Funny article about Lou Dobb’s “Exporting America” companies. If you had invested in all the companies listed, you would have returned 72% for the past year.
(Thanks to Don Luskin for the link)
20 thoughts on “Phenomenal”
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Funny article about Lou Dobb’s “Exporting America” companies. If you had invested in all the companies listed, you would have returned 72% for the past year.
(Thanks to Don Luskin for the link)
Comments are closed.
Very funny indeed. It is bewildering to me to read and watch Glassman and Dobbs talking right past each other.
I don’t think I’ve ever heard Dobbs say that outsourcing doesn’t lead to efficiency gains. You’d have to be a fool to do so. Dobbs is concerned about jobs that are lost.
Glassman, with the article you link to, shows that the gains from the Rogue List are impressive. We’re asked to believe that the gains are attributable to outsourcing. So, ok, for the sake of the Glassman-Dobbs debate, I’ll suspend disbelief and attribute 100% of the profits to gains from outsourcing.
The problem is that Glassman’s point is not threatening to Dobbs, for the outsourcing gains that Glassman has demonstrated have been allocated to capital. Bully for capital! Outsourcing works.
What Glassman needs to do is find a similar tactic but apply it to labor and show how people who are the victims of outsourcing are migrating to jobs higher on the value chain.
The problem with finding a gimic to show the downstream effects of the reduced prices of products that result is that they are too diffuse.
It’s clear to me that Glassman is the advocate for economic efficiency and that Dobbs is advocating something a little more nebulous like quality of life, good jobs for Americans, things that aren’t so easily measured as Glassman’s metric, and no, GDP/capita doesn’t do the trick either because it doesn’t show the distribution of the gain between capital and labor.
What I find interesting is that Glassman is preaching to the converted. Who amongst his readership doesn’t believe in economic efficiency? What he needs to do is find a message that resonates with the fence sitters who are worried about the trend and could go the protectionist route. I fear that they won’t be as easily persuaded as TechCentralStation readers and cute gimics won’t win them over.
Let’s not downplay the angst over outsourcing that exists out there for if we do, we may be looking at more protectionist measures, which I fear will cascade as other countries retaliate.
Thanks for the thoughtful comments Tangoman. I’m probably one of the fence sitters you mention. I see the good and bad from both points of views, and agree with parts of both. The trick is to find the right balance for a smooth transition since the transition is where the pain is felt the most.
In-Cog-Nito,
You guys have a great site here. I’ve been a lurker for a while.
As you can probably tell, the benefits and efficiency of free-markets, and their influence on people’s behavior, and the rationality that flows from that is obvious to me.
What I find troubling is that free-market advocates are underestimating the appeal of protectionism to many people. We need to find a better strategy than just parroting Ricardo’s theorems. Yes, they’re true but that may not be enough.
I don’t have a solution, but I sense that one won’t be found in a polarized debate where compromise isn’t possible. If we’re holding out for the pure win, I fear that we’ll be dealt a bad hand of protectionism. The expected value of such an outcome would be very negative, even though the probability might be slight. I’d like to see some economists and policymakers come out with some position that serves to vent the growing threat of protectionism.
Glassman did an excellent job of exposing Dobbs for what he is: a demagogue who has found an outlet where he is allowed to present what he calls the facts in any way he pleases. The agenda is entirely his and he presents almost no dissenting opinions (Glassman being the exception because he directly attcked Dobbs in an article). The exchange basically boiled down to Dobbs saying over and over again that we have a $500 billion dollar trade defict, without explaining what that means or why it is bad. Kind of like saying “you have terminal cancer” doesn’t need any explanation.
I have periodically watched parts of his show just to see how outrageous it is. I was shocked at just how dishonest and alarmist and more than a little bit xenephobic his rhetoric is. The “news” stories are biased pieces of opinion but the show has a pretension of being un-biased. Somewhere along the way “Lou Dobbs Moneyline” morphed into “Lou Dobbs Tonight” without making it clear to people that this is an opinion show. Bill O’Reilly runs the same sort of show where he controls the agenda and shouts down anybody who disagrees with him (actually he’s reasonably gracious to people who disagree with him who actually appear on his show), but he would be the first to tell you that his in an editorialist, not a journalist. Dobbs in masquerading as a journalist.
“If we’re holding out for the pure win, I fear that we’ll be dealt a bad hand of protectionism.”
I we DON’T hold out for the “pure win” we will be dealt the bad hand of protectionism. The “pure win” IS lack of protectionism. That is what these people are arguing for. They try not to use the actual word because it has a well deserved stigma, but that is what these people are talking about.
If Lou Dobbs was arguing for lower taxes, less regulation and reform of the tort and liability system the I’d be 100% percent for his form a apocalyptic ranting. But he’s not. He wants walls built around the country to keep out immigrants (who steal “our” jobs) and he wants walls put up around our shores so that companies can’t hire workers outside of the US and so that products from countries that produce goods with lower wages can be made more expensive in the US, so that their American competition with higher cost labor can compete on price.
He is a proponent of the long discredited “high wages” theory that got Herbert Hoover kicked out of the Whitehouse and which allowed the great depression to last more than 15 years. Smoot-Hawley is an unfortunate history lesson that everybody in this country should learn.
In short Dobbs doesn’t believe that America can compete in a world where everybody has the right to freely choose who they trade with and who they don’t.
If you compromise with people like this you have already dealt the “bad hand of protectionism”.
This multi-media campaign is meant to shame free-traders (an epitaph already used by Democratic candidates for president to beat each other over the head) into shutting up.
The biggest victem here has been the truth. The facts are that the number of jobs that have been “shipped overseas” are stilll a lot less than the natural job churning that goes on every month in this country. The jobs “going overseas” account for a tiny fraction of the total number of jobs in the economy (about 138 million). As the article states, the percentage of the unemployemnt rate attributed to jobs going to China is 0.6% of the total.
http://www.economist.com/printedition/displayStory.cfm?Story_ID=2442040
That’s how you head off protectionism.
The jobs “going overseas” account for a tiny fraction of the total number of jobs in the economy (about 138 million). As the article states, the percentage of the unemployemnt rate attributed to jobs going to China is 0.6% of the total.
With current mood for protectionism and the fact that no intelligent, fact-based debate is even possible in a presidential election year, I think the best we can hope for right now is that by the time the people trying to get elected or re-elected on these issues get in to office and can do “something” about it, that jobs will have started growing enough to calm everybody down. Protectionism reared it’s ugly head in the early 90’s when everybody thought Japan was going to buy America, but when employment went up the sentiment lost it’s legs.
We probably will get some sort of limited protectionism out of this because people who know better are already compromising.
I fully agree with DSpears. Glassman just exposed Lou Dobbs for what he is: a South-pointing compass. Glassman had the humor and insight to realise that a South-pointing compass is everybit as useful as a regular one, if you go the opposite direction to which it points.
I love South-pointing compasses, because when I start agreeing with them, I know I’m wrong, and need to re-think my positions.
Lou Dobbs can keep playing ostrich with his head and his ass. For the rest of us, we’ve got to find out how best we too can tap into all this glorious cheap labor – even an average American worker has gotten the chance to become an overnight capitalist, what could be better?
DSpears,
I’ve read your comments a few times and it strikes me that you’re a believer in Free-Trade, Comparative Advantage and you think that truth shall save the day.
You accuse Dobbs of demogoguery but provide no specifics with which to convince the reader of the merits of your case. Simply characterizing Dobbs as outrageous, dishonest, alarmist, biased and xenophobic and relating to us that you are shocked at his behavior is ineffective as a method of persuasion. Perhaps you’re being too witty by half and presenting demogoguery as a means of exposing the same. If I misunderstood you, and this is in fact your tactic, you are a very clever writer indeed.
However when you focused your analysis on my comments you wrote “I[f] we DON’T hold out for the “pure win” we will be dealt the bad hand of protectionism” and you’re simply restating my position. What exactly are you trying to say?
Do you not see my point that Dobbs is writing from a different perspective? He, and those who share his viewpoints, believe, unlike yourself, that the economy is there to serve the populace and not vice versa. That is the way they see the world. Holding out for no protectionism whatsoever is not a winning tactic. To ignore your opponent does not render him ineffective.
Do I hear a free-trade call for an end to agricultural subsidies, eliminating the latest incarnation of the FSC and inversions, abuses of the USTR by specific industries? No, I don’t. We don’t live in a PURE WIN world. The best we can hope for is to mitigate the damage of full out protectionism by addressing the issues our opponents face. This won’t be achieved by minimizing their threat and being pure ideologues.
You’re not doing your case a favor by writing comments such as “In short Dobbs doesn’t believe that America can compete in a world where everybody has the right to freely choose who they trade with and who they don’t” at a time when the trade deficit is so high. You’re simply handing your opponents a cudgel with which to strike back.
Further, citing The Economist data also does no favor for our cause. The jobs that are off-shored are not comparable to the jobs that are shifted through the churning process. Think of it this way – a bowl of chocolate chips represents the jobs of America. You stir the chips and disrupt their order but some chips are thrown out of the bowl. What does the issue of lost chips have to do with the disorder inside the bowl? This was simply a weak attempt by the writer to make a point as to scale but what they selectively omitted is that foregone jobs are not included because they were never outsourced, nor that jobs lost during the recession may not be replaced within America. The statistic is useless as being representative of the true picture for someone can always challenge it, as I have just done. Please take as my point that the data is inconclusive. I’m sure our protectionist opponents will be able to muster a more convincing rebuttal than the one I’ve just tossed out.
If, as you state, this is the way to fight off protectionism, then I am even more worried that our case is not convincing to many people. The responses I read from economists are nothing but tired recitals from standard theory that are directed at an audience that already is in tune with the message. People like Glassman are very jingoistic and I’m not really sure who they’re trying to convince. We’re in some uncharted waters and I’d rather not see the Gilligans of the movement in charge of the Minnow. Look at these shoals before us.
Lastly, consider that protectionism isn’t like death. You’re either alive or dead. There are measures of protectionism and the world won’t end if we can keep most of our gains and diffuse calls to dismantle free-trade by listening to what frightens our ideological opponents.
Tango, I’m not going to go point by point, you have your opinions, you have not presented any facts or theories for me to dispute, so we’ll just leave it at “we disagree”.
OK, just one or two:
“Do I hear a free-trade call for an end to agricultural subsidies, eliminating the latest incarnation of the FSC and inversions, abuses of the USTR by specific industries? No, I don’t. ”
Yes, free traders make these argumnets all the time. The free traders would consider these things the first battles in the war, but unfortunately the fronts are multiplying. For the record I don’t think America should even have a department of agriculure, much less agricultural subsidies. If you are trying to make some kind of hypocracy argument here you’re way off base . All of those things need to be eliminated and a laundry list of others as well. As you have unwittingly demonstrated, we already have a “little protectionism”. We already have a leaky faucet and your saying that a few more leaks are OK? Are you arguing for or against agricultural subsidies, I’m confused?
” I’m sure our protectionist opponents will be able to muster a more convincing rebuttal than the one I’ve just tossed out.”
No, they really can’t. In all honesty I have never seen a factual argument backed up by a solid logical argument. The argument against free trade will not be won and lost on the basis of facts. You certainly have presented no facts or analysis with which to even dispute.
When you say “our” protectionist opponents, what does that mean? If your only goal is to dispute incorrect facts and theories and your only worried that people like me can’t make a coherent case for free trade, then the implication is that you CAN make the argument more convincingly, correct?
If that’s the case, then make the argument. Answer your own questions professor.
Let’s turn this debate in a different direction. You are now John Edwards or John Kerry or Pat Buchanan or Lou Dobbs. You no longer are allowed to make general accusations about things you don’t like. For the first time you have to explain what you DO want. Make the case for Proetctionism:
1) Tells us exactly what the measures would be and what the short and long term effects would be.
2)What would be the overall effect on employment growth in the economy as a whole.
3) Tell us how many jobs have actually been outsourced. Make the case that if a job is lost in America and another job is created in another country it is the same job. Especially answer this question: if 2 jobs have the same responsibilities but pay differently are they the same job?
4) Explain what the balance of payments is, and why a cetain level of trade surplus or deficit is desirable or undesirable. Specifically explain why a trade deficit is bad (does that mean a trade surplus is good?). Explain where the dollars go when somebody in America buys a product made by a “foreign” company. What happens if I buy a Honda that is made in Ohio?
5) Assuming that you don’t like the theories of long dead economists; Step #1: refute their theories. They aren’t wrong just because they are dead are they? If “things are different now” explain why, Step #2: Replace them with another theory.
6) Since you’re defending Lou Dobbs here, why should Mexicans not be allowed to come to America and work for a living, a lot of them doing jobs that most Americans wouldn’t do even if they were starving or unemployed? How much of America’s resources do you want to use to defend a 2000 mile boarder? At what point does the cost of defending that boarder become greater than any gain achieved?
7) On more of philosophical note: explain why, in a free country like America, that citizens, businesses and corporations DON’T have the right to trade with whomever they choose at the price they choose to trade at? Why would the government even come in to that equation at all?
8) Tell me about the Smoot-Hawley tariff of 1930? What happened? Why is today different? Is it OK to erect some barriers against trade but not aothers? Why won’t any country who we target for protectionist measures not retaliate? At what level of protectionism does it start to negatively affect employment and economic growth?
9) When has protectionism ever worked in the world? What was the long term standard of living in these countries? How about employment, job growth and economic growth in these countries?
10) Specicially, most countries in Europe have erected large formal and informal trade barriers to protect against job outsourcing. These measures have been in effect for decades. What have been the effects on economic growth, employment, job creation and entrepreunership? Number and facts please.
11) How does reducing the amount of trade make a country richer? I’m not talking about saving a couple of jobs, I’m talking about the country as a whole. Will economic growth increase or decrease by these measures?
That’s just a short list. Since by implication you have the facts and analysis to answer all of these questions it should be quite easy. I have a feeling each of your answers will bring up a lot more questions.
Unfortunately none of the protectionists will ever be required to answer these questions.
DSpears,
We already have a leaky faucet and your saying that a few more leaks are OK? Are you arguing for or against agricultural subsidies, I’m confused?
Actually, I’m arguing against agricultural subsidies because they are market distorting. I believe that if the subsidies had been eliminated long ago, then developing countries would have had an easier time competing in agricultural markets and our own human resources could have been more effectively deployed. The foreign countries would have been deploying their manpower to lower value things like agriculture. Think of China and the people in the villages. Many of those people leave the villages and go to the big cities in search of opportunity. Do you realize that in the last few decades urbanization in China has increased by more than the total population of the United States? If farming was a viable opportunity I’d venture the opinion that the mobility of Chinese labor would have been reduced, the GDP/cap would have increased, and the average wage of manufacturing would also have increased, thus making Chinese manufacturing less competitive. Meanwhile in the US our labor deployment efficiency would have increased by redistributing people out of a subsidized and inefficient industry like agriculture.
As it is, developing countries look for a way around trade obstacles, like agricultural protectionism, and the oportunities they find are usually higher on the value chain. It takes more resources on their part to climb the economic ladder and muster a sufficient scale of response, but that’s what happened with China’s rise in manufacturing and India’s rise in service.
Classic comparative advantage here. We’ve shot ourselves in the foot by protecting industries that are the lowest on the value chain.
No, they really can’t. In all honesty I have never seen a factual argument backed up by a solid logical argument. The argument against free trade will not be won and lost on the basis of facts. You certainly have presented no facts or analysis with which to even dispute.
Yes, they can muster a convincing argument, it’s just that it doesn’t need a factual or logical basis. It just has to be convincing. You seem to be an economically literate person, so consider that people vote their self-interest. Look at what I call the libertarian comuppance – many of the computer jocks of the late 90’s were rabid libertarians and were quite arrogant about flouting their philosophies. Now that their jobs are threatened some of them aren’t quite so libertarian and are crying for the state to do something. Of course, others are sticking to their principles as their boat is sinking, true to the last. The former group are pragmatic and are puttting their economic interests above their principles, while the latter group have the integrity to stick to what they believe even in the face of the harm that is being done to them. The former group are being the rational economic actor because they are agitating for their economic self-interest, while the latter group are acting against the economic man axiom and are being illogical. Sure, one could say that the latter group is looking at the big picture and hoping to benefit from the downstream effects of comparative advantage, but we all know that there are winners and losers in trade, and the downstream effects are little consolation to the losers. So, those people who feel threatened by outsourcing will act in their economic self-interest and if the polls are a true indiciation of the unease (read the link I provided in the last response), I would expect a political response to win the day because it will be convincing to the voters. You can talk until you’re blue in the face that it isn’t logical or factual, but when a voter is faced with a question of economic survival they’ll grasp the easiest life-ring that is offered.
When you say “our” protectionist opponents, what does that mean?
It means that I oppose protectionism, as I hope I’ve made clear with my answer on agricultural subsidies. If you look back to my first comments in this thread you’ll see that I’m not particularly impressed with Glassman’s tactics. I don’t think that the typical free-trader’s strategy against protectionist threats is particularly effective. Should I just keep my mouth shut and watch as we all engage in incestuous amplification and become ever more oblivious to the traction that is growing for protectionism. If so, then I’ll apologize for disturbing the tranquility you seek, and disengage. Quite frankly, your response to my criticism of the robustness & originality of the defense of free trade is most telling. Brook no question of loyalty for we are pure. Perhaps you’ve seen the same fervor in the deeply religious or the greenest of the environmentalists for I know that I certainly have.
As to your 11 questions, they diverge too far from the theme that prompted me to respond to this thread and they are intellectually dishonest. Why should I engage in reparte on a question that assumes I don’t like long-dead economists? You can vent against protectionism all you like but trying to maneuver me into positions that aid your cause is a tactic that is a waste of my time. If you can’t distinguish what I’m saying about Lou Dobbs as being discernably different from defending him then I think you should work on your reading comprehension. If you want to know about Smoot-Hawley it shouldn’t be incumbent upon me to be your teacher. The internet is a wonderful thing and you should learn to seek the answers on your own. The same for your questions about Europe – if you want to establish causality between job protection measures and economic growth, and the level of correlation between these variables, then you’re free to look for the answers yourself. It really is quite surprising to me that you’re asking me to do your work for you.
In the end it isn’t going to be me who has to answer these questions and become the defender of free trade, it’s going to be President Bush who has to be the eloquent spokeman against his more orotorically skilled opponent, that’s assuming he sheds his RINO position before the election. Recall the goal of the election is to win office, not be a spokeman for economic orthodoxy. Bush needs to find a way to light a fire under people so that they see the benefits of free trade and constrast that with the appeal the Democratic candidate has by speaking to people who are feeling that their jobs are threatened. Is Bush the man to do the job? If so, who can he draw upon to help him craft a message that resonates with the voters? Glassman? If so, then think about what you’re going to be doing when President Kerry is being inaugurated.
Tango,
All of that and I still have absolutely no idea what your point is. But from the evidence I’ll try to piece it together:
That while you are against protectionism you see a tide of opinion forming that is against free trade. You also criticize defenders of free trade for not being able to make effective emotional or political arguments to appeal to an economically illiterate eletorate. You seem to think that arguing economic theory is a loser and makes the free trade position look uncaring and indifferent to suffering.
Ok, I’ll agree that I have seen nobody make a passionate and emotional plee against protectionism that will insight the masses to reject protectionism. I’m not so sure there is an honest argument that can do that (although political arguments don’t have to be honest, consistent or logical to be effective).
So what is your answer to that? You obviously have nothing to offer in that regard either or you would have presented it, right?
Or is your argument that we need to just give up, shut our mouthes so as not to make it worse, accept our fate and hope it blows over without too much damage? I can’t believe you would write 7 paragraphs just to say that.
Are you saying my 11 questions are irrelevant because nobody will ask them during a prsidential election? Unfortunately, I agree.
“Bush needs to find a way to light a fire under people so that they see the benefits of free trade and constrast that with the appeal the Democratic candidate has by speaking to people who are feeling that their jobs are threatened.”
Obviously you don’t have a clue what that “way” is, correct? Neither do I.
I’m not sure if you’re looking have an actual discussion on this subject or just throw rocks, but assuming the former:
My hope is that Kerry isn’t really as protectionist as Edwards has forced him to be. Assuming Kerry wins the nomination, neither Bush nor Kerry have a consistent record on free trade so hopefully neither will want to bring it up. Kerry considers himself to be one of the “itellectual wing” of the democratic party and that wing, especially the non-politician academics and think tankians of which people like Kerry desperately want approval, believe in free trade (in my view it is their one redeeming quality). Most Democratic politicians of the “intellectual wing” are free trade butters (I’m for free trade, but…) mainly to satisfy their Union patronage. Look at what happened to Lieberman when he went national.
What this hopefully means is that aside from some nonsensical, impossible to implement proposals like Kerry’s tax breaks for countries that keep jobs in America (a giant corporate welfare proposal if I’ve ever seen one) and some condemnation of evil CEO’s who outsource jobs by both candidates (where Bush turns around again and brags about his disasterous (economically) but brilliant (politically) steel and lumber tariffs) but really no substance. Politically, Mankiw’s statements aside, this issue really is a wash for both candidates.
In short I’m hoping all of this will blow over as it did in the early 90’s.
If Edwards gets the nomination then we will have a full-blown debate on trade, and free trade loses. Free trade loses not because there isn’t a good logical case to be made from it or even because Bush can’t make that case.
It’s a loser becasue, as all Libertarian, small government arguments are, it will be a contest between real world free trade where the downfalls are obvious and the benefits diffuse, and ideal government that can wave a magic wand and fix everybodies problems with no side effects.
Throughout history that debate has almost always been won by ideal government.
The point of my 11 questions was to move the debate away from real free trade vs. ideal government, to real free trade vs. real government (not to have somebody do a research paper for me). Real government involves setting priorities, raising taxes or borrowing money, restricting liberty, and numerous side effects which could actually lead to less employment, higher prices and higher taxes.
That is the only hope to actually win the argument. The only alternative is to lay low until it blows over.
DSpears,
When you write that you have absolutely no idea what my point is, you betray your very statement by accurately summarizing what is, in fact, my point.
I do think arguing economic theory is a losing proposition. The audience that is most attentive is one that is already convinced, in my opinion of course.
The audience that needs to be convinced is very prone to confusing conparative with absolute advantage. Theory is simply too abstract and what is needed is an approach that makes people feel like winners, or at the least, less like losers and gives them hope of being winners in the future.
I think economists need to try other approaches to see what actually works at getting a message across. Also, they need to acknowledge that while wealth increases by trade, that it isn’t distributed equitably. Capital is by far the winner. There is little incentive for the average Joe to back free trade so that the advantages will flow to the holders of capital. What’s in it for him?
What bothers me about the state of defense of free trade is the dogmatic flavor of it. I wan’t joking about comparing the free trade believers to the environmentalist watermelons. I’ve attacked the watermelons for their religousity and it seems to me that free-traders are going down that same road. There is some truth to the environmentalist’s concerns but they’ve pushed the envelope and extrapolated too far and adopted a whole philosophy around the basic demonstrable facts. The free-traders are starting with good theory and taking it too far in their pronouncements and wrapping it all up as part of their identity. Their is some appeal to the rugged individualist ethos but as some programmers are finding, the ethos loses its appeal when you’re the one that is the loser on the trade equation.
Glassman, as he comes across to me, seems full of bravado and acts like God himself whispered the TRUTH to him. I absolutely do not think he convinces one person who is sitting on the fence.
Actually I do have some ideas on how to proceed but they are quite involved and this conversation with you has prompted me to actually put them down into a series of posts that I’ll post over at GNXP in the near future. The unfortunate thing is that I can’t summarize them succinctly because they need to be laid out premise by premise, where each premise is debated until the skeptics either buy it or not and then proceed onto the next issue.
To give you an idea of what I mean, consider some of this data that I’ve already compiled as I’ve questioned some of my beliefs about free-trade. Yes, I actually like to look at empirical evidence to see if it supports the theory :))) LOL
In 2002, the US exported $682 Billion in products and $292 Billion in services. In the same year it imported $1,165 Billion in products and $227 Billion in services.
Here are the top 10 Countries with which the US has a trade surplus on November 2003 and the year-to-date surplus amounts to $29.9 Billion.
We also need to look at privatizing Social Security, implementing a Negative Income Tax based on consumption, developing a demographic policy, rationalizing immigration policy, imposing lifetime limits on subsidized medical care, introducing privately operated voucher schools and reducing the influence of teacher’s unions, refocusing education on a different pedogogical model, introducing national health care insurance and letting the marketplace profit from the delivery of care and not the insurance of health, we need an energy policy and foreign policy that are coordinated, eliminate many trade barriers for agriculture and low value industries and on and on. You can see that most of what I have to say is recognizing the power of markets and trade, but just because one has a trade & market hammer, doesn’t mean that every problem is the nail on which the hammer must be used, ie. health insurance.
Back in the day, GNP, rather than GDP used to be the metric of national wealth that was used. No longer. I’m sure it’s strictly a coincidence that the switch occured at about the same time that GNP started to actually be less than GDP. If you’re unclear as to the distinction that I’m driving at, in plainer terms, a portion of the wealth that is created in the GDP is shipped off-shore and doesn’t benefit Americans. So when you see the GDP/capita figure you have to account for an ever rising portion of that wealth going to foreigners. Last year, US owned assets abroad decreased by $179 Billion and Foreign owned US assets increased by $707 Billion. Do a little digging and you’ll see that more and more of our national wealth is not owned domestically.
Yes, I’m aware of the fact that all we owe the holders of greenbacks are pieces of paper, and what we get in exchange are products to consume, but that only works so long as other countries need dollars to buy oil. If OPEC adopts the Euro as the benchmark currency then the demand for dollars drops and other problems ensue.
The social welfare state as it is currently constructed is bankrupting us. You’ll note that I didn’t say we should get rid of it entirely for I don’t think the voters would go for that. What I think can be done is to reorient the social welfare so that it is allocated more as an investment in people rather than a money pit dedicated to non-productive personal uses. This will take a few decades to bring about because you have to give people warnings so that they can reorient their own strategies for the future.
I’ve actually analyzed SITC statistics and found that of the 263 classifications, the US has a positive trade balance to the world in only 99 of them.
You’d be surprised at where the US competitive advantage lies. Hint: Not high value goods. Yes, I know that we’re now primarily a service economy and our exports of services is positive, but the competitive advantage there is not as easily defensible. I’ll lay out all of this data when I write my posts.
Please, do not by any means take these snippets I’ve offered as being a comprehensive response to your question of whether I have a plan to counter the ineffective defense offered by Glassman et al. I only offer these snippets in support of my contention that what I have to say derives from multiple threads and builds from the ground up through an empirical examination of how well the US is faring with its current economic policies.
I think much of it jibes with libertarian principles, but I do diverge on some fronts where I think that the strengths of government actually help more than hurt.
Lastly, I offer a point for you to think about. Much of trade today is the result of Just-In-Time manufacturing processes, where rather than manufacturers investing in inventory assets, they’re investing in delivery process, and JIT relies heavily on taxpayer subsidized ports, bureaucracy and transportation infrastructure. Why is the taxpayer involved in subsidizing the infrastructure to reduce inventory costs for manufacturers? If the private sector had to shoulder the full cost of the JIT infrastructure would there be as much appeal to off-shoring manufacturing and then re-importing the finished products? See, one appraoch is to lessen gov’t subsidies and allocate costs more fairly. Of course, I make the same caveat here: this is only a snippet of a more complicated thesis so yes, the faults are easier to pick out because it’s not yet fully articulated.
I hope this response serves as an indication that I’m at least thinking about possible solutions rather than just criticizing those (Glassman and many economists) who are defending against protectionism with their ineffective tactics.
As you no doubt can discern, I take a different approach than what you set out when you wrote “That is the only hope to actually win the argument. The only alternative is to lay low until it blows over” for I don’t think it will blow over and I think our existing trade and social policies have gotten us into this mess and we need a new set of policies to make us more vigorous competitors in a free-trade world.
I’ve asked this question 500 different ways and have never gotten a satisfactory answer:
Why is a trade deficit worse than a trade surplus? Don’t they both have advantages and disadvantages? At some point somebody has to explain why the US has run a trade deficit for 20 years and the doomsday scenarios have never happened. Over that period the US created something on the order of 30 million new jobs, so it can’t be all bad.
Look at Japan who has run chronic trade surpluses with the world for decades: They have been “exporting” jobs for 20 years.
The trade balance with the US is a good example: Every major Japanese industrial company has at least one factory in America, most several. Those factories are all creating jobs in America that could potentially be looked at as being “stolen” from Japanese workers. I don’t know the numbers but it has to be in the hundreds of thousands if not millions, orders of magnitude greater than the number of programming jobs going to India for instance.
Now the reason these plants were built is because these Japanese companies had to do something with the dollars they were getting in exchange for imports. Their government severely restricts imports to protect it’s industries (and it’s jobs) so they can’t simply trade back all of the dollars for US goods, even if they wanted to. So they have to invest in dollar denominated securities in order to get a return on their money. Since the mid 80’s interest rates have been steadily going down in the US, so government debt investments weren’t yielding what they were in 1981.
So they built factories and hired American workers. Being Japanese (JIT and all), they also brought along a lot of their suppliers who also built factories nearby these plants. They get a steady return on their invest over t-bills, they reduce their transportation costs in the meantime and they create jobs in America instead of Japan. Who is “stealing” jobs?
The argument against this is that the profits go to Japan, but those profits are in dollars, so the cycle starts all over again.
I’m not so sure I see America as the loser there, at very worst it’s trade off with some good some bad. Regardless, our trade balance is determined as much by the protectionist policies of our trading partners than anything we have done. Meanwhile Japan is in a decade long malaise that I think could be easily corrected by doing the one thing that they think would ruin them: Open their markets to foreign goods to get people spending again.
Or they can keep investing in America instead of their own country.
Where am I wrong?
One last thing:
My own pet theory is that the economic idea that a trade surplus is universally good and a trade deficit is universally bad is a relic of the Gold Standard. The zero sum game that set up menat that with a fixed supply of gold, if you give me gold I can invest that gold in my own productive capacity instead of being forced to rid myself of your currency. Maybe I missed something.
It is wrong to say unequivocally that capital is always the winner. A similar argument was made by Ricardo 2 centuries ago regarding rent vs. labor in the 19th century. He thought rent (land owners) would be the big winners but labor turned out to be the big winner in the 1800s.
I do think that economists should use other tactics to make the argument but I do not accept the claim that equality of outcomes is a good thing — ever. It is not something we need to promote.
The truth is — all trade, technological change, heck even sitting still has winners and losers.
On the whole free trade maximizes net gains. Everything else (including distribution) is wholly unpredictable. And some people will get hurt in ways we can’t do anything about. Only openness maximizes gain without solving the problem of who is hurt.
For long run reasons, we need to promote that point of view. But because it is not politically convincing I am willing to support other arguments in its favor — even duplicitous or inaccurate ones.
Because in the long run we almost certainly lose from serious protection.
(But I also do not rule out the viability of mild protection successfully blocking extreme protection in some political environments. Indeed, research I’ve done — and I won’t tell you who I really am — suggests that GWB’s steel tariffs minimized actual protection while maximizing his political gains from a subset of the heartland. Thus a bad policy whose bad effects were purposely minimized on the sly for political gain.)
DSpears,
Why is a trade deficit worse than a trade surplus? Don’t they both have advantages and disadvantages?
A trade deficit is no better and no worse than a trade surplus. Yes, each has its own advantages and disadvantages. What becomes a problem is the sustained trade deficit of decades duration. What becomes a problem is the scale of the deficit becoming ever larger. Think about this for a moment. You acknowledge that a deficit and a surplus each have their pluses and minuses. We haven’t received any of the pluses of a trade surplus in over a generation.
At some point somebody has to explain why the US has run a trade deficit for 20 years and the doomsday scenarios have never happened.
Because the dollar is an international currency. Every country in the world needs to have dollars in their national treasuries because they need to import oil. They’ve earned these dollars in a variety of ways, one of which is the trade surplus that they run with the US.
What would happen if they didn’t need as many of those dollars because OPEC set the Euro as the benchmark currency? The demand for dollars would drop. Import prices would rise because the dollar’s value was low. At the same time the Fed would raise interest rates to boost the value of the dollar. And you know the rest.
The countries that have run a trade surplus have used their dollars for their oil accounts and used the surplus dollars to invest in US assets or US dollar demoninated assets. That’s a good thing in that it props up the value of such assets by the fact that there are more bidders for them. It is a bad thing in that these assets are usally productive and they are owned by foreigners. At the same time the composition of most of the trade deficit that the US runs is for consumable goods (you can find out more by looking at the national accounts – look at the figure in my previous comment where I detail the contraction of US foreign investment and the expansion of foreign investment in the US). Here’s the bottom line: The US is trading its wealth (or equity) for goods. Foreigners are buying productive assets of the US which increase their wealth over time. I recognize that there are limits to drawing analogies between households and countries, nevertheless in this case it may serve to illustrate the key point. A family keeps refinancing their home to go on trips to Europe or to buy a new car every three years, or to have the disposable income so that they can afford a pedicure every week as well as new clothes. They can do this against the rising value of their home only so long as they can afford to make the monthly payments. If they are on the edge and interest rates rise, then unpleasantness follows.
When you see the GDP/capita figure as a sign of national wealth, well that’s simply not true. It is a sign of productivity. The value that is created in the US by its workers. The way that value is distributed is referenced by GNP/capita. Our GNP/capita in relation to GDP/capita has been decreasing over the last few decades as more of the wealth producing assets of the US are owned by foreigners.
You may have read about the post-war phenomona in other countries where they had Foreign Investment Review Boards. There were both good and bad sides to these creatures. By allowing foreign investment into a country, wealth was created and shared in the country. The bad, by some people’s reckoning, was that a good portion of that wealth accrued to foreign capital. When the US GNP was greater than GDP, the US was mainly a beneficiary. Now, the wealth is seeping out of the US and the tables have turned. Don’t get me wrong: there are positive benefits to investment in the US. Wht would be better is if those investments where made by US capital so that the wealth aided the country.
Mull this over for a bit: If debt and trade deficits are of no consequence, then why are people down on Argentina’s currency? There is a fundamental difference between the US and Agentina. US dollars are demanded. If they demand abates, then the fundamentals between the two countries come into stronger alignment (which doesn’t immediately equate to the same outcome though.)
Look at Japan who has run chronic trade surpluses with the world for decades: They have been “exporting” jobs for 20 years.
Also look at how large Japan’s oil reserves are? :))) Simply they need to earn dollars. Also, Japan’s productivity is very impressive, which leads to a higher value for the yen. This higher value yen impinges on their ability to competitively export (same as the US) so they export jobs (outsource) rather than import workers (for cultural reasons.) There a many intertwined threads at work here :) Note though, that when they do export their jobs to the US, the profits of their enterprises do not belong to the US economy.
Now the reason these plants were built is because these Japanese companies had to do something with the dollars they were getting in exchange for imports.
Also, many of these plants were built because the trade balance with Japan was to one-sided and US protectionist measures forced the hand of the Japanese in building plants in the US to avoid import restrictions. It’s true. So in this case, was protectionism a bad thing? Now that those plants are in the US, they are a sunk cost for the Japanese and are not as fungible as a T-Bill. At least more of the value of the end product (let’s say cars) stays in the US, while the profits leave. Yes, before you issue the rejoinder, the protectionism raised the price of the cars that could have been built elsewhere and thus we all would have benefited by the downstream effects. True, true, true. Here’s the thing though, the certainty of the value that accrues to the US is more certain with the plants here. The value saved by not having plants here and importing lower priced cars could be allocated across a large spectrum. If there are lots of competitors for the imported autos, the value may all go to the consumer because of price competition. If there is less competition then the value would accrue more to the producer. Think of Microsoft and the cost of software. The price has nothing to do with the cost of goods sold – it has to do with what the consumer is willing to pay. You can take this example further than MS, and apply it to non-monopoly software.
Also, keep in mind that those dollars that go offshore and are recycled back into the US are buying our financial assets, which is a benefit to us. If in the future, faith is lost in the security that the US offers, those same dollars can be used to buy IP licenses, raw commodities, oil surpluses for strategic reserves. They can trade the dollars for tangible reserves that can be transformed to value in order to earn other currencies.
So they built factories and hired American workers. Being Japanese (JIT and all), they also brought along a lot of their suppliers who also built factories nearby these plants. They get a steady return on their invest over t-bills, they reduce their transportation costs in the meantime and they create jobs in America instead of Japan. Who is “stealing” jobs?
Very true! The one thing that I would point out is that the circumstances you’ve portrayed here need not continue into the future. As the fiscal situation in the US deteriorates the appeal of the US will diminish. Recall that a US dollar can be traded for tangible assets. If there is a flight from the dollar because of devaluation then money supply will fall and economic activity will slow. Also, the ROI on investments may turn out to be more beneficial overseas (off-shoring) so the flow of dollar investments that you’ve seen in the past may not be continuing into the future. Back to the household analogy. Take a series of snapshots of the familiy’s finances over time and that won’t have too much predictive value if external factors change (rates rise, lost job, health crisis, etc)
The argument against this is that the profits go to Japan, but those profits are in dollars, so the cycle starts all over again.
It only starts over again while the players want to keep playing the game. Meanwhile, to finance our consumption habits, we’re refinancing our houses. Our wealth as measured by investment assets is being traded for enjoyment of goods.
You’ll note that the recent devaluation of the dollar has made imports more expensive, exports more competitive, has cost the countries holding dollar reserves a lot of lost value, and that our oil prices have risen while in Europe they’ve stayed flat. Further, many industries in the US that could have been boosted by a fall in the dollar are now less competitive because they’ve been eviscerated over the decades by foreign competition.
I’m not so sure I see America as the loser there, at very worst it’s trade off with some good some bad.
True I suppose. America gets to feed its consumption habit while selling its productive assets to feed the buying binge. Yes, we get lots of stuff and at very good prices, and this makes us happy. That’s good by many people’s values. As for the bad, I think I’ve pointed out above some of trade-offs we’re making.
Open their markets to foreign goods to get people spending again.
Inpart I would agree with you that many countries have closed their markets. However, there is no simple panacea here. If these countries start spending again then they will have less savings. If they have less savings, then who will lend Americans the money they need to spend as they’ve grown accustomed to? Americans absolutely need foreign savings to finance their lifestyles.
Lastly, you’re right that the gold standard thinking is being applied by many. This mercantilist mindset is pervasive. However, keep in mind that there is a difference between a deficit and a sustained, or structural, deficit. Oscillating between trade surplus and deficit is terrific because the country gets the benefits and drawbacks of both rather than just those from one side of the equation.
Coming back to Dobbs and Glassman. Dobbs is tapping into a mood out there where people are worried. Many of those people see risk to themselves and don’t understand the structural underpinnings of what’s going on. They only see the immediate actions that are a result of the underpinnings (outsourcing.) I’d venture the guess that many of those people are in debt up to their eye-balls from home refinancings that were used to buy the life-styles that they’ve grown accustomed to. I don’t think Dobbs is against trade, I think he’s against fiscal irresponsibility that leads to structural weakness. One of the manifestations of that weakness is the problems we’re having now. Glassman is fighting against the protectionists who are completely self-interested. He’s not doing anything to correct the structural weakness and the position he advocates, while correct against the opponents, is ineffective for the problems at hand.
Those who point to off-shoring aren’t all self-interested protectionists. They’re looking for some sort of economic triage to get the country back to strong fundamentals and very competitive and then offering little mollycoddling for the uncompetitive businesses.
Trade creates wealth, and generally most people benefit. However, there are some extreme winners and some extreme losers. I’ll ask you a hypothetical question that I think is unstated in the Dobbs-Glassman debate.What if they US is losing the game because it is being outcompeted by others? Here is a need for a value judgement: are the rules of the game more important or is it more important that the US find advantage?
JJ,
ON careful reading of my comments you’ll see that you’re arguing positions that I didn’t put forth. Perhaps you feel that there is a need to stress your points for their own sake. That’s how I’m taking your comments.
It is wrong to say unequivocally that capital is always the winner.
I’m not saying it is unequivocally the winner. I’m saying that in the recent past the gains are going primarily to capital. I’ve looked at the national accounts and the share going to labor isn’t rising as fast as that to capital.
but I do not accept the claim that equality of outcomes is a good thing — ever.
Neither do I. Equality of opportunity though, is absolutely necessary in order to maintain the support of the masses. There needs to be stronger income mobility than there currently is. Equality of outcomes will completely gut the work ethic and the striving that brings value to the economy. Opportunity gives hope to all and no one feels that the deck is stacked against them. This way all can buy into the system. It really isn’t far-fetched to see the outcomes where opportunity is denied to people. Revolutions abound.
But I also do not rule out the viability of mild protection successfully blocking extreme protection in some political environments.
In this case you set yourself apart from Glassman and his ilk. You can look beyond rigid ideology and do the triage that I referenced in my comments to DSpears. Here’s what I think is important though: If such mild protectionism is to be implmenented, let there be some rationale for it rather than just delaying the inevitable. Let it work to our advantage. In some cases, I would be for protectionism of infant industries rather than letting them be swamped by stronger foreign competition. Such a case isn’t all bad. Agriculture, OTOH, is a losing proposition. Same with textiles, etc. These are all low on the value chain. Protectionism in these cases is a loser for the whole nation.
Creative destruction is to be encouraged. We need to though, do our best to insure that we, and not others, are the ones that emergy higher on the value chain.
This is where you confuse me. With all due respect, I think you have the roles reversed here. How somebody could spend as much time and thought about economics and then come to these conclusions just baffles me:
“I don’t think Dobbs is against trade, I think he’s against fiscal irresponsibility that leads to structural weakness. ”
I seriously think you need to watch his program. I think you will change your tune. Dobbs’ 2 main issues are stopping immigration and demonizing CEO’s who “think only of their own profits”. I see nothing in what he says that is constructive. I won’t go into the usual list of suspects throughout history who have “tapped into moods” of people by feeding on their rational and irrational fears, but I don’t see a shread of anything constructive in his message. Watch his program all the way through every night (I did) for a week. You won’t be enlightened, you’ll just end up angry, either at him, or at the evil CEO’s of the world.
“Glassman is fighting against the protectionists who are completely self-interested. He’s not doing anything to correct the structural weakness and the position he advocates, while correct against the opponents, is ineffective for the problems at hand.”
I disagree. Glassman may or may not be effective in his arguments, but from reading a lot of his work over the years I will just say you are mis-characterizing him. But I’m not interested in mounting a spirited defense of him, that’s his job.
Now to economics:
“Also, many of these plants were built because the trade balance with Japan was to one-sided and US protectionist measures forced the hand of the Japanese in building plants in the US to avoid import restrictions. It’s true.”
That would be a much more convincing argument if we were talking about a couple of token plants built to quiet criticism. It doesn’t explain why they continue to this day to open more and more manufaturing in the US. Becasue they have no other choice is the real answer.
“What would happen if they didn’t need as many of those dollars because OPEC set the Euro as the benchmark currency? The demand for dollars would drop. Import prices would rise because the dollar’s value was low. At the same time the Fed would raise interest rates to boost the value of the dollar. And you know the rest.”
But in that scenario exports would increase, imports would decrease, the trade deficit goes down, and we start to get the benefits (and problems) of a trade surplus which we have missed out on for so long. We now have a surplus of capital, which we have to invest in foreign countries, although supposedly we’re richer, even though we have to now keep investing abroad so get the profit, but not the benefit.
“If these countries start spending again then they will have less savings. If they have less savings, then who will lend Americans the money they need to spend as they’ve grown accustomed to? Americans absolutely need foreign savings to finance their lifestyles.”
Those savings will now become our profits as the trade deficit shifts in our “favor”. You are attributing all of the bad attributes of the situation while aknowledging none of the benefits. But if we don’t have foreign savings but we do have foreigners buying our goods ina greateer number than we buy theirs, then our industries are more profitable. The situation reverses and our old problems go away and we take on the new problems associated with a trade surplus. Everything gets more expensive in America but our savings rate goes up. Good and Bad.
There is a symmetry to this. Some good, some bad, neither situation is entirely preferable to the other.
Which gets back to my larger point:
There is no reason to actively do anything to correct the trade balance because the cure is most likely to be worse than the disease, and the condition you are in after the “fix” is no better, just different. That is the argument against protectionism: you won’t make anybody better off, just differently off. And that’s assuming that the “cure” doesn’t end up hurting economic growth. History should make you paricularly wary of the latter.
Now, I’m not arguing against a lot of your proposals but those things should be done whether we have a trade deficit or trade surplus. It’s really a competitiveness arguement. But we should become more competitive regardless of the balance of trade. That’s not the motivation for your proposals, correct?
Every decade or so America has to go through a process where it really doubts itself. So far, before the benevolent masters were through designing us a better system they were left by the wayside because the market demonstrated that it didn’t need them.
DSpears,
I seriously think you need to watch his program. I think you will change your tune.
You may be right. I certainly never intended to be drafted as a defender of Dobbs. I’ve watched his program a few times to get the flavor of his position. I’ve read Glassman pretty regularly. My first response to this post was that Glassman was talking past Dobbs with his Rogues List Returns. That was my criticism and I’ll retreat back to that position which I think was accurate and defensible.
If Dobbs truly is demogoging the issue then shame on him. I was using him for a proxy as a spokesman for a larger concern. I’m not sure what he actually stands for, and as you correctly pointed out with respect to Glassman, it is for Dobbs to defend his reputation. I do however stand by my criticism of Glassman’s list not speaking to the concerns about off-shoring and that there are critics who value American interests over the free-trade principles that may be working to the long-term detriment of the US because we’re not structured to reap the benefits that we should.
But in that scenario exports would increase, imports would decrease, the trade deficit goes down. . .
Inflation would rise. Interest rates would rise and slow growth. Exports of existing competitors would increase but for industries that were gutted over the past decades they’d be ineffective in taking advantage of currency swings. How many TV set plants are there in the US? As for imports declining, well that’s the flip side of the exports equation. If you need a TV set, and there is no domestic alternative, then you’ll buy a foreign one, and pay the higher price. Whole supply chains have been gutted in the US and are not easily replaceable. Over time they could develop.
It doesn’t explain why they continue to this day to open more and more manufaturing in the US. Becasue they have no other choice is the real answer.
I’d appreciate if you could fill in the blanks here for me. Your statement doesn’t seem congruent with what I know and what theory says should be happening. I’d welcome contra-examples as challenges to the problems I’m seeing. If there is a manufacturing flight from the US in search of lower costs in other countries it would be startling that foreign companies are matching the US outflow with a manufacturing inflow to the US.
When you write that they have no other choice, I’d also request some more background on what you mean by this. If you’re alluding to the surplus of dollars that they’re holding, I’d be curious how you view that as having no choice when I’ve show you a way to divest out of dollars by buying tangibles. Of course, I’m just stabbing in the dark with my guesses as to what you mean. It would be best if you could elaborate in your own words.
There is no reason to actively do anything to correct the trade balance because the cure is most likely to be worse than the disease . . .
We’re trading wealth for consumption and the alternative is to invest and consume less. Investment offers returns and compounds and leads to more wealth. Consumption leads to instant gratification but offers no returns for the future.
Could China grow its way to parity with the US by increasing its consumption levels and neglecting its investment levels?
You’re right when you say there are trade-offs. However, I would respectfully disagree with your assertion that a trade surplus would yield a worse result. The key as I’ve said before is the structural and seemingly permanent nature of the deficit.
In the end, I suppose it comes down to where on the curve you would place your need for instant gratification. The opportunity cost of satisfying that gratification is foregone investment opportunities. Keep in mind that it will be a solid investment base that will pay for future retirement and medical costs, not the consumption of today.
I know you’re catching the distinction when I’m writing about investment but for others who may be joining the thread at this point I’ll make my point clearer. There is no shortage of investment in the capital markets. Investment also occurs in other spheres and the origins of those investment dollars is what is pertinent.
It’s really a competitiveness arguement. But we should become more competitive regardless of the balance of trade. That’s not the motivation for your proposals, correct?
Yes, it is a competitiveness argument but I don’t see how we can become more competitive and innovative without investment. We’re lacking the resources to make societal readjustments because we’re more focused on consumption and with a trade deficit being a symptom of that consumption and the rest of the world financing that consumption we’re heading down the wrong track.
I sincerely hope you’re catching my point that the calls for protectionism we’re seeing are a symptom of larger forces. To remedy the structural problems with protectionist measures is just going to cause more havoc and in the long run will not realign the competitive strengths of the US through creative destruction, it will just lead to ossification.
The welfare state as we know it is a drag on the economy and should be redirected. A libertarian might say it should be eliminated, and while I wouldn’t disagree, I don’t think it’s likely, so I’d rather advocate for more rationality.
I have my doubts that the status quo is going to lead to greater wealth and investment as a nation. Keep in mind the GNP argument for that is often lost in the debate with reference to specific instances of companies investing in the US. For all of those Japanese companies investing in the US, which is a terrific trend, keep in mind that when the structural foundations were stronger, it was American companies doing the investing here and abroad.
Here’s an interesting article along the lines of our recent topics.
“If there is a manufacturing flight from the US in search of lower costs in other countries it would be startling that foreign companies are matching the US outflow with a manufacturing inflow to the US.”
Is there really “manufacturing flight” from the US or is it just a lot of hysteria over a very small trend. I believe the latter. You obviously have more time and resources than I do to do economic research. If your thesis is based on the idea that manufacturing is rapidly leaving the US, it aught to be easy to prove. You also need to define “rapidly”. If you are going to try to fix a problem step 1 is prove that the problem you claim to fix really exists.
I have read several articles very recently using actual numbers that say that for any small number of US jobs going overseas in very labor intensive, low-margin areas like textiles (long overdue), there are many more jobs being created by foreign nationals like the Japanese and Germans. Every state in the Southern United States has a foreign auto manufacturing plant in it. Toyota (Kentucky), Honda (Alabama), Nissan (Tenn.), Mercedes (Alabama), BMW (SC)….and that’s just the ones I can think of off the top of my head. All of these were built in the last 5-10 years. Seimens employs 60,000 people in the US when German job growth has been stagnant for decades. These are all admittedly anecdotal, I will try to dfind more info later when I have the time.
The Economist article you dismissed as irrelevant made some of these same arguments, with numbers to back them up. Go read it again.
That is the whole crux of the argument that the defenders of free trade are talking about: Most of the concern is misplaced. It’s not backed up by facts. I can think of no worse outcome than using teh heavy hand of government to solve problems that don’t exist. Government isn’t even vry good at solving the problems that actually are problems. THAT’S the whole issue.
That’s not an argument against making some the changes you advocate, but without trying to burst your bubble, none of what you propose has a snow balls chance in hell of getting done in Washington, in the near future anyway. But the protectionism which you don’t seem too concerned about does. The mild protectionism you are not that worried about will probably make the passage of most your proposals less likely anyway. Economic cycles have a way of working themselves through, leaving the politicians thinking that what they did to “fix” the situation actually worked, and that if it worked then we need more of it to keep working. Something to think about.
Something else to think about: Maybe it’s just the Libertarian in me but economically I find it difficult to make a distinction between who is “us” and who is “them”. So trying to engineer wins for “us” instead of “them” is not as clear cut as you might think. If a Japanese car company employs US workers and sells it’s good in dollars to Americans, are they really “them” or have they become more “us”? Or are they a little of both? The people who are arguing against things like Indians doing “American” IT jobs are putting the companies that outsource in the “them” category, although you apparently would put them in the “us” category because the profits end up in the US. It’s not really so cut and dried is it?
If you can’t determine who is “us” and who is “them”, how can you ever craft government policies that benefit “us” and don’t benefit “them”? Why would you even want to?
Is there really “manufacturing flight” from the US or is it just a lot of hysteria over a very small trend. I believe the latter.
I respectfully disagree. The data abounds. I just Googled the news today, and came up with this report where 3 manufacturers are interviewed and they have a pretty good take on NAFTA, because they can compete with Canada and Mexico, because of similar labor costs, taxes, standards, etc. but are finding China to be formidible.
Every state in the Southern United States has a foreign auto manufacturing plant in it. Toyota (Kentucky), Honda (Alabama), Nissan (Tenn.), Mercedes (Alabama), BMW (SC)….and that’s just the ones I can think of off the top of my head.
I Googled and came up with this report on a auto parts factory setting up in West Virgina.
In addition to the $14 million in aid to create 148 jobs, the state is involved in the land transaction:
So, the company will invest $27 million in plant and equipment. It will get $14 million in grants and $6.3 million in sale-leaseback proceeds. It’s out of pocket expense is $6.7 million. Not bad. It’ll get a lease for $1.95/ft^2 while the market rate seems to be $6.50/ft^2, be able to purchase the property back for only it’s appraised value and get 21 acres of property for free. Not bad at all.
This is typical for such proposals. If you look at the deals for the BMW and Toyota plants you’ll see the incentives go into the hundreds of millions of dollars and also are tax exempt for decades.
In 2001, 58.3% of GDP was directed at employee compensation. For agriculture compensation amounted to 40.9% and for mining 28.5%. Construction compensation was at 65.2%, while manufacturing compensation accounted for 66%.
With manufacturing having such a high payroll ratio, it’s obvious that there will be enormous pressure to reduce that cost center. Offshore labor, even if it is less productive, is less expensive. The trick is that the offshore labor has to be more productive in proportion to their labor cost differential. If Chinese labor is only 5% of American labor, then Americans have to be 20X more productive than the Chinese workers in order to be competitive. That usually doesn’t happen.
Read this to get an indication of some of the anger out there.
but without trying to burst your bubble, none of what you propose has a snow balls chance in hell of getting done in Washington, in the near future anyway.
Too right!!! :) :)
For anything to be done we’ll have to be facing a crisis of some sort.
Look how bad inflation got in the 70s before Volcker responded.
ISTM that corrective action started in moderation would do less damage than severe responses after the crisis.
However, I agree with you, for I think it is human nature to ignore the unpleasantness until it is inevitable.
As for your us versus them comment, I suppose that it is the Libertarian in you that is the root of the question. If you live in the US, then your fellow citizens are the us.
I’ll tell you this though, any time I found the opportunity to introduce an offshore link into a value chain, I advised my clients to structure it because by playing with transfer pricing we are able to retain earnings in more tax-favorable jurisdictions.
More and more globalization is weakening the power of governments. That may appeal to you as a Libertarian for you probably feel, as I certainly do, that governments interfere in too many areas of our lives. The flip side though is that the gov’ts lose their power to tax. Perhaps you feel that taxes are just costs that are passed onto consumers, and thus corporations can’t really be made to pay a tax. I see this canard often enough. It is a fallacy based on a closed system analysis. If the corporation, and its shareholders, are resident in one jurisdiction with the consumers, then it is true that the incidence of the tax is transferred to the consumer. However, when operations of the corp are international, then the tax revenue that is generated comes to the base country.
In very broad strokes, the us is what GNP measures and the them is what GDP measures.