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February 27, 2007
Trade Is Hard
I've some trepidation about jumping into a brawl between Brad DeLong and Jeff Faux, but given my basic sympathies for Faux's analysis of the the class pressures affecting economic policy-makers, I'm saddened to see Faux dodge the charge that he wants to "keep China a society of poor subsistence rice farmers as long as possible." For those worried about the impacts of free trade, how you move towards a fairer trade system that nevertheless allows for global economic development is an urgent moral question. Frankly, the Chinese need the jobs more than we do, and the question has to be how to make this something less than a zero-sum game.
What Faux actually asks is "Why is it that it is the responsibility of $40,000 year American working families to sacrifice their future in order to raise up the living standards of poor Chinese, when commissars turned capitalists ride around Shanghai in a different Rolls every day?" That's not actually a meaningful reply. How many commissars-turned-capitalists with interchangeable Rolls-Royces are there? If you apportioned out their holdings among all Chinese, would you meaningfully raise standards? And are the business choices and decisions of these groups actually harming the average Chinese?
I don't know. I'd actually like Jeff to help me find out. The top 20% of China's population now controls more than 50% of the country's income. On the other hand, as of 2005, the top 20% of Americans controlled 48% of the country's income. And I've seen no data suggesting we could tax China's rich enough to significantly aid their poor. What's frustrating about Faux's reply is that he offers neither numbers nor evidence, preferring instead to wrap rich people in nasty adjectives. I'm all for that plan, but only in service of an approach to trade that takes seriously its role in alleviating global poverty. Don't make me choose between America's underprivileged and China's poor.
But in his reply to DeLong, Faux just doesn't seem interested in the issue. Now, I'm willing to believe that Faux's prescriptions would be better for the median Chinese, but he's actually got to make that case. The closest he comes to doing so in this post -- saying that the Chinese should invest their reserves in China rather than in American currency -- would drastically cut American demand for Chinese goods. That may be better for us, but I don't see how it would also be better for them, which is the claim Faux implicitly makes.
Update: David Sirota posts more along the lines I was looking for.
February 27, 2007 | Permalink
Comments
> [...] That's not actually a meaningful reply. [...]
> [...] But in his reply to DeLong, Faux just doesn't
> seem interested in the issue. [...]
It was exactly the mirror image of DeLong's post, however, which evidenced zero concern for the plight of the non-tenured middle-class American kicked out of his job.
Cranky
Posted by: Cranky Observer | Feb 27, 2007 2:51:25 PM
As you say, Faux's response is misguided because it just leaves the poor in China out, and tries to distract us from that by attacking the rich there and here. Cranky, Brad's comments don't attack the poor.
I don't see any magic solution here. We should go as far as we can afford to in letting in Chinese food and other goods, but we need to protect our food supply and some other industries as well. This is well tread ground where most people realize the importance of spreading environmental and labor protections along with our dollars and jobs.
Posted by: Sanpete | Feb 27, 2007 3:24:06 PM
Faux's reply, and general tenor in the debate has been much more characterized by nationalism, class demagogy & just plain reaction. I'm glad Brad, who's been reluctant to really confront his EPI buddies, expose Jeff so blatantly.
Posted by: DRR | Feb 27, 2007 3:30:12 PM
Ezra,
I think you missed the meat of Faux's response: there are two strategies China can pursue. The first seeks markets primarily overseans; under this strategy, Chinese wages are a dead-weight cost to be minimized. The second seeks markets internally within China; under this strategy, Chinese wages are the market, so ensuring that wages grow in line with producitivity plus tolerable inflation becomes a key strategic goal. China has since roughly 1987 been pursuing the first strategy, but the second has always been and remains a possibility.
Now, obviously, its not as if China's current economic strategy does not lead to the expansion of the domestic market, and nor would the second strategy necessarily mean ignoring export opportunities. Its more a question of balance. But the key point is that the first strategy is bound to produce more inequality in China than the second. Since this is the case, we would have to assume (wouldn't we?) that unless the second strategy would for some unknown reason yield much lower productivity growth than the first, the primary difference between the two will be the distribution of newly generated income. Since under the second strategy this distribution will be much more equitable, it seems that the internally-focused strategy will yield a more rapid reduction in Chinese poverty.
A final note- as Dean Baker has repeatedly pointed out, US trade policy pits less-educated US workers in competition with less-educated workers in other countries. But if you wanted to boost Chinese incomes, wouldn't it make sense to allow highly-educated Chinese workers to compete against highly-educated US workers? Doing so would both boost China's income at least as much as the current trading relationship does, but would reduce income inequality in the US and increase the living standards of Faux's $40,000 a year family.
Posted by: Rich C | Feb 27, 2007 3:40:38 PM
Actually, this using the poor as a flag for policies that are to the benefit of the wealthiest is getting old. I can't wait until somebody uses the poor as the reason we really have to get rid of Oxley Sarbanes. Oh please! It is the smell of hypocrisy that gets me up in the morning.
Of course, the real competition is between the Chinese and the Mexicans, and - to imitate the butter won't melt in my mouth hypocrisy of a Brad Delong - what we want to know is why the Chinese want to cause massive unemployment to a Mexican economy? After all, thanks to the Washington consensus, wages have stagnated, in real terms, at 1970s levels, so they don't have far to drop.
The best explanation isn't to be found in economics books, but in Invisible Man. One of the crucial scenes in that book, the Battle Royale, pits a bunch of black kids against each other in a vicious fight, to entertain some 'philanthropic' white men. At the end of it, one of the kids gets a scholarship. From Brad D.'s viewpoint, this is wonderful. Here's social mobility for you. Here's a black boy who has shown the requisite toughness and is being promoted upward, due to his willingness to accept labor flexibility - for instance, moving from the job of being a student to that of being an entertaining clown for a bunch of white guys. If that isn't labor flexibility, I don't know what is.
The Battle Royale is pretty much the mirror image of the free trade policies the U.S. wants to impress upon the world. What's funny, of course, is that only the U.S. could get away with pursuing an economic policy for thirty years that, basically, borrowing as much money as it can, both publicly and privately, while it liquidates its manufacturing base and supports itself on a consumer class that take the wage raises (that they aren't going to get) out as credit card debt. This is one of the benefits of having the world's biggest military - the implicit threat is that the world has to tolerate it. Without that military, the U.S. would just be a less culturally advanced Argentina, waiting to be popped.
Posted by: roger | Feb 27, 2007 3:45:40 PM
DeLong thinks we have some moral problem that we must solve overnight or else we are moral cowards.
Faux and other fair traders say, whoa their cowboy, what are the implications of that?
You want Faux to prove that his suggestions will improve life the best for the Chinese.
I want YOU to prove that DeLong's suggestions will improve life the best for the Americans. And then, again, for Everyone.
I am told that a rising tide lifts all boats. I know that a tsunami will sink one boat while leaving another boat high, dry, and out of water.
The question is one of rates. Is opening the flood gates the most optimal path to take?
DeLong says yes and provides no evidence.
Posted by: jerry | Feb 27, 2007 4:04:57 PM
I think the free trade debate is a pretty close analogy to the Iraq War debate. There are many reasons to support free trade ranging from the noble goal of raising the living standards of the world's poor to the utterly selfish goal of minimizing the expense of labor in order to maximize CEO bonuses. Just like there were many reasons to support the Iraq War ranging from freeing people from Saddam's tyranny to taking the first steps in igniting the region in beneficial chaos. Depending on what people's goals are they have different versions of the rules under which globalization happens.
The mistake Delong and many others make is believing that they're going to get their version of globalization and not the CEOs' version of globalization. Just like the pro-war liberals thought they were going to get their noble version of the Iraq War and not George Bush's Iraq War.
So we get free trade agreements which are used as a weapon against virtually every liberal and progressive goal a nation could have. Whether it's labor laws, environmental protections, or sane intellectual property rights. All defended on the basis of "think of the poor Chinese."
Posted by: jon | Feb 27, 2007 4:11:39 PM
we would have to assume (wouldn't we?) that unless the second strategy would for some unknown reason yield much lower productivity growth than the first, the primary difference between the two will be the distribution of newly generated income
I don't see how importing capital can fail to bring faster growth than depending only on internal capital. Nothing unknown about that.
But if you wanted to boost Chinese incomes, wouldn't it make sense to allow highly-educated Chinese workers to compete against highly-educated US workers?
Of course, and they do, but there are far, far more poor.
Roger, that the poor Chinese compete against poor Mexicans doesn't show that restricting our trade with China doesn't harm the poor in China, or benefit the poor in Mexico, especially when you'd probably prefer to cut them off as well. Sorry it bothers you to hear it, but the fact is that protectionism does hurt the poor in other nations.
Is opening the flood gates the most optimal path to take?
DeLong says yes and provides no evidence.
Where does he say this?
Posted by: Sanpete | Feb 27, 2007 4:12:57 PM
Frankly, the Chinese need the jobs more than we do, and the question has to be how to make this something less than a zero-sum game.
Well, one way would be to pay attention to Faux, and to Rich C above, and stop casting it as "they need the jobs more than we do," which assumes that it's a zero-sum game. Is this the latest perversion of the lump of labor fallacy? There's a shortage of decent jobs in China, so the best solution is to ship them ours? How about both countries focus on quality job creation domestically? And if the Chinese don't want to, screw them. Seriously, I know it makes me a bad liberal, but I'd rather stop telling American workers to suck it up and "relocate" or "retrain" for the next bunch of jobs to be outsourced, because it improves the lot of poor people elsewhere. Unless the newly-unemployed are all supposed to become tenured professors at major universities. Hell, they couldn't be worse than Yoo, Althouse, or Reynolds.
Posted by: mds | Feb 27, 2007 4:15:14 PM
The mistake Delong and many others make is believing that they're going to get their version of globalization and not the CEOs' version of globalization.
Where does he make this mistake?
Posted by: Sanpete | Feb 27, 2007 4:15:15 PM
I think you missed the meat of Faux's response: there are two strategies China can pursue. The first seeks markets primarily overseans; under this strategy, Chinese wages are a dead-weight cost to be minimized. The second seeks markets internally within China;
In other words, one where China trades internationally or, one where China doesen't, or in further words, a fancy name for Autarky.
Posted by: DRR | Feb 27, 2007 4:15:52 PM
There's a shortage of decent jobs in China, so the best solution is to ship them ours?
Do we own these jobs?
Posted by: DRR | Feb 27, 2007 4:20:31 PM
How about both countries focus on quality job creation domestically?
This doesn't just make you a bad liberal; it makes you a bad economist. It's far more efficient for all involved to have free trade, until you reach a point where the inefficiencies of instability of jobs outweigh the efficiencies. The optimum solution has to involve some job loss and retraining and all that nasty stuff, along with the benefits of lower prices and eventual overall higher standard of living.
Posted by: Sanpete | Feb 27, 2007 4:23:35 PM
Do people in this thread actually deny that China has seen any improvements over the course of the last few decades of greater trade? I think this is all tough, troublesome stuff, but it's not like the Iraq War debate: The median income there is higher, and the worst that's happened here is stagnation. You can argue if that's a fair tradeoff, but it's not a nightmarish outcome.
Posted by: Ezra | Feb 27, 2007 4:32:39 PM
I think this from J.K. Galbraith Jr. is instructive;
On China the ... Hamiltonians endorse the idea that China is a challenge. It is a challenge, they say, to be dealt with not via tariffs or quotas but by a massive revaluation of the Chinese currency, the renminbi (RMB), for which liberal senators like Charles Schumer and economists like Tom Palley also forcefully call.
Would a big RMB revaluation solve America's China-trade "problem"? Well, it might hit China's exporters (and also, inevitably, its workers) hard. Multinationals might migrate to other low-wage countries ... in other corners of the Third World. But this much is sure: Not a single low-wage job would return to the United States. So, American consumers could be harmed, while American workers wouldn't be helped. One has to ask: What gives? Why is this an issue for the progressive agenda?
Followed up with this;
The facts are clear: NAFTA is a done deal, and China is a success story we have to live with. Progressives need a trade narrative that moves past these two issues. Broadly, this means accepting manufactured imports and dropping the idea that we can control--or that it matters much--who assembles television sets or stitches shirts. Standards to guard against flagrant abuses such as child and prison labor are fine, but it's an illusion to think they will, or should, dent the flow of goods from China. A progressive trade agenda should focus, instead, on building stronger world markets for our exports, and in ways that do not trample on the needs and rights of poor people in poor countries. That should provide plenty of room for future fights with free-trade absolutists.
Posted by: DRR | Feb 27, 2007 4:33:27 PM
Is opening the flood gates the most optimal path to take?
DeLong says yes and provides no evidence.
In his ignoring of any discussion of Free Trade vs. Fair Trade. In his promoting only free trade.
He says, let the money flow to wherever it wants to, and lets ignore what that does to the environment, to workers, to jobs, to health and safety, to wages, etc.
Posted by: jerry | Feb 27, 2007 4:58:51 PM
Where does he make this mistake?
Every time he advocates for the CEO-favored free trade regimes we have while railing against those who raise questions, instead of railing against the flaws in the regimes. Brad DeLong has a certain amount of influence on the debate over free trade. And he uses 95% of it to accuse those who defend American jobs of wanting the Chinese to be poor, and 5% of it questioning just why it is that, somehow, corporate profits soar without redounding to the benefit of American workers, while offering a pittance to Chinese workers.
DeLong himself has recently acknowledged that his advocacy for NAFTA in the early 90s may not, in fact, have helped those he swore it would. He has yet to apply that lesson to current events.
Are you ignorant of DeLong's M.O., Sanpete, or are you trolling?
Posted by: JRoth | Feb 27, 2007 5:19:32 PM
Delong's baiting didn't deserve a serious response, it was contentless and smarmy -- it deserved pointing out that policies right now seem to benefit Goldman managers a lot more than the poor anywhere. And that's what he got.
Posted by: david | Feb 27, 2007 5:22:12 PM
The rhetoric on this thread needs to be cleaned up a bit, I think. You got one guy talking about tsunamis, another person comparing free trade to the war in Iraq, and apparently U.S. trade policy is just like black kids fighting each other for white entertainment.
I mean, come on.
Posted by: Korha | Feb 27, 2007 5:22:14 PM
Brad DeLong's response was perfectly suitable to Faux's nauseating entry. His "baiting" question people are whining about but aren't too quick going about answering it. At least the Pat Buchanan's of the world are open about their economic beliefs and their ramifications.
who defend American jobs
What are the characteristics of "American" jobs, and how can they be contrasted with foreigner jobs? Are American jobs based more along ground beef & breads whereas Chinese jobs are based more around chicken & starches? Why do foreigners continually try & fail to do these jobs when these jobs are so clearly American jobs? Perhaps if these American jobs were tagged and labeled as American jobs before they were exported, foreigners would know better than to try and do them.
Posted by: DRR | Feb 27, 2007 5:35:36 PM
Hey DRR, fuck off. American jobs are jobs held by Americans, paying wages to people who live here.
If you don't understand that for someone born in North Carolina, a textile job located in North Carolina is more valuable than one located in Shanghai, then you're stupid.
But you're not stupid - you want to score points for being clever and anti-jingoist.
Fuck off, clever boy.
Posted by: JRoth | Feb 27, 2007 5:41:02 PM
Is it not true that capital does better when capital is scarce in relation to labor?
If this is so then open markets for labor and capital will benefit capital in America more than labor since American capital becomes scarcer per capita world wide than domestically and American labor becomes much less scarce world wide than domestically.
America used to have a capital scarcity problem back in the dark days of nascent industrialization and open immigration. Maybe we are seeing a return to a similar situation. It will be interesting to see if regulation, in itself, can really make it better world wide or if we have to wait for world wide capital to catch up with world wide labor and reach an American style balance.
Sadly we may not get to see the world capitalize up, since that would probably drown us all in melted ice caps.
Posted by: Neil Paul | Feb 27, 2007 5:52:23 PM
Anti-jingoist? Well I've been called many things in my life...
Continuing our discussion, before those American textile jobs from North Carolina were shipped off to be worked by foreigners and other knaves, they were originally being shifted from the Industrial Northeast to places like.....North Carolina. Indeed the "Industrial South" is largely composed of Northeastern Industrialists shipping production to other parts of the country in hopes of lowering costs & maximizing profit, heartless capitalists that they were.
What's interesting is that these jobs, clearly designed with Northeasterners in mind to do them, were quite skillfully executed by people in Tennessee & the Carolinas. From this we can gather that American Jobs are both fully compatible to Northerners & Southerners alike; and the divide between Northern Americans & Southern Americans as it pertains to competent execution of American jobs, is not so great as the divide between Americans & foreigners.
Although to be fair, the person is Massachussetts wasn't asked whether that manufacturing job was more valuable in Durham than in Springfield.
Posted by: DRR | Feb 27, 2007 5:57:06 PM
He says, let the money flow to wherever it wants to, and lets ignore what that does to the environment, to workers, to jobs, to health and safety, to wages, etc.
Again, where does he say this?
Does DeLong really only favor complete, unrestricted free trade, as you say, or is that just easier for you to argue against?
Every time he advocates for the CEO-favored free trade regimes we have while railing against those who raise questions, instead of railing against the flaws in the regimes.
This doesn't show that he's making the mistake you think he is. He may believe that even what you regard as CEO-favored agreements are still closer to his vision of globalization than anything else that would be enacted. And it may well be true. This isn't to say he doesn't make mistakes on free trade, but I doubt he just fails to recognize that the actual agreements are far from his ideal.
Are you ignorant of DeLong's M.O., Sanpete, or are you trolling?
Another one who can't distinguish between disagreement and trolling?
it deserved pointing out that policies right now seem to benefit Goldman managers a lot more than the poor anywhere
Except that this still ignores that, whatever the rich get out of this, the poor in China do in fact benefit. That matters.
Posted by: Sanpete | Feb 27, 2007 6:08:48 PM
I keep hearing these "types" of globalization. People aren't opposed to globalization per se, just the "type" of CEO led globalization we are experiencing. Yet this utopic globalization model evades us. The closest I've seen was noted globabization critic Joseph Stiglitz's model but even his basically entails developed countries "Opening their markets without reciprocity" to developing nations who are allowed to remain closed until an appropriate level of development is reached. For those handwringing about shirts being stitched and televisons built in China, that hardly addresses their concern.
Somewhere out there is a model of globalization where when countries become economically integrated, Markets are opened, barriers are lifted, but immigration doesen't increase, less efficient import competing firms don't struggle or lose out to more efficient exports and no company relocates from one country to another. It seems like we're just missing it and we keep ending up with CEO corporate capitalist profit model.
Posted by: DRR | Feb 27, 2007 6:32:13 PM
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