A realistic trade policy: none

    By Flavius on Fri, 11/04/2011 - 5:08am |

    I spent some time tonight being educated in the cruel changes being planned in New York's care for the developmentally disabled.

    While thinking of two apparently unrelated things: Greece and 1992 Democratic primaries.

    Trade policy was an issue in 92. In particular, NAFTA ... Paul Tsongas, I think—but whoever said it was voicing the consensus—said essentially that whatever we might have wished  the rest of the world is forming trade blocs, and if we don't join Nafta, we'll be left out.

    That was then. 2011 marks the unforming of one those trade blocs as 'the rest of the world' is learning that Greece doesn't belong in the Eurozone. And is there any reason to believe that it's the only country of which that's true?

    On NPR tonight a US economist specializing in the Greek economy remarked it had a balanced budget in 2000. As we did.

    Eleven years later Greece's unbalanced budget, in the Eurozone,  reflects its unsupportable Trade Gap. Like ours.

    There may be a respectable argument that countries with similar standards of living can form limited free trade areas. "May be" rather than "is" because I'm not aware of any convincing historical data supporting that statement. All contributions gratefully received.

    There's no data—That's spelled N O—supporting the Panglossian dream that world-wide free trade would lead to the best of all possible worlds. We need to make our garden grow.

    FWIW Keynes in the 30s abandoned his lifelong support of free trade and concluded "Let all goods be homespun." And advised Parliament, "The thing about tariffs is ... they do the trick."

    "FWIW" because that was a long time ago and we don't need to be the slaves of any dead economist even if his given names were John Maynard. I, personally, think however that it's worth more than nothing. And certainly worth a whole lot more than the most recent lecture from Congressman Ryan.

    As a non-economist—in spades (or if you prefer, in technicolor)—I find myself uneasy with any economic proposition that can't be illustrated with  match sticks. 

    Thinking about Free Trade, my eyes glaze over when confronted with any sort of universal policy. Instead I'm kind of interested in what it would take to stop NY State's  relaunching a policy to bring back Willowbrook. Been there, done that. It was awful.

    Suppose our trade policy was ........ none. All our goods were homespun. No imports, no exports, no trade gap.

    - Would we need the same amount of goods we need now? Yup.

    - If we couldn't buy cars made in Japan where would we get them? Here.

    - Who'd make them? The big 4: Ford, GM, Chrysler and the UAW.

    - What would happen to the workers in our export industries? They'd lose their jobs

    - Would there be other jobs for them? We're importing an enormous amount more than we're exporting. What does that tell you?

    - So how does that affect the planned rerun of Willowbrook?

    Like this. The Trade Gap would be converted into a demand for workers—here. Unemployment and  unemployment compensation would go down. Employment and taxable income would go up. Tax receipts would go up. In the country. And in New York.

    Governor Cuomo II would have more $ for Willowbrook avoidance.

    President Obama would have more $ to provide to support Willowbrook avoidance.

    Who would lose? The people in other countries who had been the beneficiaries of our trade gap. And the Cato Institute and the ranks of economists who claim we can't afford entitlements. Because we would be able to afford them.

    If only I had some match sticks I could prove this to you ...

    Comments

    I listened to the same NPR program last night. It got me thinking to about the pit falls of globalization and trade deals also. Only I don't know enough to offer solutions. We have certainly seem to have fallen in some pits.

    by trkingmomoe on Fri, 11/04/2011 - 6:05am

    Any figures from Greece in 2000 would be wrong, just as they have been for the past 20 years.

    Spain under Franco had a no-import policy - because they had to. Franco was great but consumer choice was not! 


    by gb (not verified) on Fri, 11/04/2011 - 6:25am

    I suspect the US would be somewhat better able to satisfy its consumers.


    by Flavius on Fri, 11/04/2011 - 7:31am

    In the long run it might work, but to paraphrase Keynes, in the short run we need to eat.

    The problem with stopping all exports is that the price impact would be felt most strongly by the poorest, as those cheap overseas goods were no longer available. Maybe none of those things are necessities (I can't think of any imported goods that are truly necessities, but that's likely due to my own ignorance), but the conservative in me (there, I said it) is concerned by the unforeseen consequences that such a radical change would bring.

    In short, I don't condemn your plan, but I definitely don't embrace it either.


    by Verified Atheist on Fri, 11/04/2011 - 7:33am

    Radical change? 

    How about deciding to send all manufacturing jobs overseas? Pretty radical, but that's the decision we took a few decades back.

    How about deciding to create jobs only at Walmart wages so that no one would be able to buy anything but foreign goods stocked at  Walmart (and Dollar Store, and Family Dollar, and Dollar General)? Pretty radical, but that's what we've done.

    How about deciding that all productivity gains belong to the top 0.1% of the nation? Pretty radical. And that's where we are.

    I'm not endorsing everything Flavius said. But a radical economy is what we've got. Time to open a window and let in a little good sense.

    Being conservative means more than being reluctant to change systems that are oppressive, undemocratic and patently unfair. Doesn't it?


    by Red Planet on Fri, 11/04/2011 - 9:23am

    How about deciding to send all manufacturing jobs overseas? Pretty radical, but that's the decision we took a few decades back.

    Absolutely, and it was a bad one.

    Being conservative means more than being reluctant to change systems that are oppressive, undemocratic and patently unfair.

    My use of the word "conservative" means being reluctant to change, period. Being reluctant, however, doesn't mean complete opposition. It just means that changes need to be carefully considered, and bigger changes more so. To be clear, I'm not slamming Flavius. I'm just expressing my concerns. We've never been trade-free, at least not since Europeans landed on our shores. My intuition is that there's a third way other than what you're (rightly) criticizing and being trade-free. (I initially wrote "between" rather than "other than" in that previous sentence, but I don't feel that this is some sort of continuum.)


    by Verified Atheist on Fri, 11/04/2011 - 9:46am

    The price impact would be felt by those remaining among the  poorest- a diminished group since employment would  increase  to replace the now overly expensive imports. .


    by Flavius on Fri, 11/04/2011 - 10:52pm

    Funny, I was thinking about this today.

    There was an article in WaPo which asserted that free trade had lifted millions out of poverty, etc. I've heard this many times.

    Then there are those who say free trade has plunged millions into poverty.

    What are the facts of the matter?

    I THINK, and I'm no economist either, but the benefits of free trade was based on the idea that each country made certain things better than any other country. Countries were like specialists. If they exchanged their specialty products with each other, all countries would have the best of what the world had to offer.

    But this assumes that "the country" is the basic unit of production and producers stay within the geographic boundaries of their countries. But now, "the corporation" is the primary unit, and corporations roam the world freely, skipping over borders with their capital with the greatest of ease.

    Instead of countries trading with each other, free trade is more about countries competing with each other for the favors of free-range corporations and their capital. Corporations have turned us into one world--the world is their oyster-- but have bypassed, almost entirely almost all political governing structures.

    "You want to tax us and force us to abide by your regulations, then fine. We'll go where we're treated better." And off they go.

    Your plan is provocative. I suppose higher-priced goods would be matched by higher salaries paid to those who made those goods.

    There is the issue of oil, however. At present, we do need to import oil, and that may be the key that opens the can of worms.


    by Peter Schwartz on Fri, 11/04/2011 - 9:37am

    First, free trade lifted hundreds of millions of Chinese out of poverty - undeniable.

    If you don't give a damn about Chinese, ignore that fact.

    Second, businesses cluster. They can't run off and start operations in New Brunswick because there's no one there. They need clusters of co-producers and customers and infrastructure, etc.

    Even in the US, regions compete against each other for lower wages, non-union laws, etc. There's a lot of leverage companies had. But regions can also say support a good educational system - how many successful businesses started around Berkeley, Stanford, Cambridge Mass, Austin....

    I partly think we're not trying hard enough and just want to close the borders as a cure-all.

     


    by PeraclesPlease (not verified) on Fri, 11/04/2011 - 9:43am

    But from the point of view of the country, a company moving from MA to TX is a wash. It doesn't help America per se UNLESS, as you say, a company stays for a while and helps build institutions of higher learning and otherwise invests in the location. But I wonder how much of that is happening...

    It APPEARS to me at least that companies are going straight for the bottom line, all other things like skills, clusters, infrastructure being equal. Will these people work more cheaply than those people? Is it easier to set up shop here than there? What kinds of benefits is the government doling out.

    In terms of China and Asia in general, isn't it or wasn't it also the case that they protected their nascent industries and made it difficult to export American-made goods to them? Yes, they wanted, say GM, to build factories THERE, but how open were they to American- made goods? And how competitive were the American-made goods they let in?

    I'm no expert at this, but I find it hard to see how product X made by people making $3 a day competes against product Y made by people making $40 an hour.

    That said...

    I heard an interesting PRI story on a nascent solar company that had decided not to move to China. When asked by investors why they weren't moving to China, they responded: "Why don't you move to China?" So perhaps there are ways...

    I think the lifting of millions of Chinese out of poverty is a more complicated story than just free trade. Yes, I'm sure it was and is important. But there is also what China itself did internally to turbocharge its economy--things that other countries, say in Africa and LA, could do, but aren't, at least not to the same degree.

    I can't remember if we now have a free trade agreement with Colombia. If so, it will be interesting to see what that does for its economy...


    by Peter Schwartz on Fri, 11/04/2011 - 10:55am

    Sorry, I didn't read your sentence about universities correctly. If we are talking about the host country supporting industry with universities, then we should be the undisputed champeen of the world in terms of attracting and keep industry, shouldn't we?


    by Peter Schwartz on Fri, 11/04/2011 - 10:57am

    We have been the undisputed champeen of the world in terms of attracting and keeping high margin investments and innovative industry. Our productivity has traditionally been sky high.

    When we actually invest in our own system - voluntarily or through normal taxes.

     


    by PeraclesPlease (not verified) on Sat, 11/05/2011 - 6:24am

    I usually agree with you on many points, but this comment by you  is so yesterday.

    Today -   -  First, free trade lifted hundreds of millions of Chinese out of poverty - undeniable.

    (besides we figured we could convert them to capitalists, that's good, NO?)

    Pre- American Civil War

    Yesterday - First, the slave trade  lifted hundreds of millions of Africans out of poverty - undeniable?

    (besides we figured we could convert them to Christianity; that's good, NO?)

    The slave traders lost their  income source yesterday;  but not to be destroyed, they have reintroduced their business model today. Only do business where everyone can be made a slave to serve the "NEW Slave traders:

    Slave traders "Move your manufacturing here, we have willing slaves"    

    "Dumb consumers will buy these slave goods, and never think it's bad, they'll never make the connection"


    by Resistance on Fri, 11/04/2011 - 11:09am

    Oh.My.God. I'm biting my tongue.

    Giving Chinese mobility, access to jobs, raising their real purchasing power across a billion people by 4x since 1990 is the equivalent to slavery? Somebody is forcing Chinese to work in factories to make more money? Or to buy their own shops in new shopping malls? Slaves had access to high speed rail or could fly to Hainan for a sunny beach weekend?

    PPP

     

    Country 1999 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010
    China 3,800 3,600 4,400 5,000 5,600 6,800 7,700 5,400 6,000 6,700 7,600

     


    by PeraclesPlease (not verified) on Sat, 11/05/2011 - 6:11am

    Maybe you should bite your tongue; better yet cut it out .

    I find it reprehensible that you think it's our obligation to lift the world out of poverty at our expense.

    Liberals will be the ruination of America. The Chinese government must think were fools. 

     

    Evidently you missed the point of the comparison,

    The African slave market, was acceptable, by many Americans, although many knew, long before Harriet Beecher Stowe put it right in their faces; the hypocrisy of Christian values, that turned a blind eye, and rationalized slavery.

    Convinced of their righteousness;" better to be a slave in America than a poor African"

     

    Now it can be said "better to be a China man, than a poor American living in poverty?

    Now you and others like you, rationalizing, better for Americans to give up a livable wage, so the Chinese worker under communist rule gets out of poverty.

    Greedy corporate Americans;, forsaking American workers, who are now faced with record numbers of those at and below the poverty level in America; our  homeland, our people.

    Proving the point, the real objective wasn't to raise the living standards in China, as the dumb liberals rationalized.

    In order to turn a blind eye. (Just as those Americans that rationalized slavery was good for Africans) liberals choose to ignore the real objective of greedy corporations; looking for cheap labor and better yet, slave labor, where collective bargaining is met with punishing consequences.

    The real objective of greedy corporations hidden from scrutiny because corporations found dummies willing to give them cover saying. "The corporations have a benevolent purpose, the purpose being raising countries from poverty"

    FOOLS; that is not the purpose, Corporations are not benevolent in the sense we value.

    They move where there is minimal regulations, they move where collective bargaining is discouraged.  ........So much for benevolence?

    Corporations finding idiots to parrot the corporate message "They're not greedy at all; they're just raising the people from poverty"

    If you really believe Corporate America really cared about lifting the Chinese out of poverty, you're the dupe the corporations are looking for.

    Don't just bite your tongue for being a dupe with a corporate message, Cut it out so you cant mislead others.

    $$$$$$$$$$$$$$$$$$

    One minute were being told by our government, to fear the Chinese and then the next we're giving them the means, to support their rise in financial power.

    Wonder what the Chinese are  doing with the money we send them, to raise their people from poverty? Are they gaining strength at our expense?

    Corporations don't care, and if the military industrial complex has to compensate for corporations giving America’s competitors the means to challenge us.

    So be it, no skin off their backs, they'll make more money shorting America/Americans.

    Nothing new; betting both sides brings financial rewards

     

     


    by Resistance on Sat, 11/05/2011 - 7:29pm

    CHINESE SLAVE LABOR  

    Laogai  which means "reform through labor," is a slogan of the Chinese criminal justice system and has been used to refer to the use of prison labor and prison farms in the People's Republic of China (PRC). It is estimated that in the last fifty years more than 50 million people have been sent to laogai camps.

    “While there are many types of Laogai complexes, most enterprises are farms, mines or factories. There are, according to the Chinese government, “approximately 200 different kinds of Laogai products that are exported to international markets.”[20] “A quarter of China’s tea is produced in Laogai camps; 60 percent of China’s rubber-vulcanizing chemicals are produced in a single Laogai camp in Shengyang … one of the largest steel-pipe factories in the country is a Laogai camp … ”[20] One Camp alone, Ziangride, harvests more than 22,000 metric tons of grain every year.[22] Dulan County prisoners have planted over 400,000 trees.”

    http://en.wikipedia.org/wiki/Laogai

    http://www.gossipgamers.com/chinese-prison-labor-scam-revealed-prisoners-are-forced-to-farm-for-gold/

    When you buy slave goods, are you supporting slavery?  

     


    by Resistance on Sat, 11/05/2011 - 7:12pm

    First, free trade lifted hundreds of millions of Chinese out of poverty - undeniable.

    Actually. I'm not going to agree this is undeniable. Certainly not to the tune of hundreds of millions. We can have a stat war on this point some other time.

    But was *is* undeniable is that free trade has dumped tens of millions of Americans in to poverty. And, hate to give you this news flash, but American policy is judged based on it's impacts on the American people. It's irrelevant how I feel about helping the Chinese - a policy that helps them at the expense of the people our government explicitly represents is a betrayal of the public trust.

    Is your premise that the US government should establish policy that views impact to the citizens of China (and presumably the rest of the nations this argument has been applied in relation to) more important than the impact on citizens of the United States? How does this formula work ... how many Chinese people making an extra $0.22 per month does it take to make cutting a $28.00 per hour factory worker's pay to $17 totally worth it? If the American just loses their job outright in the exchange - does the formula require a few more cents weighted to those laboring in the Chinese worker's paradise(for example)?

    Second, businesses cluster. They can't run off and start operations in New Brunswick because there's no one there. They need clusters of co-producers and customers and infrastructure, etc.

    It seems if one accepts the premise of globalism, this is not really the case any longer. The business headquarters collecting cash and political favors can be in one spot, the production facilities half-way around the world, the raw resources brought on freighter from a third place entirely and then delivered to consumers in yet another location all together - with the massive and increasing pool of supposed assets carefully tucked at a final destination where it is not called on to benefit ANY of the societies who's combined efforts generated them. That is the exact model we're using - and the exact model you implicitly endorse.

    Obviously, the model had some serious inefficiency in the model, what with all that putting stuff on boats and ferrying it all over the world three times over. The guys accumulating the asset pool make that up by ensuring the labor part of the equation tops out at $138 per month at the HIGH END (if you ignore plausibly presented evidence that workers aren't actually making what is reported) ... oh yeah and the ability to continue to consume absurd quantities of fossil fuels to transport stuff between the people with money who buy and the people without money who labor to produce and the places with resources but people who demand more money for their labor than the combined expense of international slave-wage production and fuel on the balance sheets of those systemically granted control of money.

    Even in the US, regions compete against each other for lower wages, non-union laws, etc. There's a lot of leverage companies had. But regions can also say support a good educational system - how many successful businesses started around Berkeley, Stanford, Cambridge Mass, Austin....

    Exactly. And what do all of these regions have in common? When one does better - so does a group of Americans. The revenue produced by their increasing tax base helps to ensure that even in states where there is a temporary setback in this friendly internal rivalry that the success of the victor still helps contribute to the underlying strength of the one that lost out in any specific deal.

    Indeed we aren't trying hard enough. We haven't smashed our labor force back to third world levels of poverty yet ... so third-world wages while living stacked in corporate dorms like cordwood is not yet seen as a step-up to America's workforce. Fuck me.

    We've got half the idiots who seem to run the show wanting to drown our government in a bathtub - and the other half dreaming of the days when our labor force finally tries hard enough to compete with what breaks down to a $0.53 an hour prevailing wage.

    Just as arranging for torture to be conducted and then presenting questions to be asked while it's happening is indistinguishable from being a torturer - promoting a system that benefits from what in times-previous would have been viewed as brutally coercive labor conditions employed in other nations still counts as wanting to benefit from slavery in my opinion. That this is so enthusiastically engaged in by folks who simultaneously espouse the populist rhetoric and egalitarian ideals of thinkers who's dedication to elevating labor and worker's rights appears a polar opposite, to me, is an intellectual failure of epic proportions on the part of certain factions of progressives - and watching the financial benefit certain progressive individuals who promote it most vigorously are achieving as a result of the dynamic, it's hard not to see it as a moral failure in some situations as well.


    by kgb999 on Fri, 11/04/2011 - 3:07pm

    The question, though, is what do you do about it?

    Global capital has its own logic; it flows to where it gets the best deal.

    If you penalize it, or limit it, here, it flows there.

    You have to set up a quid pro quo wherein capital wants X, but you deny it X unless it does Y (what you want it to do).

    We are no longer the world's most robust economy with the greatest growth potential. Other people produce really high quality things AND more and more they are starting to buy those things.

    The dollar is in danger of being replaced as the world's reserve currency.

    You have to find the leverage points...


    by Peter Schwartz on Fri, 11/04/2011 - 4:15pm

    Thanks for writing this, kgb. I was afraid I'd have to write something similar, but it wouldn't have been nearly as well crafted as yours.

    And, by the way, let's drop the word "free" from the misnomer "free trade."

    There's nothing free about it. It's just trade, organized and conducted of, by and for global corporatism. International trade is just one more way to pipeline profits to the wealthy, leaving subsistence labor to the people.


    by Red Planet on Fri, 11/04/2011 - 5:35pm

    So there's no such thing as capitalism without over-the-top corporatism?

    You can't have German boards with representation for workers and business owners?

    And there's no such thing as greater efficiencies in China from having huge factories and throughput?

    No standards-of-living or quality of jobs have gone up in China?

    One thing people have missed is we hit a worker glut when China opened up. This huge bubble won't last forever - in 10-15 years we start to see parity. The road between now and then wouldn't be so bad if our leaders weren't so awful and their corporate thieves so successful.


    by PeraclesPlease (not verified) on Fri, 11/04/2011 - 6:24pm

    I doesn't take a rocket scientist.  

    Just simple logic. Better to error on the side of compassion

    If my brother is a butcher, a baker, or  a candlestick maker, or maybe a tailor; and he has siblings.

    I can help put food on my bothers table two ways; either charity (assistance) or I can purchase what he makes and he can purchase what he needs.

    (Unless I’m heartless and I don’t care what happens to my brother’s family)

    Globalization has only one concern PROFIT.

    Would you tell your brother and your nephews and nieces?  Lower the price on your wares/goods,  or I’m going to buy it from a stranger.  The stranger and his family will eat tonight and you and your kids will go hungry ”  If you persist you may even lose your home.

    Now what? I didn’t buy his wares outright, so that leaves the only way he’s going to get food on the table, is my charity?

    What happens if I find my friends and neighbors acted as I did with my brother, buying from a stranger?

    I find I can’t put food on my table and I cant help my brother with charity either.

    So both of us suffer?.... AMERICA suffers

    Is America offering charity?

    Americans have to suffer because some heartless Americans would buy from a stranger?

    Of course they’ll be Americans again, when it serves their fear or selfish interest.

    $$$$$$$$$$  

    I have no problem with American companies expanding operations overseas to get into a new market .

    Just don’t bring your foreign goods back here to America,  thinking you can undercut our lives.

    The heartless American finds the foreign worker, satisfies their insatiable greed, putting more profit in their pocket.

    They'll eat tonight........ and forget about charity.  Don't tax us.

    The heartless jerks put profit ahead of caring;  for American workers.

     

    What do I owe that heartless jerk, except maybe a new suit of Tar and Feathers?

    You want to sell it here, you make it here  

    You want to sell Chevy's in China, go for it; just don’t bring your Chinese made Chevys and try to sell them in America.


    by Resistance on Fri, 11/04/2011 - 8:15pm

    I have a Japanese car made in Indiana. Is that okay?


    by Elusive Trope on Fri, 11/04/2011 - 10:45pm

    What part of "you want to sell it here, you make it here"  don't you understand?


    by Resistance on Sat, 11/05/2011 - 4:02am

     

    Please Peracles, tell me where I claimed that there is "no such thing as capitalism without over-the-top corporatism," or that "you can't have German boards with representation for workers and business owners," or the claims about China.

    I didn't. In fact, I'd argue that the German model is a pretty good argument that we could be doing things much better here in American if we didn't buy into the bullshit about "free" markets and "free" trade.

    Over-the-top corporatism is a phenomenon that raises its head from time to time, like Putin flying over Alaska. Or like whack-a-mole. Time to whack again.

    I'd delighted that standards of living are rising in China. But my priority is that standards of living are declining here at home.

    You'd rather do nothing about that?


    by Red Planet on Fri, 11/04/2011 - 10:22pm

    Well then you're backtracking from a much more somber assessment: "There's nothing free about it [free trade]. It's just trade, organized and conducted of, by and for global corporatism. International trade is just one more way to pipeline profits to the wealthy, leaving subsistence labor to the people."

    Your assessment there is that offshoring is simply to help the wealthy and impoverish the common man. No assessment that offshoring helps create local jobs as well if done right - e.g. if I can run a large project with guaranteed delivery from offshore efforts, I can bid on projects I wouldn't otherwise bid on, and I can add other value on top of the bid knowing my labor costs are lower.

    Then there's the lower costs of goods from offshored production - so we get our dress shirts and computers and mobile phones and toys for much cheaper, saving the consumer money to spend elsewhere. As expensive as iPhones are, they'd be prohibitive without offshoring.

    The big issue is we as a country don't have an industrial policy to build up new industries to replace. When we had a real tax system, that accomplished much of what industrial policy would - in some ways more efficiently, in some ways with huge gaps. But now we just poked holes into the system to make oligarchy corporatism.

    But somehow you distinguish German capitalism from capitalism and free trade. No comprendo.


    by PeraclesPlease (not verified) on Sat, 11/05/2011 - 5:52am

    , saving the consumer money to spend elsewhere

    If only they happened to have a job.

    I don't deprecate the productivity of capitalism. It works. But if you believe that self interest will cause Steve Jobs to work hard and brilliantly the corollary is that it will cause most capitalists to ignore any laws that stand in their way and any damage done to their fellow citizens by their actions,

    Capitalism works. Especially for the capitalists.Less so for the rest of us. Unless the Government requires it to.

    Codetermination in Germany was imposed during the occupation. It was in existence when I was stationed there in the 50s (and when I worked there in the 60s.) Probably not ordered by us, perhaps by Adenauer responding to our suggestions.

     

     


    by Flavius on Sat, 11/05/2011 - 9:39am

     

    I'm not complaining about how international trade might be organized if Dr. Pangloss were in charge, Peracles. I'm pointing out how it actually works.

    Nor am I suggesting capitalism is evil. I'm observing that any system can be captured by thugs.

    I would, however, assert that, where you see an absolute right as a capitalist to seek out the lowest possible labor cost worldwide, I see a crippling abuse of the system. Yes, with exploited labor from Guang Dong province you can now bid on more projects that throw Americans out of work, and you can pipeline more profits to yourself. That makes toys and designer clothing cheaper, but fewer Americans can afford them because you don't offer well-paying jobs to ordinary people in the community where you live. Happy you.

    That's the Walmartization of America. Send production overseas, and the workers left behind? Pay them less so they can't afford to shop anywhere else.

    The Hamilton Project at the Brookings Institution released a report recently finding that: 

    "the family income of the median child in the U.S. has fallen nearly 14 percent in the past five years and is now 7 percent lower than in 1975, concluding that while the income of the top 10 percent of families with children has increased 45 percent in the last 35 years, 'half of America’s children are worse-off than their counterparts 35 years ago.'” (as reported by TruthDig)

    Manipulation of so-called "free" trade has made a huge contribution to this result. 

    How has Germany addressed the capitalist tendency toward abusing workers? What do I admire about their system? 

    • Labor participation in management. 
    • A strong social safety net, including health care. 
    • Outstanding worker benefits. 

    German industry pays its workers very well and is very profitable. But no self-respecting American capitalist will show up at the country club with that tee-shirt on his back.

     


    by Red Planet on Sat, 11/05/2011 - 11:10am

    That's the Walmartization of America. Send production overseas, and the workers left behind? Pay them less so they can't afford to shop anywhere else.

    Very well and succinctly put.


    by Verified Atheist on Sat, 11/05/2011 - 11:13am

    Perfect. I wouldn't change a word- if I'd been smart enough to write it myself.


    by Flavius on Sat, 11/05/2011 - 12:15pm

    However, capitalism has taken different forms in different periods in America. While Wall Street has long been its own stereotype, other industries had a more balanced approach. Once.


    by PeraclesPlease (not verified) on Sat, 11/05/2011 - 12:47pm

    I agree with this, Pericles, and even the viability of other forms of capitalism, but I should note that once everything becomes subservient to the dollar. The basic logic of the system creates outcomes that subvert other capitalisms. That Marxian insight is just as true in Germany today as in the US (witness Germany's decade of unpopular pro-market reforms).  Right now we have a global elite ruling an international governance regime supporting "free trade", but very little else. Therefore trade's interest is winning, over labor, the environment, quality of life, and even the future (e.g. our derivatives futures markets are particularly insane). Money has become more important then culture in regulating our activities. Those other capitalist models you speak of require cultural values to be dominate (community, religion, environment, whatever). When the interests of money outweigh all others, then Marx's insight takes over.  That sadly is the era we are living through, and threatens everything.  Hopefully a new period is just around the corner. 


    by Saladin on Sun, 11/06/2011 - 5:04pm

    "According to Business Week, August 22/29, 2005 p 52-53, per capita income in Chinas has tripled in one generation, and has taken 300 million people out of poverty. Take a look at the chart ‘They write: “China’s poverty was cut in half by 1990 and in half again by 2001.” This means, it has taken China about 20 years to bring a population larger than the US, out of poverty."  - http://a2xconsulting.com/general-management/offshoring/some-stats-on-china

     

    "The total number of jobs shifted to China is also small in comparison with total employment in countries of origin. A study submitted to the US-China Economic and Security Review Commission  estimated that 99 000 jobs have been relocated from the USA to China (at the same time, the report estimates that 140 000 jobs had shifted to Mexico) in 2004. That is less than 0.1% of the total labour force. 

    The employment effects of trade itself are particularly strong in the USA because of the country’s large trade defi cit with China. A US study estimates that a net 1.5 million
     job opportunities were lost between 1989 and 2003 due to trade with China. But even that figure pales in comparison with the total job turnover in the US economy" - http://www.econstor.eu/dspace/bitstream/10419/41877/1/495979821.pdf  
     
    "There is a lot of churning in the US labor market. Annual job creation in the US private sector between 1977 and 2005 averaged 17.6% of total employment - meaning that on average almost 18% of all jobs did not exist a year ago. On the flip side, the average annual rate of job destruction was 15.4% - implying that more than 15% of all jobs disappear within a year. Taken together, this suggests that a remarkable one-third of the US labor market turns over each year." http://www.dbadvisors.com/content/_media/DAM459_CloserLook0510.pdf
     
    Some healthy skepticism on US job loss statistics, especially in the last 5 years: http://www.businessweek.com/magazine/content/07_25/b4039001.htm
     
    Anyway, funny that IT jobs bounced back in 2002, even without the needed government stimulus. But the tax cuts for the rich kicked in at that time, and that took a lot of funding out of the domestic economy - i.e. job loss. If it was a closed economy, that funding would have possibly "trickled down". But it's not - much of that kickback went overseas. Meanwhile effective corporate tax rates plummeted. And we headed toward's Norquist's drown-in-a-bathtub scenario - at federal and state level. But that's not the fault of offshoring per se - effective taxation would dampen that effect. Retraining, support for new industries, money into education, R&D like the NHS, etc. But no, we've gone and cut those at the same time. While we save money on imports and household bills for goods have gone down, you can't eat that savings if you don't have a job. We could support growth of new high-tech verticals, but the last 2 administrations have been highly averse to job stimulus. And of course the financial industry sucked off half of Americans' savings, which doesn't help the "start your own business in a garage" option. 
     
    Here's a nice page showing the government basically shrunk in the last decade except for Homeland Security (and had been already cut heavily by Clinton) - 
     
    Look at Wall Street, not the Chinese. They make decent cheap stuff for us to buy at commodity, mass produced prices - Wall Street specializes in toxic assets.
     
     
     
     

    by PeraclesPlease (not verified) on Fri, 11/04/2011 - 6:11pm

    This is an excellent comment.  I fully agree that the 'masters of the universe' are the right villains, but I disagree that China hasn't mattered.

    It has a huge impact from jobs--(without the orginal source I have no way of knowing the methdology employed behind the 1.5 million number, but I note that outsourcing continued accelerating after that period and suspect the number is higher, plus there are the muliplier effects, and industry linkages to take into account)--to financial instability created by the excess capital they gave us.  

     


    by Saladin on Sat, 11/05/2011 - 2:31pm

    Of course China has effect on jobs - the tickler is how much.

    I include one article above that goes into details of important BLS statistics that may be heavily flawed, including the state of manufacturing jobs in the US, etc.

    Short of that, I think people misunderstand the number of jobs lost normally in the US - if you say "15 million people lost their jobs" it sounds horrible without saying "but 18 million new hires happened". The big problem is that the new hires now are not exceeding the new losses. The solution is likely not just to fix all these jobs in one place, limit offshoring - without having some idea how this would actually affect wages and quality of work.

    I have trouble believing we could have maintained the types of manufacturing we were doing even without a China - in steel we had heavy pressure from small new efficient mills in Brazil - micro-production in key locations vs. large scale production straight out of PA. There are areas where Japan rigged the deck to take over, say TVs, but even there, I'm not convinced we were really focused on maintaining leadership.

    Oddly one place where we were is automobiles. The number of years we maintained the lead despite Detroit inefficiencies is amazing. That China hasn't produced a competitive car is an idea how hard it is. Toyota's success has relied greatly on government support. Still, it wasn't that long ago, about 2006, that Chrysler was still highly competitive in trucks for example.

    But we also have new successes like Apple of the last 6 years, Amazon, Google, HP in PCs, Walmart & Costco of course, but Facebook, Zynga, and certainly lots of interesting competitors in other spaces like Safeway, Caterpillar, Kraft, Procter & Gamble, and I assume much more in medical technology, et al. (being reluctant to mention any positives in oil/energy, finance & insurance due to all the corrupt insider practicies)

    I guess one point I'd like to make is the difference between being successful in 1999 and the losses of post-2008 isn't so much our capabilities or the opportunity in the market - it's the structural distortion that's sucking needed capital out of both individuals and the industries themselves. We should be leading in alternative energy - creating new jobs in the US and many more in China in being ahead of the curve. Part can be blamed on China protectionism and unlevel playing field, and part also on our system that favors pouring investment into sure theft rather than risky but important new ventures.


    by PeraclesPlease (not verified) on Sun, 11/06/2011 - 2:25pm

    Aaargh, huge response got eaten by spam filter.

    Reader's Digest version:

    300 million Chinese taken out of poverty: http://a2xconsulting.com/general-management/offshoring/some-stats-on-china

    Loss of US jobs due to China 0.1% of labor force - total of 1.5 million over a decade. http://www.econstor.eu/dspace/bitstream/10419/41877/1/495979821.pdf see pg. 230

    Job churn - about 1/3 of US job market turns over each year - 18% jobs created, 15% jobs destroyed. http://www.dbadvisors.com/content/_media/DAM459_CloserLook0510.pdf see first page

    Re: clustering, it still exists - there's a limit to corporate mobility and bargaining power even if there are more choices.

    Regarding what we pay to China to eradicate poverty, well, we supposedly would do it anyway to some extent through foreign trade. However, this way Chinese can work their way out. The bigger issues are: 1) trade protection by China destroying a market for our goods (I'm not against a bit of protectionism - e.g. Malaysia used it to stop collapse in the APAC crisis 1998 - but China's is rampant), 2) lack of taxation in our own country to maintain the system and correct balances.

    Much of our higher costs are in health care and until recently housing - almost completely unrelated to China trade. That I can buy cheap watches and jeans at WalMart means even a lower wage goes much farther. Internet shopping has hollowed out much of our traditional retail infrastructure - again, little to do with China, much to do with low margins and difficulty making a profit. 

    The loss of jobs is also directly related to financial companies ladeling money out of mortgages and investments - toxic assets and illegal foreclosures and other practices stealing trillions of what would have been a nest egg for the average person. It also dents future entrepreneurs who lose the small capital and garage from which to do their own startups.


    by PeraclesPlease (not verified) on Sat, 11/05/2011 - 6:30am

    As you say , even in a world of import substitution we'd still have to import oil. We'd pay for it from the proceeds of Uncle Elmwood's corn exports. Just because we're so big we'll continue to be the world's pantry

    In a major address in 1933 Keynes dealt with the argument for national  specialization.

    Experience ...proves that most modern mass production processes can be performed in most countries and climates with almost equal efficiency


    by Flavius on Fri, 11/04/2011 - 11:07pm

    But Uncle Elmwood can't export his corn unless the other country is allowed to export us, no? Exceptions being countries that are starving...

    What am I missing?


    by Peter Schwartz on Sat, 11/05/2011 - 10:37am

    Good question. I wouldn't ban imports, I'd impose a  tariff which would shrink their volume and , in the case of those that enter anyhow, provide some revenue.

    Oil would fall into the second category and the sheiks would still have enough currency to buy Elwood's corn.


    by Flavius on Sat, 11/05/2011 - 12:09pm

    One thing that is often overlooked - that I think probably supports your premise - is that the United States is *already* a closely integrated trade block.

    As far as potential capacity and raw resources, we as a nation have a capability to perform that is more properly contrasted with all of Europe. The US simply doesn't have some of the same limitations in the physical sense that must be addressed by nations such as  Greece, France or Germany.


    by kgb999 on Fri, 11/04/2011 - 1:50pm

    The situation in Europe with the Euro is a tad bit more complicated than what economist say. I've talked with both Americans and Europeans ... Germans, Austrian and Italian ... and something happened during the transition period that gets swept under the rug.

    Seems when the change from the sovereign currency to the Euro came about, there were concerns in the public arena about losing the value of property, investments and merchandise. What happened was people inflated values. For instance, my landlord said a cup of coffee in Germany was 2 marks one day and 2 euros the next day when the currency changed. Yet their salaries weren't a one for one exchange ... they were lower. Therefore, the change to the Euro was costly. The Germans nicknamed the Euro with the German word Teuer ... expensive.

    I heard the same story in Italy and Austria too. So it doesn't surprise me Greece had a balanced budget in 2000 ... which was when the currency change took place. Same can be said for Spain, Portugal, Italy and Ireland too. In my opinion, it was the jockeying for financial position just before the changeover that set the stage for people to think they could increase their wealth once the exchange took place... problem was at whose expense?

    So I beg to differ on trade gap ... there is ample evidence price and cost manipulations taking place prior to the currency change and everyone looking for ways to increase their financial standing better than what they had under their sovereign currencies.

    Also consider a person in Greece is eligible to retire at an early age ... something not possible before the currency exchange took place. It's as if the currency exchange was a circus and everyone was onboard for the ride and expecting to get more out of the system than what they put in.


    by Beetlejuice on Fri, 11/04/2011 - 4:55pm

    I think this is the wrong issue with trade.  I think Ricardo's basic theory of comparative advantage is a brilliant and true insight, and therefore trade is a good thing in principle. I belive the world is much richer for trade.  Also I like eating fruit in the winter.  

    The biggest issues with trade policies are currency valuations and the difficulty of accounting for externalities. Trading among countries that do not have a level playing field is inherently flawed. China's currency level means that it will get manufacturing jobs.  The US with a reserve currency will always have trouble competing on price.  Similarly countries with good labor and environmental standards will have difficulty competing with those that don't.  We are currently in a race to the bottom worldwide and that is difficult to change.

    I support the return of Tariffs. I don't think the world really needs more a whole shitload more stuff, but I do agree with PP that through trade china has lifted millions out of poverty. There is a powerful moral argument for trade as a development policy.  However today it is us that needs the development, so lets bring back tarrifs--they work. But I would prefer if we required strict labor and environmental standards among our partners instead.  And if we could sort out the currency thing, that would help too. 


    by Saladin on Fri, 11/04/2011 - 8:40pm

     I do agree with PP that through trade china has lifted millions out of poverty

    In exchange for  Joe Lunchpail in Hamtramack going into it.. 

     

    Our trade policy should be to make as much as we can on every transaction in order to lift our own millions out of poverty.Anyone who feels burdened by too large a pay package can send a check to Bono.

    I assume that a simple minded way to achieve import substitution would be across the board tariffs Say 100% of the import price.. Products that got  imported anyway  would likely  be those where national specialization actually applied.

    Yellow cake from Niger???


    by Flavius on Sat, 11/05/2011 - 9:24am

    I would quibble with your zero-sum analogy, but sure. I do think there is a very real difference between Joe Lunchpail 2010 who lost his ticket to the middle class, and Zhong Ma circa 1960's who was starving and retarded from iodine deficiency.  Check out this TED talk on health improvements in our century of globalization.  This is a compelling moral argument for trade, but only if you buy into Bentham logic or value humanity in the aggregate.  

    http://www.ted.com/talks/hans_rosling_shows_the_best_stats_you_ve_ever_s...

    I don't have any recommendations for pricing tariffs. As I said that would be my last policy preference, behind new agreements or currency changes but I would support it. 

    Not clear why you bring up the Valerie Plame affair, but yes strong regional comparative advantages would likely persist and continue to be traded. 


    by Saladin on Sat, 11/05/2011 - 11:35am

    Just amusing myself  in the yellow cake reference.


    by Flavius on Sat, 11/05/2011 - 12:11pm

    Well, I think China will work out environmental just from pressure from its own people.

    Perhaps 3 major bubbles we're seeing: environmental, excess labor and the sudden ease of transfer by internet. All these issues will settle down into equilibrium over the next decade, so we won't have so much of the huge inequities without paying accordingly.


    by PeraclesPlease (not verified) on Sat, 11/05/2011 - 12:44pm

    Wow. You are remarkably sanguine for an Athenian these days. 

    I am not fully sure I understand your huge claims here. I don't get what you mean by "major bubbles"?  Are you meaning Environmental destruction is a bubble? Where is the excess labor bubble? do you mean that the huge amount of excess labor in the developing world that have entered the market through globalization? Or the excess labor of our baby boomers? Or really what?  How is ease of transfer a bubble?  Do you mean financial transfers, or actual production facilities and corresponding jobs?   Are you implying  some sort of neoclassical equilibrium will assert itself and appropriately price these changes?  Will we see this in the currency market pricing or some other avenue? 

    Regarding China, maybe. But they have been destroying their environment since they ate all the elephants and plowed the hillsides into the "yellow" river. The north is out of water, and they plan to double coal combustion in the next 20 years (albeit with less particulates). 500ppm here we come. The so-called environmental Kuznets curve is running against a strong head-wind in a nondemocratic country with 800 million uneducated--and unempowered--peasants plus a tax structure/government mentality completely addicted to industrial development.   I do hope that you are right, but forgive me if I think it is still very much wishful thinking


    by Saladin on Sat, 11/05/2011 - 2:09pm

    I guess by "bubble" I mean more a lag - some kind of arbritrage or disequilibrium that gets filled in, but the question is "when". But the Chinese are working on environmental issues - I'm actually not that pessimistic there except the task is quite huge and the timelines are difficult.


    by PeraclesPlease (not verified) on Sat, 11/05/2011 - 5:20pm

    In yesterday's FT Gillian Tett wrote future  historians will look back on the past decade and wonder how in the world any one could have imagined AAA securities could be constructed by combining sub prime mortgages.

    They'll also look back and wonder how anyone could have imagined a developed country and a developing one could be combined in one trade area without the impoverishment of the developed country's  working class.

    Sure , it wasn't true in the colonial period. They didn't have container ships. Now the result must be that in the developed country, ours , working class wages must decline to those of the developing country.

    Tom Friedman and others pontificate that this should be dealt with by a massive campaign to educate the next generation so they are equipped with the technical skills required for the demands of the new professions that would spring up .

     

    In a New Yorker cartoon I've quoted here before , two professors in front of a black board filled with equations,one with chalk in his hand, pointing .

    The caption  " here's where a miracle occurs". 

     


    by Flavius on Sat, 11/05/2011 - 6:16pm

    But also, workers in the developing countries pretty quickly start demanding higher wages. Don't know the speed or trajectory of this, but you already see in China, e.g., the Foxconn strikes/riots that led to 60% raises.

    Everything is moving faster than most had predicted...

    In fact, companies are now abandoning China (to some degree) in search of even lower wage countries, like Vietnam.


    by Peter Schwartz on Sat, 11/05/2011 - 10:49pm

    In the early 90s when NAFTA required some legislation ,on Washington Week in Review Tom Friedman forecast it would be and should be passed to reduce illegal Mexican  immigration.

    But  the subsequent rounds of trade negotiations made it more economic for us to import from other countries with the result that  rather than an increase in Mexican domestic  employment  many of the maquiladora closed .  

    There is a lengthy list of countries with an almost infinite supply of unemployed workers (think of all of Africa) who will accept subsistence wages to produce products for our market.

    If we let them.

    An anecdote.

    In the early 70s I was visiting a South African factory. The  Anglo Production Manager who was showing me around complained bitterly that the Government required him to employ out- of- work Boer farmers. He was only able to hire Blacks(he may have called them Kaffirs) to sweep the floors.

    We went around a corner and there was a Black with a welding mask repairing a large piece of metal cutting equipment. The Supervisor looked at me, hard, and said

    "He's sweeping the floors".

     


    by Flavius on Sun, 11/06/2011 - 10:53am

    See? The problem with those Kaffirs, have to buy an expensive lathe and conveyor belt just to get them to sweep the floors, and you end up employing 10 times as many needed for same amount of floor space. If it weren't for the side-effect of increased output and productivity, probably would have abandoned the scheme long ago.


    by PeraclesPlease (not verified) on Sun, 11/06/2011 - 2:28pm

    And the Kaffir engineer might undermine  some useful stereotypes.

    Anecdote. I sent three guys to do a complicated job on a distant island.. Two West Indians and Ralph a pleasant guy from San Diego. After a  couple of days one of the Islanders came to me and suggested I reassign Ralph. Said he was a really nice guy, good company , competent.  Trouble is he liked to stop at sun set. They liked to keep working but they were quitting with him in order  not to embarrass him . But it was slowing them down.

     

     


    by Flavius on Sun, 11/06/2011 - 11:27pm

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