Drezner also thinks that Obama's good on trade. I don't know what protectionist forces "couldn't be easily controlled." In fact, Dems on trade have a little "Nixon to China" benefit and party politics may assist a Dem President get free trade through Congress.

RFG, you are a complete idiot. It is undisputed that since NAFTA was passed that the United States has benefitted in terms of jobs, sales, etc. The only reason why certain industrial centers in the United States are failing is because of gross mismanagement by corporate executives and not because of free trade. Perhaps when GM and Ford start desigining and producing vehicles that persons who reside outside of Michigan want, then GM and Ford will start to realize greater sales and profits.

Talk about extremism.

It is not an "antitrade tirade" to say that free trade agreements should include labor, environmental, and safety protections.

To say that any position which suggests these things is "antitrade" is nothing more than disreputable dogmatic extremism. I am sorry to see Mr. Adler take such an extreme position.

Guess what, life is not all or nothing. Please grow up.

How can you call what we have “trade” when we run enormous trade deficits? Trade is just that, an exchange of goods and services that should be roughly in balance. This protracted imbalance should signal that something is fundamentally wrong. Exactly who benefits from this trade? Not American manufacturing workers. For example the American shoe industry—it has all but disappeared. Not only that, the infrastructure to support that industry has disappeared too. As a result it’s almost impossible to establish a new shoe business. From a recent WSJ:

What killed his U.S. factory isn't just competition from Asia's cheap labor, he says. It is the lack of infrastructure needed to make a factory tick, a problem that has bedeviled the few remaining independent shoemakers in the U.S.

This is a good example of how American industry is getting hollowed out by this tremendous trade imbalance. One by one our basic industries disappear. This can’t be a good thing.

Could you explain how "incentivizing" trade agreements are likely to actually enhance efficiency? I can see how it might be theoretically possible (incentives made inefficient foreign market more efficient), but it seems unlikely on the facts and I have little faith that the US government choice of incentives is the efficient level. So any evidence for this?

So, Nick, you aparantly argue that the good thing about H&O on trade is that they habitually lie and will instead do something, anything other than what they say. Wonderfull. Now they get my vote....

It is a key component of full libertatiran economic policy to eliminate free riding on economic issues. Libertarian environmental policy draws heavily on socottish fishing rights to give people property rights in environment. Poluters are getting free rides the moment any of their pollution flows off their property to lessen the value of my stream, or the healthfullness of my air.

I wonder if there can be some meeting ground between the issues you name, and the no free rides concepts central to Libertarisn economic thought. A full academic treatment is beyond my abilities - but I would happily read same.

Whoa. Nick J just blew my mind! With econ no less!

From the AP about Canadian/Goolsby communication

The memo says: "Noting anxiety among many U.S. domestic audiences about the U.S. economic outlook, Goolsbee candidly acknowledged the protectionist sentiment that has emerged, particularly in the Midwest, during the primary campaign."

It went on: "He cautioned that this messaging should not be taken out of context and should be viewed as more about political positioning than a clear articulation of policy plans."

Goolsbee disputed the characterization.

"This thing about 'it's more about political positioning than a clear articulation of policy plans,' that's this guy's language," Goolsbee said of DeMora. "He's not quoting me.

"I certainly did not use that phrase in any way," he said.

NAFTA is widely opposed in economically depressed Ohio, which holds its presidential primary Tuesday and is a battleground between Obama and Clinton.

Clinton said Monday that Obama's campaign gave the Canadians "the old wink-wink."

"I think that's the kind of difference between talk and action that I've been talking about," Clinton told reporters while campaigning in Ohio. "It raises questions about Senator Obama coming to Ohio and giving speeches against NAFTA."

Both candidates said in a debate in Cleveland last week that they would use the threat of pulling out of NAFTA to persuade Canada and Mexico to negotiate more protections for workers and the environment in the agreement.

The memo obtained by the AP was widely distributed within the Canadian government. It is more than 1,300 words and covers many topics that DeMora said were discussed in the Feb. 8 "introductory meeting."

Goolsbee "was frank in saying that the primary campaign has been necessarily domestically focused, particularly in the Midwest, and that much of the rhetoric that may be perceived to be protectionist is more reflective of political maneuvering than policy," the memo's introduction said.

"On NAFTA, Goolsbee suggested that Obama is less about fundamentally changing the agreement and more in favour of strengthening/clarifying language on labour mobility and environment and trying to establish these as more `core' principles of the agreement."

Goolsbee said that sentence is true and consistent with Obama's position. But he said other portions of the memo were inaccurate.

In a statement, the Canadian Embassy expressed regret on how the discussions have been interpreted.

The statement said "there was no intention to convey, in any way, that Senator Obama and his campaign team were taking a different position in public from views expressed in private, including about NAFTA."

Goolsbee said the visit lasted about 40 minutes, and perhaps two to three minutes were spent discussing NAFTA. He said the Canadians asked about Obama's position, and he replied about his interest in improving labor and environmental standards, and they raised some concerns that Obama sounds like a protectionist.

Goolsbee said he responded that Obama is not a protectionist, but that the Illinois senator tries to strike a balance between the economic struggles of working Americans and recognizing that free trade is good for the economy.

"That's a pretty ham-handed description of what I answered," Goolsbee said of the memo's description of "political positioning." "A: In no possible way was that a reference to NAFTA. And B: In no possible way was I inferring that he was going to introduce any policies that you should ignore and he had no intention of enacting. Those are both completely crazy."

Free Trader, your response is not really coherent to me. You speak as if incentivizing had to do with opening foreign markets, which is not really what is on the table (which is labor, environmental, or just pulling out of agreements). But even if it were, your argument depends on the position that incentivizing will have more positive benefit on opening foreign markets than on closing American markets. Which you merely presume, without evidence.

Taking another tack, I'm surprised that Adler thinks it's some sort of revisionism to note that Republicans have often been bad on trade. It's very clear that in the 19th century the Democrats were the party of free trade and the Republicans were protectionist. That didn't really change until after WWII. T

More seriously, what makes you think that a trade deficit is meaningful?

The vast majority of trade economists believe that trade deficits are meaningful. That they are other than entirely irrelevant. =)

How can you call what we have “trade” when we run enormous trade deficits? Trade is just that, an exchange of goods and services that should be roughly in balance.

That doesn't make any sense. Do you have a balance of trade with your local supermarket? No; you run enormous deficits with them. You buy lots from them and never sell anything to them (most likely). Does that trouble you? Should it?

This protracted imbalance should signal that something is fundamentally wrong. Exactly who benefits from this trade?

Consumers. In other words, Americans. Nobody makes a trade that doesn't benefit him. What explains the persistence of the mercantilist view of economies? A "trade deficit" means we're getting goods and other countries are getting dollar bills (or electronic bits representing dollar bills). Which one is more useful?

Not American manufacturing workers. For example the American shoe industry—it has all but disappeared. Not only that, the infrastructure to support that industry has disappeared too. As a result it’s almost impossible to establish a new shoe business. From a recent WSJ:

What killed his U.S. factory isn't just competition from Asia's cheap labor, he says. It is the lack of infrastructure needed to make a factory tick, a problem that has bedeviled the few remaining independent shoemakers in the U.S.

This is a good example of how American industry is getting hollowed out by this tremendous trade imbalance. One by one our basic industries disappear. This can’t be a good thing.

What it can't be is true. American industry is not being "hollowed out." The American manufacturing sector is as productive as it has ever been in history, and is the most productive in the world. Of course some extremely low-skill, little-value-added industries have disappeared. So what? The sun puts candlemakers out of business, too.

Yes, it is. It's also completely intellectually dishonest. Those have nothing to do with trade.

Blah blah blah. Nothing to do with trade? Apparently, you are not at all familiar with trade theory. The problem that is addressed by putting labor and environmental standards in trade agreements is the avoidance of race to the bottom problems that can undermine such standards and which can potentially occur due to free trade where such standards are not negotiated into the agreement itself.

Americans may have a very deep preference for goods made in an ethical manner, not using, for example, child labor. However, one cannot tell whether a good is produced ethically merely by examining the physical thing itself. Thus, in a free trade regime with no standards, unscrupulous manufacturers will tend to locate in areas with the lowest possible labor, environmental, and health and safety standards, thereby lowering costs and driving their more ethical brethen to either do the same or go out of business.

Protectionism, whatever its other flaws, prevents this sort of race to the bottom. You are obviously very ignorant of trade theory, or I would not need to even mention this very basic and obvious connection between free trade and labor, environmental, and health and safety standards to you.

To the extent that's a problem, it has nothing to do with health care per se; what it has to do with is really bad union contracts that are overly generous, including to retired workers, which create contractual obligations that GM can't shake.

Noting to do with health care per se? Do you even live in the real world?

Here is the connection to health care. Back when GM and Ford negotiated and put these generous health benefits into their contracts, health costs were much lower. It was not anticipated that they would rise as dramatically as they have. It is likely that if GM and Ford had anticipated trends in healthcare costs, they would have negotiated these agreements differently.

See, there is definitely a connection. A connection between unexpectedly high health care costs and the competitive position that these contracts put GM and Ford in. That is not rocket science, my friend.

No... "government" does not produce anything and can't "take care of" costs. In countries where health care costs are socialized -- and that includes the U.S., although thankfully to a lesser extent than other countries -- those with money pay for the health care of those without money. The government is just the intermediary that forces unwilling people/corporations to do that; it doesn't produce health care from the health care tree. Corporations in Japan and Germany, where most non-U.S. cars are built, pay those costs.

I said that these governments were subsidizing these companies healthcare costs. Not that these subsidies were not paid for by taxes.

Pretty much all subsidies are paid for by taxes. And the people who receive them typically pay taxes. That doesn't mean that the amount of taxes they pay is equal to the subsidy they receive. Obviously. =)

Pretty much all subsidies are paid for by taxes. And the people who receive them typically pay taxes. That doesn't mean that the amount of taxes they pay is equal to the subsidy they receive. Obviously. =)

Except that we are talking about protectionism, which often translates into a subsidy paid for by the consumers directly, instead of through their taxes.

Let me suggest that your race to the bottom is not necessarily bad. If someone is willing to work for $10 a day, when without the job he would be starving, and that takes a job away from someone here who would be making $20 an hour doing it, it is quite conceivable that we might have one less family in the world starving.

I think "fair trade" is fine, as long as it is voluntary. There seems to be a thriving market right now for some fair trade goods in this country, for example, coffee. My problem is when you, or someone else, makes the value judgment that it is more important for someone without a high school diploma here to make $20 an hour doing something that could put food on the table somewhere else in the world for $10 a day.

MarkField,

I agree and I disagree. I agree that focusing on low prices without considering other factors makes for a fatally flawed analysis. I disagree to the extent that you are implying that lower prices in themselves, assuming they come from ethical efficiencies (i.e. not abusive labor practices, not by poisoning the environment, etc.) are not a potential and very important benefit of trade.

My problem is when you, or someone else, makes the value judgment that it is more important for someone without a high school diploma here to make $20 an hour doing something that could put food on the table somewhere else in the world for $10 a day.

Again, this is a false dichotomy. All that I demand (and I will demand it with moral indignation if any dare deny it!) is that the person working for $10 a day (that is a hell of a lot of money in some countries) be treated with dignity, not have to face abusive labor practices, and not have to work in an unnecessarily unsafe environment. And that the whole productive process not destroy the environment by cutting corners. I do not expect that person to have a salary that is equivalent to what a similarly situated worker in the United States would have.

Mark Field:
The first ignores the related facts that American consumers must actually have jobs, and that those jobs must pay them wages sufficient to buy the imported goods, in order to make sense.

So your argument is that consumers in the richest nation the world has ever seen don't have jobs to buy the goods that are causing our trade deficit?

Look, I understand that not everyone benefits from trade at all times. I'm in favor of unemployment insurance, retraining and other programs that cushion the negative effects of our dynamic economy on those most vulnerable. But it's beyond foolish to deny the huge benefit that trade has brought, not only in cheap consumer goods, but in increased productivity and good-paying jobs right here in the US.

frankcross - When the U.S. is negotiating a trade agreement with a poor country, say, Colombia, and the U.S. agrees to lower its tariffs, it essentially makes (among other things) a cash transfer to Colombian government (through increased tax revenues, etc.). Suppose the U.S. now says that it won't lower its tariffs unless the Colombian government allows workers to unionize if they want to. The standard neoclassical argument would oppose that provision and instead favor a simple cash transfer, because the Colombian government would know how to use that money most efficiently. If the Colombian government uses the money efficiently, eventually the workers will make more money, increase their bargaining power, and demand to be able to unionize. But that's making a number of very large assumptions about the Colombian government: most importantly, that the Colombian government is not corrupt, and will use the money efficiently. The assumption of no corruption in third world countries is simply false. The question isn't whether forcing Colombia to allow unionization is more efficient than a cash transfer to a non-corrupt government; the question is whether forcing Colombia to allow unionization is more efficient than a cash transfer to the Colombian government. That's what people mean when they talk about incentivizing trade agreements.

Free Trader - I agree with basically everything you've said. Samuelson established that there are sometimes unequal gains from trade something like 60 years ago, yet today's dogmatic free traders avoid that subject like the plague. (Steven Landsburg wrote an op-ed a couple months ago saying something like, "all economists agree that free trade always benefits both parties." He should've had his Ph.D immediately revoked.) But I actually don't favor renegotiating NAFTA. NAFTA was a landmark trade agreement that was an important signal to the world that the U.S. was committed to liberalizing trade. It had a very minimal effect on our $13 trillion economy. The only reason I think we shouldn't regotiate NAFTA is because of its symbolic importance; if the U.S. renegotiates its most well-known trade agreement as soon as a recession hits and protectionist sentiment rises, I think that would give cover to any country that wanted to enact protectionist measures during a domestic economic downturn. NAFTA is far from perfect and you're probably right about some provisions needing improvement, but I think NAFTA is a unique case.

Toby - I never approved of Hillary and Obama misrepresenting their positions on trade. But if you think they're the only candidates who have done that, you should recall Romney's protectionist rhetoric in Michigan, and McCain's lying about his own economic knowledge. Conservative libertarians were willing to write off Romney's protectionist comments as just "campaign rhetoric," but then leap to condemn Hillary and Obama for the same thing. They understand that it's campaign rhetoric, but they love to feel intellectually superior to Democrats.

Nick J,

One last thing. You may be right about libertarian hypocrisy with respect to campaign rhetoric for a subset of libertarians.

But... that a subset of libertarians are hypocrites is not a good reason to suggest that libertarians who are not hypocrites and in fact do not like false campaign rhetoric by Romney accept false campaign rhetoric by Obama. Absent evidence that a particular libertarian actually excused such rhetoric by Romney, I would not even bring it up.

And finally, and more significantly, false campaign rhetoric is like a poison to our democracy, breeding cynicism and ultimately a dysfunctional republic. It is totally unacceptable.

We should not have lower standards for our leaders than we do for our neighbors. If anything, we should have higher standards. I do not believe that Mr. Obama's statement that he is interested in renegotiating NAFTA is mere campaign rhetoric and I would be extremely disappointed if it was.

I do not think it is possible to defend someone by saying that they have intentionally introduced campaign rhetoric that they have no intention whatsoever of pursuing at the time they say it. Maybe you will demonstrate that a subset of libertarians are hypocrites (which is obviously true) but at the same time you appear to be endorsing this poison to our republic that is false campaign rhetoric.

Blah blah blah. Nothing to do with trade? Apparently, you are not at all familiar with trade theory. The problem that is addressed by putting labor and environmental standards in trade agreements is the avoidance of race to the bottom problems that can undermine such standards and which can potentially occur due to free trade where such standards are not negotiated into the agreement itself.

There's no such thing as the "race to the bottom." It's a political myth, like predatory pricing.

Again, what you don't grasp is that labor and safety standards are simply compensation for employees in another form. There's no rational basis for an American to tell a foreign worker what form his compensation should come in. A starving person may well reasonably prefer cash to safety regulations.

If you would rather a child starve so that you don't have to feel bad about your benefiting from his labor, that says a lot about your morality but not much about economics.

A starving person may well reasonably prefer cash to safety regulations.

A starving person may reasonably prefer to be randomly gang raped once every five years to starvation.

A starving person may reasonably prefer to have a limb cut off for your entertainment than face starvation.

A starving person may reasonable prefer to mutilated for your entertainment than face starvation.

None of that makes any of the above actions anything other than a crime.

No one is going to starve because of reasonable standards. Companies will still locate in such areas to take advantage of lower wage rates as long as their property rights are respected.

Your suggestion that reasonable standards will lead to starvation is absurd. It is a product of an extreme ideology totally disconnected from anything resembling reality.

Free trade has hardly been one of the bedrock thesis of conservatism. Winston Churchill walked across the aisle over the issue in the 20's becoming a Liberal rather than stay in a Conservative party that was abandoning free trade. However since Churchill has done more to define conservatism worldwide than any other figure in the last 100 years, whether he was a Liberal or Conservative, it can hardly be said to be foreign to Conservative ideals.

Free Trader,
I think you are right about minimum labor standards, Third World Countries should have to pay at least first world minimum labor rates to employees. Never mind that they can't compete with first world infrastructure, access to markets or even first world labor standards. It is important to eliminate the only factor they can compete with from the equation. Sometimes you do have to destroy the village to save it. Besides if all the women and children are working in the shoe factory where are all the sex tourists going to go?

I think you are right about minimum labor standards, Third World Countries should have to pay at least first world minimum labor rates to employees. Never mind that they can't compete with first world infrastructure, access to markets or even first world labor standards. It is important to eliminate the only factor they can compete with from the equation. Sometimes you do have to destroy the village to save it. Besides if all the women and children are working in the shoe factory where are all the sex tourists going to go?

I think it is a good sign that the only arguments I hear from your side are either (1) totally disconnected from reality (Nieporent) or (2) even more ridiculously rely on all-or-nothing strawmen.

Maybe if you had actually, I don't know, read what I already wrote, you would know that this is completely distorting my position.

I said their need to be minimal labor standards, health and safety, and environmental standards, NOT wages that are the same as in the United States.

In a country with a per capita income of say, $800 (which greatly overstates typical incomes, because it averages in individuals with much higher than typical incomes) it would be ridiculous to require U.S. wage rates. Basically, all that would be doing is creating an overly compensated elite while the rest of the country fails to benefit.

But it is NOT ridiculous to prevent abusive labor practices, require health and safety standards to be met, and require environmental standards to be met. There are some things that should not be the subject of competition. Competition should be focused in an ethical realm.

But anyway, I take it is a good sign that distorting my position is the best you can come up with.

"Ohio's most crippling handicap may be that its politicians -- and thus its employers -- are still in the grip of such industrial unions as the United Auto Workers. Ohio is a "closed shop" state, which means workers can be forced to join a union whether they wish to or not. Many companies -- especially foreign-owned -- say they will not even consider such locations for new sites. States with "right to work" laws that make union organizing more difficult had twice the job growth of Ohio and other forced union states from 1995-2005, according to the National Institute for Labor Relations. On the other hand, Texas is a right to work state and has been adding jobs by the tens of thousands. Nearly 1,000 new plants have been built in Texas since 2005, from the likes of Microsoft, Samsung and Fujitsu. Foreign-owned companies supplied the state with 345,000 jobs. No wonder Texans don't fear global competition the way some Presidential candidates do." Further lessons on trade using comparison of 'Texas v. Ohio' under that title in the WSJ March 3, 2008.

Obama personally claims that corporations "get tax breaks to ship your jobs oversees" (a statement so obviously false that it should draw FEC sanctions).

Um, corporate tax rates in other countries are significantly lower than in the U.S., so corporations do, in effect, "get tax breaks to ship your jobs overseas." Perhaps in a post admonishing people for not "look[ing] at the facts before offer[ing] an uninformed opinion," you should look at the facts before offering an uninformed opinion.

And I find it quite ironic that you're upset about "ad hominem attacks on Professor Adler" when Professor Adler titled his post, "Dumb and Dumberer on Trade," and offered zero substantive analysis.

Look, I don't want to defend protectionism or even Obama's specific proposals. But some libertarians, like Professor Adler, always jump at the chance to condescendingly tut-tut Democrats for not understanding the Awesome Power of Free Trade. Those libertarians deserve to be criticized, because their understanding of the economics of trade is utterly unhinged from reality. Anyone who thinks the U.S. engages in anything close to "free trade" should take a look at the U.S. Tariff Schedule. It's an incredibly complicated area, and dogmatic free traders don't deserve the intellectual superiority to which they clearly feel entitled.

Then there was the moment in the Ohio debate when Obama said that we lost jobs to China because of NAFTA. No doubt believing that China is in North America.

Oh, and don't forget Mr. Republican, Robert Taft, carrying the free trade mantle to prominence when the Republicans didn't control the White House.

Pretty much from 1856 to the early 1900s one could say the Republicans were protectionists.

From the early 1900s until the 1950s, they were split but leaning toward free trade.

By the 1950s to today, they have been the party of free trade except when it comes to dealing with Communist countries. Although even that is a bit suspect ... see China and Russia for example.

On the other hand, Texas is a right to work state and has been adding jobs by the tens of thousands. Nearly 1,000 new plants have been built in Texas since 2005, from the likes of Microsoft, Samsung and Fujitsu.

You left out the big new truck plant Toyota just opened up in San Antonio, which is the first auto manufacturing plant ever in the city. Toyota of course is not unionized.

Free Trader, you're showing a lot of arrogance for someone who doesn't seem terribly familiar with the empirical literature. There's plenty of empirical research on the adverse effects of minimum wages in poor countries. There's plenty of research on race to the bottom issues. You don't seem familiar with much of it, yet you ridicule others.

NickJ, if I understand you, the problem would seem to be that the corrupt government would be the one implementing any incentivized deals (re unionization or otherwise) and why would we believe they would be faithfully carried out?

I'm sure you're right about the poor bargaining for safe working conditions. But you don't seem to recognize that compelling safety (a) may simply be abused by corrupt implementing governments and (b) may price workers out of jobs or (c) may mean lower wages, when workers would prefer the wages to safety. Surely all of those factors have to be considered.

Um, corporate tax rates in other countries are significantly lower than in the U.S., so corporations do, in effect, "get tax breaks to ship your jobs overseas." Perhaps in a post admonishing people for not "look[ing] at the facts before offer[ing] an uninformed opinion," you should look at the facts before offering an uninformed opinion.

Paying less in taxes because the new host country charges less is not a "tax break," and it is certainly not what Obama is talking about. He is claiming -- falsely -- that the United States offers tax breaks to countries in exchange for them shipping jobs overseas. Nice job changing the subject, though. You sure showed me.

Then there was the moment in the Ohio debate when Obama said that we lost jobs to China because of NAFTA. No doubt believing that China is in North America.

Good call, Mr. Frissell, but it wasn't just a "moment." The fallacy that NAFTA(?!) sent jobs to China was re-run dozens of time each day, complete with a steel worker from Youngstown telling the narrative so that we could all become enraged.

On the other hand, Texas is a right to work state and has been adding jobs by the tens of thousands. Nearly 1,000 new plants have been built in Texas since 2005, from the likes of Microsoft, Samsung and Fujitsu.

Damn the facts! Texas is treating those workers horribly. It is a form of theft to not provide these workers with all the benefits of unionism. In fact, these poor people - no doubt suffering under the oppressive corporation which steals their labor for less than a living wage. In fact, these poor workers should be forced to join a union or their "fair" share of union dues should be forcibly extracted from them to be spent as the union sees fit! We must stop this race to the bottom.

Long live the union, or something.

“Zarkov, I would like more than an assertion about Sony. Looks to me like they are currently in a competitive market, not selling above cost, and that start up costs are not so high, as new entrants have appeared in their markets, like HDTV.”

The situation for Sony today is different than in the 1970s and early 1980s. Today they have competition from China and Korea and other Asian “Tigers.” But their corporate strategy in the 1970s was to engage below cost pricing to drive out competition while they learned how to make their production process more efficient so as to eventually turn a profit in a less competitive environment. Now I think I read that in a book on manufacturing called Manufacturing Matters, or it might have been in a Drucker article. I can’t exactly recall the reference, but I am not making it up. I might sometimes get something wrong, but I won’t make it up. I will try to find the source, as now I’m interested. Remember the Internet doesn’t have everything.

While we have Free Trader making a lot of arguments about consensus among trade economists, which is reminiscent of some AGW arguments about consensus, we have Nick J saying this:

"the less liquid the labor market, the less bargaining power the employee has."

Can you explain why? The housing market is illiquid, relative to the stock market. It's not obvious to me that this increases the seller's power and reduces the buyer's power. Why is that the case in the labor market?

"the less liquid the labor market, the less bargaining power the employee has."

Can you explain why? The housing market is illiquid, relative to the stock market. It's not obvious to me that this increases the seller's power and reduces the buyer's power. Why is that the case in the labor market?

I thought I did. When an employee is bargaining for a safety regulation in a liquid labor market, the employer can't refuse to enact the safety regulation if the employee is offering to pay the employer (in the form of decreased salary) more than it would cost the employer to enact the regulation, because if the employer refuses, the employee can simply quit. The threat of exit prevents the employer from refusing an efficient trade. In an illiquid labor market, the employee can't threaten to quit, because there aren't other jobs available in an illiquid labor market. Without the ability to move to another job, the employer can demand a higher price for the safety regulation, and the employee has no option but to accede to the higher price. It's pure rent-extraction.

With regard to your housing market analogy, I think you're confusing your terms. An illiquid market gives disproportionate bargaining power to the liquidity provider, which can be either the buyer or the seller. The source of the illiquidity in the housing market is insufficient demand -- that is, there aren't enough buyers. That means that buyers are the liquidity providers in the housing market right now: buyers could restore liquidity by injecting their money into the housing market. (By contrast, if sellers injected more of their money into the housing market, it would just get less and less liquid.)

In illiquid labor markets in Third World countries, the problem (obviously) isn't too many jobs, it's that there are too few jobs to go around. So the liquidity providers in Third World labor markets are the employers. And because liquidity providers are the ones with disproportionate bargaining power in illiquid markets, this means that the employers are the ones with disproportionate bargaining power in Third World countries.

That's the long-winded explanation of why "the less liquid the labor market, the less bargaining power the employee has."

Phantom Lord: I heard the same NAFTA commercial 10 times a day. NAFTA led to the factory going to China. It's like Bluto in Animal House saying the Germans attacked Pearl Harbor.

Obama promised a Middle Class Tax Cut also. Is this the same one Clinton I promised in 1992? The year before he raised taxes?

Nice, I think you're confusing your terms :p

Real estate is always more illiquid than the housing market. It's not a a sudden development due to prices falling. Even three years ago in San Diego and Northern Virginia. So it's not the liquidity, it's the "liquidity provider" who has the power. Isn't that just saying the party with more power has the power?

Please forgive this econ 101 question... So if there is a surplus of labor in third world countries, and you want to impose environmental and other regulatory burdens (price floors), how does that help allieviate the surplus? I though that if the minimum legal price was above the equilibrium price, it created shortages?

Low skill areas like ship building, reactor construction, consumer electronics etc. Look at the wages and opportunities for tool and die makers. BLS says: “Tool and die makers are among the most highly skilled workers in manufacturing.” Talk to a tool-and-die man and ask how he feels about his future. Even the overly optimistic BLS predicts shrinking opportunities in this an other industrial occupations. Look at BLS national employment matrix. Almost every occupation appears in red, meaning negative growth. Thus the hollowing out of the American manufacturing industry.

Here's the problem with those statements: an industry's productivity is not measured by counting the number of employees in the industry.

Obama's allegedly protectionist rhetoric was a proposal to lower the domestic corporate tax rate.

No, it wasn't, and you should stop making things up. You obviously never saw the ads Obama ran in Ohio, or bothered to read what anyone else on this string has been writing about them.

1. Obama repeatedly claimed that the United States gives companies tax breaks to ship jobs overseas. This does not happen. It is not "curiously true" -- it is false. The statement YOU seem hell-bent on defending -- that companies moving jobs overseas will pay a lower tax rate because the new locale has lower rates -- is NOT what Obama said. The first time anyone mentioned that was when YOU said it here a couple days ago. You can't just make things up whenever the facts aren't on your side.

2. Obama repeatedly claimed that NAFTA led to companies shipping jobs to China. Apparently, you and Obama both think that China is part of North America and is governed by the "North American" Free Trade Agreement.

3. Obama spent the last 6 weeks telling voters he would repeal or significantly alter NAFTA. He never mentioned any of the things you and "Free Trader" are talking about -- safety, environment, etc. It was all just "they took yer jobs!" shouting, like it was pulled directly from a South Park parody. He wasn't talking about lowering corporate tax rates. He was talking about backing out of NAFTA so that "China" would stop stealing jobs from Youngstown.

Your rant is completely disconnected from what Obama actually said. Perhaps that was excusable on Friday, because you obviously don't live in Ohio and didn't know what he was saying out here. Since then, every time you were confronted with the facts you either changed the subject or made up new "facts" that better suit your position. I am sure you will do so again. So go ahead. Write another post about tax cuts that Obama never talked about. Pretend that he didn't just spend 6 weeks campaigning as a mercantilist. Maybe if you keep attributing all these reasonable positions to him, you can actually go back in time and stop Hillary from giving him a double-digit beatdown....

Or maybe you should act like an adult, stop replacing the real facts with made-up ones, and accept that your candidate's rhetoric was so over-the-top that it cost him the state.