George Will has a recent column profiling University of Chicago economist Austan Goolsbee, an advisor to the Barack Obama presidential campaign. Goolsbee was a classmate of mine at Yale. While we often disagreed political matters, I was always impressed by his intelligence and wit. He also seems to have impressed Will, who concludes his column:
Economics is the only academic discipline that in recent decades has moved in the direction that America and much of the world has moved, to the right. Goolsbee no doubt has lots of dubious ideas — he is, after all, a Democrat — about how government can creatively fiddle with the market's allocation of wealth and opportunity. But he seems to be the sort of person — amiable, empirical and reasonable — you would want at the elbow of a Democratic president, if such there must be.Senator Barack Obama is an impressively eloquent speaker, but the content is sometimes lacking, particularly when it comes to the nitty-gritty of public policy. He can say quite a bit without saying very much at all (something I noticed the first time I testified before him at a Senate committee hearing, well before he became a presidential candidate). Strip away the thematic elements and emotional appeals, and it is not always clear where Obama stands on a given issue. Yet if Goolsbee is representative of those who will advise him on economic matters, that speaks well of the Obama campaign, and the sort of economic policies we could expect from an Obama administration.
While I find Obama's choice of economic advisors reassuring, I share Dan Drezner's dismay at the apparent decline of support for free trade among Republican voters. As the WSJ recently reported:
By a nearly two-to-one margin, Republican voters believe free trade is bad for the U.S. economy, a shift in opinion that mirrors Democratic views and suggests trade deals could face high hurdles under a new president. . . .The leading GOP Presidential contenders seem to still support free trade, but that may not count for much if the rank-and-file disagrees. The Bush Administration often talked a good game on trade, but Bush trade policy has been a profound disappointment.Six in 10 Republicans in the poll agreed with a statement that free trade has been bad for the U.S. and said they would agree with a Republican candidate who favored tougher regulations to limit foreign imports. That represents a challenge for Republican candidates who generally echo Mr. Bush's calls for continued trade expansion, and reflects a substantial shift in sentiment from eight years ago.
And not all GOP presidential wannabees support free trade, or necessarily understand the trade implications of some of their other policy arguments. Mike Huckabee, for instance, believes that "A country is not free if it can't produce three things for itself — its own food, its own fuel, and its own fighting apparatus." Comments like this suggest he knows as little about economics as he does about evolution. Perhaps Goolsbee has a Republican colleague that could help bring Huckabee up to speed.
UPDATE: Maybe GOP disillusionment with free trade is overstated. I sure hope so.
But I'm a law student, not an international labor economist, so what do I know?
The reason for the backlash against free trade is that the benefit is diffuse but the harm is concentrated. The people who lose there jobs because of offshoring isn't going to care that free trade made the country better of as a whole or the population wealthier in the aggregate. they're going to care that they lost their job and were made worse off. Other people with offshorable jobs are going to see this and try to block free trade deals...afterall they don't want to lose there jobs. I consistently heard this narrative coming from the high tech industry shortly after the bubble burst.
I think that increasing unemployment benefits and expanding job training programs will really help to alleviate this fear. people who lose there jobs will know that they'll have definite help finding or training for a new one.
Huckabee's comment goes to strategy, not economics. You'll understand the difference when China invades Taiwan and the US does nothing because anything it can do shuts down Main Street.
Prof Adler,
Have you considered that the equilibrium assumptions that underlay 'free-trade is good' are violated by the presence of extreme and sustained trade-imbalances which are the product of government action not market dynamics?
I happen to believe that a free market is an efficient market, but given the policies of the Chinese government, I find it hard to conclude that the pricing data available--namely the price of Chinese labor accurately reflects and induces an efficient allocation of resources.
Larry Summers's wondering about the lack of women in math and science turns up all over.
It's only a minority of women that are the problem, but they're the audience. So holding their interest edits every public posture and every narrative. Nothing else breaks through.
Ridicule might fix it, but that's not going to happen. They'd tune out, and who would pay the bills if they can't be sold to advertisers?
There is, alas, no actual market for hard news. Think city council meetings. Soap opera news rules. They tune in every day, news or no news.
If you explain where wealth comes from, women tune out and you're off the air because nobody else tunes in.
So is your implication that it's wrong to import anything? After all, we don't really depend on China for our food, fuel, or fighting apparatus. In the consumer market, we depend on China mainly for cheap consumer goods. If the mainland invades Taiwan and we don't do anything, it will be very much for economic reasons and not for militarily strategic ones. It will also show pretty clearly how all our rhetoric about defending democracy is complete BS. But let's hope we never face that particular test.
You'll get a much more favorable response to free trade, which some have mashed up with taking the caps off immigration.
"Free trade" is an aspiration, not a reality. Acting like we have it when we don't is a prescription for strategic and economic disaster.
Do you really think it's come to this? That's absurd. What war, specifically, are we going to fight against the Chinese (who are very dependent on us to keep their economy functioning) that's going to go their way because we buy steel from them?
This is not 1943. We don't fight wars with mass numbers of tanks. Do we use steel for cruise missiles and jet fighters in any event?
Our domestic steel making capacity, "decimated" or not, is more than sufficent to produce all the steel needed for war.
Here’s the actual statement that they were asked to agree/disagree with:
I seem recall reading that when people are asked a compound question, they usually respond to the very last thing they hear in the question (in this case “produced potentially unsafe products”). Given the stories in the news about lead being found in Chinese toys and concerns about the safety of Mexican trucks entering the United States, I don’t find it surprising that people would start to develop a negative impression of trade and that people answering this (poorly worded question) would have zeroed in on the safety issue.
They can be forgiven for thinking so, considering the quality of recent "free" trade agreements. How does it take 500 pages to say, "We agree to drop our tariffs."?
Second, we're probably not going to wait until after the war starts to build the weapons we're going to use in that war; that would seem like a bad idea in any event.
Third, it's a really confused idea to think that your enemy -- if that's what China is -- giving you something for free is bad for you. (Usually you have to fight a war first for that.) If their imports were really "unfairly" priced, it's 'unfair' to Chinese workers, not to us.
Seems like the wording of the questions was less than perfect. So, it's hard to know exactly how people would respond to the simple "Trade is good" or "Trade is bad" questions.
Yes, ships are made of steel. We have a 275 ship fleet. We build 5-9 replacements each year. Do you seriously suggest that we don't produce sufficent steel to build 10 ships per year?
And when those cheap consumer goods are cut off, Main Street closes and the politicians panic.
Why would they do any of this, anyway? How much money do you think it would cost them to give away tons of steel for below-market rates, just on the distant hopes that someday they'll be able to raise prices?
And as for Chinese naval plans, please. The Chinese Navy is decades away from in the same universe as the U.S. Navy; right now, it couldn't take on the Japanese navy.
Case #1:
I am an individual who has no fundamental right to a job. No matter how expansive my skill set is, I can't stop my foot and demand a $60,000 a year job if many other qualified individuals are also seeking that job and will accept less pay.
I agree. Most Republicans (and most Americans) would be in agreement. It would be stupid to think otherwise.
Case #2:
I am an employer. I have four American candidates who all want 25% more than I am willing to pay. I cannot outsource the job if it is a localized manual labor or service job, or indeed even a high tech job requiring close interaction with multiple teams in a company.
Solution of Republican or Democratic leadership? Tell employers to deal with the market—the successful ones will find a way to survive in a tight labor market? No, turn a blind eye and allow massive illegal immigration for low skill jobs, or H-1B visas for technology jobs.
So an employee has to obey the 'free market', but if the market inconveniences the employer it can be disregarded. And yet everyone, including Republicans, is supposed to blindly follow this?
I think the sound-bites of 'jobs Americans can't do or won't do' is getting rather old from both politicians and economists. Globalization? I am not seeing prices for the services of say, managers, doctors, dentists, lawyers, etc. nor university tuition or housing being globalized.
I am genuinely interested in a response from a reader with an economics background to the following questions:
What would employers want more ? What do employers fear more? A high minimum wage and progressive taxation but no enforcement on labor, or zero to no taxes on business or income but a labor market that was truly limited to citizens and green card holders?
A valid libertarian position would be low or no taxes and open labor, and I am curious on how that would not seriously harm the middle to lower classes. And pointing to the amount of government jobs to allay the fears of free trade or outsourcing is not acceptable.
Any war would be long over before even a crash building program would put new ships into service.
The Chinese Navy would have a difficult time with the Indian Navy. It certainly will be years before they could beat the Japanese. Everyone here will be dead before they can compete with the US at sea. We have missile firing ships too.
Trade with China can be criticized in many ways. Shortage of steel for weapons is not one of the ways.
He's managed to do this despite a distinctly unenthusiastic congress. Seriously, if this is a disappointment, what would have met your standards, recognising that Doha would have needed support from many quarters that appear to have been far from willing to offer it?
a) An American business cannot find the skill sets it wants at the price it wants and the work must be done in the US. What is the best solution:
a) Let the free market decide - business must deal with existing labor costs or train new workers.
b) Import labor to distort the labor costs.
Find out how many Republicans agree with b.
There's no guarantee that anything could have been achieved at Doha -- but it certainly would have helped if Bush hadn't done things like slap tariffs on steel in 2002. Or if Bush would abandon the U.S.'s own agricultural subsidies, or those retarded sugar quotas. Or if he'd obey WTO rulings, like the ruling against us in favor of Antigua.
I note you didn't answer my first question: what right do employers have to cheap labor? They may desire it, they may want it, but there is no fundamental right for it.
There's lots more that he could have done, but the steps he has taken remain significantly in advance of the bulk of modern presidents and formed one of the central foci of his political capital (CAFTA, again, springs to mind).
You don't see a price change, but I'd be surprised if you noticed much of a price change in sneakers either. The changes are gradual and it is not easy for a consumer to attribute a saving to any one source or policy, particularly when they are ignorant of said policies.
There are, also obviously, many managers in China and India and management services is a booming sector for Tata, the chief provider of such things. It's not, generally, CEOs and such, if that was what you were getting at, and many managerial tasks must be done by people near the managed workforce but, obviously, when you outsource a department, you often then see the department being run by Indians.
With dentists et. al., I don't know of specific instances of direct outsourcing benefits (i.e., you might be able to have the x-ray of your fractured shoulder emailed and read in Bangalore, but I don't know of dentists working remotely from India), but obviously their costs are reduced by globalisation. They use electronics and suchlike.
Even if none of this was true, the lower and middle classes in the US benefit from cheaper goods. They benefit from the superior cars, electronics and household goods made possible by Asian R&D.
The strongest legal right for employers to hire who they wish would be that of freedom of association. Regardless, there are many restrictions on employers' hiring processes. I'm not sure that anyone would claim that there was a strong modern right to "cheap labour", any more than they have a right to cheap materials. It's just that, as with materials, we're all better off when employers take the most efficient option. That way the market doesn't give distorting signals and we all end up with a better chance of doing the work that allows us to confer the greatest benefit on society and ourselves.
Thanks for the thoughtful answer. No, I am not seeing a decrease in costs for medical services, no matter how incremental. Although, for the record, I never stated outsourcing was bad, or that I was against it, which I am actually not. My comment was pointed to the fact that the current Republican political class supports free trade, but when that isn't enough, they will quite simply ignore laws that inconvenience their business supporters. I think that fact alone has pissed off quite a few Republican voters and is turning them off to general Republican economic leadership. I know this is hard for commentators on this site to realize, but many people have not had their economic situations significantly improved in the past 10 years.
For many people, stagnant or declining wages, perhaps job loss, extreme increase in housing prices, high utility costs, exploding university tuition, but hey--at least laptops are cheaper, or now a new car comes standard with AC and power windows? As hard as it may seem, a lot of people don't put nearly as much weight on the latter as they do the former. And they will vote.
I live in a state with no corporate income tax or personal income tax, which is great...and yet local businesses still employ thousands of illegal immigrants. The fact that these individuals make my apartment complex landscaping or maintenance incrementally cheaper (though as a renter, the savings for me are negligible) doesn't change the fact they are putting enormous pressure on the American lower class. And for every study you could cite that says the illegal immigrants are benefiting the American economy, I could cite some that say they are hurting the working class. I meant my question above--what do business owners really fear more, a minimum wage hike or what would happen to their profits if their cheap labor source was not longer available to them?
Free trade and illegal immigration can be unrelated--but find me an economist or even politician who is extremely free trade but for truly cracking down on business owners who employ illegal labor. Who? Ron Paul? Again, I think that is where a lot of dissatisfaction is--the general tenor of the Republican leadership on economics. Bush did try to ram amnesty through Congress, the people be damned. People are not going to support an economic system where they perceive they don't have a fair chance.
As for freedom of association, I see your point in principle and agree. But where is reciprocity? All my family members are American, I prefer to stay single, so how many countries can I easily become a citizen of? Not sponsored by a company for work, I mean an actual citizen. The UK? Probably not. Canada? Not easy anymore--I actually have taken the Canadian eligibility test and barely passed (with a Master's degree in an impacted field). I speak Spanish--perhaps Latin America? Not likely. Where is my labor mobility? Regardless of how asinine the immigration procedures are to get into the US, for those of us already here labor mobility is essentially a one-way street. We must stay here, sink or swim.
If you want sterling examples of pro-trade border retainers, Rick Santorum was probably the finest, with an impeccable record on both fronts. Fred Thompson is the obvious Presidential candidate. Of the current Senate, Pat Roberts (KS) is the best bet. In the House, there's a whole lot more. Pat Toomey and Tom Delay have left, but there's still life in the position today. Manzullo is probably the most extreme advocate of the combination.
Obviously, some of the 300 million Americans have had a tough decade. Still, the overwhelming trend has been to see them getting better lives. That's the way that all good policies work (bad policies also have winners and losers, but the trend is the other way).
Minumum wages tend not to hurt large businesses so much. They have a much bigger impact on large businesses' smaller rivals. Thus, I'd imagine that deportations would be more scary, but I'm not sure what that shows. Scarier yet would be a policy of shutting down all coal plants overnight, plunging America into darkness. If big business was some kind of villainous enemy of America, then it'd be good to see them stabbed in the eye. Perhaps I'm reading you wrong.
Again, Bush tried to push/"ram" amnesty, but it was Republicans who stopped him. FWIW, I'm with Bush on both trade and immigration, but I don't find that much support for Bush on immigration at Republican gatherings.
It's true that many other countries have lousy immigration policy. That shouldn't be a basis for America sinking to their level, any more than on guns, the death penalty, right to work, low tariffs, freedom of speech, freedom of religion, protection from searches, excellence of higher education, security from uncompensated expropriation, or any of the other things that America excels to a rare or unique degree.
Lastly, although you may be trapped in your American citizenship, I think you'll find an impressive diversity within her borders. Americans are massively more mobile than any other people on earth.