of protectionism (with maybe England the exception, although they had no competition). So why is the concrete historical evidence discounted in favor of some theory?”
Great question. The explanation is that you are looking at the wrong level of abstraction. Mercantilism didn’t replace global free trade, it replaced extremely local trade networks dominated by local guild monopolies and barriers and tariffs between towns. The shift was from village and town based economies to national economies. And with expensive, slow and dangerous transportation and communications, the benefits were primarily realized at the national level, especially for larger countries and empires.
The British Empire is several orders orders of magnitude larger than “Edinburgh”.
As transportation and communications became cheaper, faster and safer, the dominant network size increasingly extended beyond the level of most nation states. But even today, small countries are substantially more dependent upon trade than huge ones like the US.
Google books or articles by North or Vries on the topic if you have an open mind.
“Without borders and protection, there will be a great convergence with the third world, and there are more of them then there are of us, so they will go up slightly, and we will suffer an abysmal collapse in living standard.”
Yet I disagree and explained why. Virtually every professional economist also disagrees, as below, along with THEIR reasoning.
http://www.igmchicago.org/surveys/free-trade
Reading Roger’s posts, I get a distinct whiff of “It’s necessary to break eggs to make an omelet.” Almost like it’s a Good Thing to force down the standards of living of a large part of the population of the United States and other industrialized nations. Because that’s what’s been happening.
As to “consumers” allegedly benefiting, there is a big problem. Where do consumers get their money? Some people seem to think that they get it from picking money trees. But most consumers get their money from work, and if they cannot earn very much money from their work, then they cannot be very good consumers.
Turning to our host’s Structural-Demographic Theory, some of the correlations mentioned in “Ages of Discord” are most interesting. High labor supply, low wages, and high wealth inequality are all correlated with *negative* overall well-being. Like in the Gilded Age and like in the present, with its Gilded Age parallels. I recall that something like this holds for premodern societies also.
Back in the original Gilded Age, industrialists loved getting lots of immigrants, because of how they flooded the labor market. It was when these immigrants started getting restless that the US’s elites cut off the flow. The Bolshevik Revolution and the likes of the Blair Mountain Mine War also helped.
Outsourcing to other countries has been another way of increasing the labor supply, along with looking the other way at illegal immigration and (ab)use of H1B visas for skilled workers. The only thing I like about the Trump administration is its being more strict with H1B visas. I also note that President Trump had promised to deport all illegal immigrants and to build a wall to keep additional ones out. Unfortunately, he has also mixed this up with some rather gross xenophobia and bigotry.
“Reading Roger’s posts, I get a distinct whiff of “It’s necessary to break eggs to make an omelet.” Almost like it’s a Good Thing to force down the standards of living of a large part of the population of the United States and other industrialized nations. Because that’s what’s been happening”.
This is a very inaccurate framing of the issue. First, standards of living are not being FORCED DOWN, nor are they dropping (see below). Allowing me the freedom to buy a product regardless of national origin is not forcing anything. Indeed, you would have to use force to stop me from doing so, and anyone encouraging forcing me to buy from a top ten percent of global income worker to privilege them over a bottom tier global worker had better check their moral foundations. They would be staking out a solid claim to the moral low ground.
Do you really endorse using force to make people buy from someone among the upper global income tier (American workers) as opposed to those on the global bottom? Do you do so even though economists (even leftist economists like Krugman) are extremely adamant that this will lower living standards for the majority longer term compared to freer trade? And as economists recognize but have trouble communicating, long term, economic growth rates overwhelmingly trump shorter term distributional issues.
Mercantilism was thrown in the garbage heap of failed ideologies over a century ago. Why do you and Turchin insist on rejuvenating this zombie?
Finally, on the issue of breaking eggs, the way to frame it is there are costs and benefits to any complex action. The costs are referred to by economists as creative destruction and there is a massive amount of literature over the last century written on the topic. The basic idea though is that change and progress creates not just short term winners but also short term losers. Thus if the losers and incumbents and privileged interest groups can prevent change, they will. And out with change goes economic experimentation and advance. A blog comment cannot do justice to the concept, but I recommend you do research on it. If I was to simplify in moral terms, long term prosperity requires a Rawlsian commitment to shorter term creative destruction. Anyone not grasping this does not grok markets.
“As to “consumers” allegedly benefiting, there is a big problem. Where do consumers get their money? Some people seem to think that they get it from picking money trees. But most consumers get their money from work, and if they cannot earn very much money from their work, then they cannot be very good consumers.”
This is a perfect example of my argument that people who don’t understand economics look only at the immediate effects and completely miss the long term and secondary effects. The economic argument is that when farm workers or hand weavers lose their job to outsiders or technology that they shift to other enterprises. This improves efficiency and productivity long term and is absolutely essential if a country wishes to flourish long range.
“Turning to our host’s Structural-Demographic Theory, some of the correlations mentioned in “Ages of Discord” are most interesting. High labor supply, low wages, and high wealth inequality are all correlated with *negative* overall well-being. Like in the Gilded Age and like in the present, with its Gilded Age parallels.”
You are accidentally arguing against yourself and our host. Global incomes have risen more in the last generation, especially for the least advantaged, than at any time in the history of the universe. Global inequality has been dropping. Surveys of subjective well being have been increasing markedly in most nations as has the Human Development Index.*
Within the US, incomes adjusted for transfers, taxes inflation and household size are up 30-40% over the last 30 years or so*. It is true that the rate of economic advance in prosperous economies is not as great as the era emerging out of two world wars and the greatest global recession of all time, but within the advanced economies the US has had surprisingly strong growth*, especially considering its role as the frontier economy which most other nations draft upon. (The previous trend was for non frontier advanced economies to gain on the frontier for obvious reasons — it is easier to copy success than create it)
As to your Gilded Age parallels, again the facts are 180 degrees opposite to the narrative. Historical economists have long referred to this era as the second industrial revolution. It was a time of unprecedented growth in median income, living standards, health, science, sanitation, lifespan, invention, technological advance and industrialization among western nations*. It was the first time since the advent of agriculture where people clearly and unambiguously emerged on a wide scale from the Malthusian curse. Any history of science or economics shows it as an era remarkable in its technological innovation and advances in human well being. Indeed many historians of technology are writing books on why tech progress is slower now than it was during this age. It was not a Gilded Age, it was a Golden Age.
How you and Turchin can use this era of unprecedented human progress as a negative example of wide spread exploitation is simply mind blowing.
Putting our two eras together, The Gilded Age was the greatest era of material advance and technological advance up to that point. The last 30 years have been the era where these advances have finally begun to spread to previously ignored areas, and worked by expanding and spreading the liberal institutional advances and technology of these liberal institutions to the global masses. A billion people rose out of poverty and Socialists and so-called “progressives” bemoan it.
How is it that you and Turchin keep trying to spin both of them into eras of retrogression and depravity? You both need either a better handle on facts and or a better yardstick of human welfare. Ideologies have consequences, and when your ideology requires spinning human advancement as a bad thing then I strongly suggest coming up with a new world view.
“President Trump had promised to deport all illegal immigrants and to build a wall to keep additional ones out.”
This is probably not the best time to debate immigration policy, but my recommendations would be for a clear rule of law and an active process to encourage large numbers of high skilled legal immigrants along with experiments of charter cities along the Southern border. I see no similarities between my views and those of you or Trump.
* Reference links are available upon request.
Steve Keen wrote a wonderful slaughter of Neoclassical Economics called Debunking Economics. Neoclassical Economics is no better than Aristotle’s Physics or 18th Century medicine. All its assumptions are wrong, all its models flawed, and it ignores debt and assets completely.
All liberal econ gods, as well as the looneytarians are neoclassical. Piero Sraffa was right!
“Steve Keen wrote a wonderful slaughter of Neoclassical Economics called Debunking Economics. Neoclassical Economics is no better than Aristotle’s Physics or 18th Century medicine. All its assumptions are wrong, all its models flawed, and it ignores debt and assets completely.”
Good book and one which I greatly agree with. But just to clarify it is in the author’s own words not an assault on economics, but of “static neoclassical strain of economics”, instead replacing it with a better “more empirically based, dynamic approach to economics.” Bravo! My thoughts exactly.
At the end of the book after his criticisms of both the neoclassical school and dead end Marxist school, he goes on to profile the advantages and disadvantages of Austrian, post Keynesian, Srafian, Complexity theory and Evolutionary schools. He ends with “I can see varying degrees of merit in all five schools of thought, and I can imagine that a twenty-first-century economics could be a melange of all five.”
Well said. Note for those not having the book that there is to the best of my knowledge no assault on the long term value of larger trade networks by either Keen in this book or, to the best of my knowledge, of these alternative five emergent schools.
What we have here is the healthy struggle between competing Kuhnian paradigms so necessary for progress in the field. What we DO NOT HAVE is any serious empirical assault on the value of free trade implied by our host.
And since we are now back to the topic at hand, here is the IGM Economics panel on the issue of free trade in general and NAFTA in particular. You would be hard pressed to find a more consistent answer on any topic among politically and paradigmatically diverse social scientists. They overwhelmingly support the long term benefits to the US of free trade.
http://www.igmchicago.org/surveys/free-trade
Seriously, everyone following this discussion owes themselves a look at this link. It is one page with easy graphics!
there was a period in the 1930’s when revolution seemed a real prospect, and fdr hosed it down with palliative measures. the economy only recovered when war forced socialization. but the structure of the state did not change, power remained in congress, not the people. and congress belongs to the rich. they began to reclaim their nation in the 60’s.
economists ignore the realities of human society: some people yearn for power and wealth, without limit, and transmissible to their children. without political control of economic power, capitalism leads to an end state commonly called ‘banana republic,’ in america, ‘gilded age’ [mk1] and now [mk2]
america in the 50’s was a golden age, as long as you were a white man, it is a worse place now for most. there are rich brown people, and rich women, but the benefits of globalization are only accessible to the safely employed in technical jobs. since about 35% of american households are on food stamps, globalization is not working for anyone outside a gated community.
the highest percentage of incarceration in the wold suggests the war on drugs is a war on the poor, and a way to move tax money into share holder hands. the pouring of national wealth into militarism suggests that it is a way to move taxes into shareholder hands.
in short, economics is a religion, not a science, and its purpose is to explain why the rich should be richer and the poor silent, or dead.
and all of this in a nation blessed beyond all others with natural resources and unthreatening neighbors. there is no physical reason why the usa should not enjoy the highest standard of living in the world. the reality of war, drugs and poverty is all your own work, driven by the rich, led by ‘economists’ and backed by gunmen in uniform.
Actually, as I document with a lot of data in Ages of Discord, the revolutionary situation in America was during the early 1920s, not 1930s.
hoovervilles were early 30’s, and overt demonstration that america did not work. more important, they were very visible clumps of recently dispossessed americans. i am confident they worried the rich, who rightly fear mobs of people with nothing to lose. at the same time, mildly socialist candidates began to gain traction at the ballot box. even more worrying.
but fdr saved the day, and fended off real change until war put people to work. as it does till today.
i regret that the local library only has ‘war and..’ of yours, prof, but there will be no revolution in the usa, however much discord- plebs can’t do it, educated and employed don’t want to, and educated/unemployed can move to another nation. you’d be amazed how many westerners are finding work in china.
I think the Democrats’ response demonstrates, and perhaps the comments to this blog post as well, that the 10% are still in denial about the affects of globalization on their political situation.
I would feel more comfortable working out the benefits of economic policy if I could first establish the parameters of the groups I would favor.
Should you help your own family more than your neighbors? Where do members of your own religion or ethno-nation fit in? Is it OK to devastate the industrial US midwest in order to elevate Chinese factory workers? Does large scale charity (to, say, sub-Saharan Africa) distort the brave new world of borderless trade? Do national borders represent some sort of shared obligation?
I appreciate the notion of the family of man all given equal opportunity, but when the rubber hits the road it doesn’t represent reality.
“I appreciate the notion of the family of man all given equal opportunity, but when the rubber hits the road it doesn’t represent reality.”
Incorrect. There is no broad-scale long range conflict between economic theory and either morality or reality. Economists are pretty consistent that longer term, freer trade leads to wide scale economic advance via gains in productivity and innovation. They have centuries of data to back up that claim. I can link you to them if you are not aware of living standard gains in developed and developing nations.
Thus the shorter term negative externalities of free trade on the Midwest (where I live) are offset longer term via the creation of new jobs better suited to the comparative advantage of these workers. This is what happened to the majority of workers who were in agriculture in the 18th thru 20th C, it is what happened to industrial workers as old industries died out and knew ones took their place, it is what happened as we shifted from manufacturing to service jobs in the 20th C, and it continues today as we outsource jobs fairly and impartially to the previously disadvantaged “third world” workers.
I will add that a detailed review of the economic literature reveals two other facts that are essential to the discussion. The disruptive effects of the last generation were unusual due to the immensity of India and China entering the global liberal market all at once. This was a one time 2 billion person shock and is already in the rear view mirror. It cannot occur again. (Google Autor’s paper on China).
More importantly though, economists are also pretty consistent in recognizing that it IS NOT IMMIGRATION OR TRADE which causes the most creative destruction. It is TECHNOLOGICAL ADVANCE. It was automation which drove virtually all job disruptions for the past 250 years and which continues to do so today. Immigration and outsourcing are xenophobic red herrings which prey upon people’s tribal instincts and economic illiteracy for the benefit of special interest groups hoping to privilege themselves over the less advantaged.
You quote economists, who as a field have been:
1) utterly unable to do the most basic test of any intellectual field, which is to make falsifiable but correct predictions about their own topic of study, and
2) have routinely posited behavior about human economic decision-making which is demonstrably false, as the considerably more scientific field of psychology repeatedly demonstrates
Mainstream economics today fails the most basic test of “is this science or just politics”? Someday, they may be able to contribute to human understanding (I have particular hope for behavioral economics, which does use experiments and falsifiable prediction), but currently, the expert opinion you quote is analogous to doctors of a couple centuries ago who bled their patients, based on the theory of the four humours. They were smart people, but their theory was incorrect, and as a result they better they knew their theory the worse their results.
The manufacturing did not move to Mexico and later China because of the excellence of their robots. If automation and technological change were the prime determinant, we would expect manufacturing to move away from Third World countries to the First World, where there is more reliable electricity and more highly-trained technical labor for maintenance of those robots. It went the exact opposite way, because it is driven by labor costs, not automation.
Thanks for the comment,
“Mainstream economics today fails the most basic test of “is this science or just politics”
Compared to what?
I vehemently concur that economics has various problems and political biases, but it is by far the shining star of the even more screwed up, anti-empirical, politically biased field of pseudoscience making up much of social science. Let’s call it the valedictorian of a “special needs” class. And both are several orders of magnitude better than “common sense” and “conventional wisdom” of the economically, historically and social “sciencey” illiterate who get their opinions from Oliver Stone movies.
And let me be crystal clear. What people here are arguing is to replace the virtually unanimous recommendations of a fairly politically and paradigmatically diverse range of subject matter experts with their pathetically simplistic wishful thinking. It would like having me argue with the entire field of historians that Atlantis was ruled by space aliens from Mu, and that when they dismiss me as a raging lunatic I respond by pointing out dissension and inadequacies within the profession. It is basically a change of the subject. The profession may not be perfect, but the relevant standard of comparison is the profession –warts and all — vs me pulling a crackpot theory out of the air.
I didn’t suggest manufacturing went to developing countries due to automation. Clearly it was driven by labor costs. I was making the point that economists are pretty consistent in believing that automation is substantially more important over the long range at driving turnover and creative destruction than outsourcing. In other words, you will still get job churn. Of course the two probably self reinforce, as one way to resist automation short term is to form a privileged special interest regulation prohibiting it, which free trade undermines. And in the end, I suspect that is why many Trumpers and “Progressives” hate free trade — it interferes with their plans which they intend to force upon us. They certainly are not capable of putting forth a viable rationale that holds up to critical scrutiny.
“It is TECHNOLOGICAL ADVANCE. ” true, but only if you add .. without social ameliorization from political direction.
and there is a great unwillingmess to face reality, even if you extract an admission that tech change causes social pain, it is dismissed as temporary.
it’s not temporary, it’s commonly a life sentence of unemployment and poverty, and airy interpositiion of ‘service jobs’ is no answer at all.
“….there is a great unwillingmess to face reality, even if you extract an admission that tech change causes social pain, it is dismissed as temporary. it’s not temporary, it’s commonly a life sentence of unemployment and poverty, and airy interpositiion of ‘service jobs’ is no answer at all.”
Not sure what your point is. The choice is as follows:
1) We can embrace the uncertainty and risk of creative destruction of automation and expanding trade networks to reap the longer term benefits and use the growing prosperity to fund education and safety nets (the liberal order followed in every advanced economy), or
2) We can resist the creative destruction of automation and trade to gain stability at the cost of reduced productivity and lower growth rates and increasing sclerosis and rent seeking by incumbents.
Long term, any state excessively embracing the latter alternative will tend to become poorer and irrelevant compared to those following the former. Obviously no nation does 100% of either (and I am not suggesting they should) but you should get the idea….
I ask that we choose wisely for ourselves, that we educate ourselves before deciding, and that the uneducated not be allowed to FORCE their ignorance or privilege-seeking on others. If you want to “buy American” please feel free to do so. But the burden of proof is on you to justify why I have to before you seek to arrest me for not following you.
One of the claims about Globalization is that there has been a dramatic decline in poverty since 1980. While this is true, the macro-lesson we are supposed to take from it “mass immigration and regional free trade agreements are good”, is false.
Between 1980 and 2008, 662 million Chinese citizens moved out of poverty. If you subtract out China, poverty has slightly increased worldwide. Further, China has almost zero immigration and since Deng has practiced a Listian, protectionist trade policy intended to expand its domestic manufacturing through currency manipulation and other tactics.
“Between 1980 and 2008, 662 million Chinese citizens moved out of poverty. If you subtract out China, poverty has slightly increased worldwide.”
Odd, I just this week read an article by an economist specifically and empirically refuting this very point. The conclusion was that global escape from poverty has indeed been globally widespread and NOT CONFINED TO CHINA.
Tell you what, if you link me to your empirical data, I will try to see if I can find the one I just read for you. (I didn’t bother to save it at the time).
As for the China is still protectionist argument, the critical point is that it is a sea change more liberal than it used to be. The relevant comparison is not with Hong Kong, but with China in 1970 v today. And I Have no argument one way or another about Chinese immigration.
This business of free trade is interesting to me, although sometimes it sounds like a belief system looking for suitable backtestable data.
Does it always apply?
Should free trade include unlimited movement of people between political units? Unlimited movement of labor (done via the internet or temporary visas)? Does it ever end in stable undesirable situations (for instance, trading manufactured goods for raw materials 100% of the time)? Is it merely a side effect of modern times? Does it scale forever…by that I mean, is there some huge advantage to international free trade vs free trade within a large country? What if a country has no comparative advantage at all? Is it reasonable, in the long term, to trade manufactured goods for capital assets like land in another country? Aren’t there counter examples in protectionist behavior (include the tendency of the population to buy locally sourced goods) like Germany or Japan? Are perpetual imbalances of trade sustainable (especially in cases where currency values won’t change)?
the nation-state is anathema to neoliberal economists, who find politics inconvenient at best. neither are they comfortable with looking at the interactions of people not mediated by money. but political structures are useful in directing public efforts towards desirable goals. national health and education systems are vital towards making the physical and educational power of the nation a maximum, and that should lead to socialized medicine and standardized schools. fears of authoritarian government, or elite governments should lead to the necessity for democracy. and these matters are not discussed by economists in any detail, they are ‘political.’
once you have socialism, everything tends to be political, so it better be democracy with socialism. but any ‘economic’ discussion that is unwilling to talk about making decisions through political means is living in ‘angels on pinheads’ country.
I guess we could find a few pairs of countries that were generally similar half a century ago but then took different approaches to free trade vs. protectionism, and see how they did compared with each other. Has anybody done that?
My experience (I travel a lot) is that the success of 3rd World countries in lifting themselves out of poverty has a lot to do with factors not usually mentioned in this discussion. Former British colonies, for example, tend to do a lot better than former French colonies, irrespective of their resource base, form of government, and trade policies. The success of China, in my unqualified opinion, is mostly due to its one-child policy; just look at Ethiopia where the government is very capable and successful economically, but virtually everybody still lives in extreme poverty simply because population grows faster than the economy. But I am not an economist 🙂
I might suggest you read “Bad Samaritans”, by the South Korean economist Ha Joon Chang. It is written for a non-economist audience, but has enough real data in it to satisfy your interest in seeing some empirical evidence. In addition, he has lived through South Korea’s rocketing from Third World to First World country.
His analysis is not kind to the notion of free trade. His primary focus is on the question of whether or not developing countries should use tariffs and other protectionist measures, though, not on whether or not already wealthy countries need it for protection of their working class. But still, a good survey of the topic.
Vladimir,
Start here:
https://www.brookings.edu/wp-content/uploads/2016/07/1995a_bpea_sachs_warner_aslund_fischer.pdf
JEFFREY D. SACHS Harvard University
ANDREW WARNER Harvard University
Economic Reform and the Process of Global Integration
And here:
https://beingclassicallyliberal.liberty.me/the-empirical-case-for-free-trade/
And here:
http://www.dartmouth.edu/~jfeyrer/Feyrer_AirSea2009_10_21.pdf
Most importantly, i agree strongly with your comment that it is critical to recognize that international trade is just one component of free markets. Open markets to globalism combined with activist interference on hiring, wages, prices, terms of trade, cronyism would be useless. The key to prosperity is economic and political LIBERALISM. Indeed, I have argued above that much of the benefit for extremely large countries like the US of international free trade is that it undermines monopolies, cartels, “cronyist” policies, rent seeking, and regulatory sclerosis and favoritism.
Here is a scoring system on freedom and prosperity.
https://en.m.wikipedia.org/wiki/Index_of_Economic_Freedom
And here are some competing indices from other entities, though they largely all point to the same thing prosperity and political, institutional and economic liberalism are extremely well correlated. And yes, the institutions spinning off Britain have been especially robust for the past 250 years.
https://en.m.wikipedia.org/wiki/Indices_of_economic_freedom
And of course I will once again link to the opinions of the premier board of economists:
http://www.igmchicago.org/surveys/free-trade
There are very, very few things esteemed economists across the political spectrum almost universally agree on. They agree that free trade is favorable over the long haul and that Turchin, Trump and the current fad of protectionists are completely wrong.
Trump and Turchin’s arguments are factually and empirically incoherent, tribalistic, ethically repugnant (coercively privileging the relatively advantaged over the severely disadvantaged), and contrary to virtually all expert opinion. The burden of proof needed before using government to FORCE this ideological nonsense on the rest of us (you cannot buy from a non American) needs to be extremely high.
china prospered because it was ruled by an authoritarian government of smart people who wanted china to be rich and strong. they had an educated people who were able to work for low wages who also wanted their nation to be rich and strong.
they colluded with the american elite to make them richer while achieving china’s national goals. bad luck for most americans, but serves them right: ignorant and passive people will be exploited by the rich and rapacious. that’s the free market for you.
hjc writes interesting books- he lived through a boot-strap transformation at home, and has the professional expertise to explain it without neoliberal nonsense.
Thanks for the recommendations!
Al Loomis: were the Chinese really that well-educated before the switch to capitalism? When I was there in 1993, most people even in villages could read and write to some extent, but most were engaged in unqualified labor and didn’t seem to have any modern job skills. Also, is there a nation where people don’t want their country to be rich and strong? Just look at Russia now: everybody is very patriotic and relatively well-educated (the country produces 90% of all malware), but the economy is officially stagnant and unofficially falling apart, income inequality is the worlds highest, healthcare is worse than in Ethiopia (I have experience with both), and education is being methodically destroyed by the ruling mafia. Of course, current trends in China’s political system might turn it into yet another rotten dictatorship faster than most people think, but the question is, why didn’t it stay that way after Mao’s death?
rich people have no nation, which is why americans off-shored manufacturing jobs.
i was in china in the early 90’s too- teaching english at high school and university. my students were at least equal to americans, although without practical experience in cutting-edge electronics. they picked that up quickly as the ‘co-operative’ factories were introduced.
can’t say anything about russia, but the chinese were pretty much universally patriotic, rich and poor. they were taught to expect china to be as good as any nation, once education and hard work cured the effects of western occupation and trade barriers.
deng xiao ping put china on the path to ‘guided’ capitalism, and the result has been good for most chinese. not all, but it’s an imperfect world, implemented by humans rather than angels.
there is corruption in china, and currently the anti-corruption drive of xi jin ping is locking up and shooting thousands. it’s better to be rich and corrupt elsewhere, currently.. how long this will last is impossible to say, money corrodes everywhere.
Bump.
Here something really interfesting interview to read, which at the end really shows the current intraelite conflict (in the Republican Party) aka the Koch Wing vs. the Mercer Wing.
http://www.vox.com/conversations/2017/4/7/15105712/donald-trump-jane-mayer-robert-mercer-steve-bannon-republican-party
interesting, but should surprise no one.
most people use the word ‘democracy’ in a sloppy, trivial way. i don’t. aristotle coined the phrase demos kratia with a precise meaning to describe the system in athens and associated states. there are plenty of other words and phrases to use for the states in which the people do not rule. rousseau came up with ‘elective aristocracy ‘ for america, and that was indeed the ‘mot juste.’
madison wrote a constitution whose purpose was to ensure the wealthy ruled the mob. he said so, he explained why and how, and the result has been largely what he wished.
elections are not democracy. they are non-violent civil war, an evolved form of the struggle for power of feudal grandees. elections are sold to the world as democracy, but that is simply a lie devised by the elite to keep the cattle quiet.
trump may not seem ‘aristocratic’ but the first, founding, generation of aristocrats were commonly thugs with inflated ideas about their abilities to rule. most failed, some found themselves as progenitors of great families.
the need for democracy seems to me evident, and of primary importance. a view not widely shared, most are content to talk about putting a friendly face in positions of power. this hasn’t worked, ever, but there you are. homo not so sapiens in action.
I see you don’t monetize your page. You can earn extra passive
income, your niche is good for one method, just search in google:
website monetization methods by Riggso
[…] Listen, Liberal – Part II (Cliodynamica) […]
Very good website – bookmarked
I see your site needs some unique & fresh content.
Writing manually is time consuming, but there is solution for this hard task.
Just search for; Miftolo’s tools rewriter