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“Free Trade” – I Told You So

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Samuelson is finally coming around to my way of thinking on "free" trade, not yours.

That’s Nobel winner Paul A. Samuelson, one of this country’s top trade economists and the guy who invented modern economics. Now all of a sudden:

eminent economists such as Paul A. Samuelson are beginning to question the basic tenets of free-trade theory. Is it possible that David Ricardo’s economic analysis doesn’t work for the 21st century? [Business Week 12/06/2004 subscription] (Story links open in new windows)

Damn right it doesn’t – I’ve told you that more than once.

Unfortunately, being able to say that doesn’t make me feel as good as it should. For one thing, Samuelson’s probably going to get credit for the idea, not me.

For another, we have a real problem here, a problem that Washington policy makers and the elite on The Street won’t even acknowledge, much less want to do anything about.

Why are they ignoring it, you ask?

Because they’re greedy, I reply:

the great fear among economists is that if too many high-tech manufacturing and sophisticated service jobs shift to China and India at the same time, wages will fall in large segments of the American economy. Whole sectors could be hit hard. Then the benefits of the China trade would accrue to corporations and investors only, not to the workers or consumers. [Ibid. ]

Fear no more, economists, because it’s happening right now, even as you sit there, just starting to wake up to the issue.

Yet so far, nobody who might be able to do anything about the problem has moved a muscle in its direction because they’re all doing fine (mighty fine, thank you).

Sure, wages have fallen for about a quarter of the labor force.

But corporate profits (and the insanely misleading measure of "productivity") have been climbing for Wall Street and the wealthy elite (like your Congressman and mine). They just puff on their stogies and take another sip of latte as their limos cruise through town.

Now, though, they’re starting to worry – slightly – because their greed is starting to show:

If blue- and white-collar employees alike are thrown into the global labor pool, a majority of workers could end up losing more than they gain in lower prices. Then the benefits of increased trade would go primarily to employers. "It’s entirely possible that all workers will lose and shareholders will gain; you have to be concerned about that," says Harvard University trade economist Dani Rodrik. [Shaking Up Trade Theory Bus. Wk. 12/06/2004 subscription]

"If" my foot – it has happened and is happening, and the increasing flow of white-collar jobs off-shore will only accelerate the process.

Today, even R & D is moving out of the US, so we’re not going to save ourselves with "creativity and innovation." That’s just pap corporations have been feeding us to keep us calm as they picked our pockets and re-invested the money overseas.

You should be afraid, very afraid, for yourself, and your children, and their’s:

The more jobs that go, the greater the impact on U.S. wages. Already, some 14 million white-collar jobs involve work that can be shipped electronically and thus in theory could be moved offshore, according to a study by economists Ashok D. Bardhan and Cynthia A. Kroll at the University of California at Berkeley’s Haas School of Business.

The hit to wages could be powerful if that happens. Forrester analyst John C. McCarthy identified 242 service jobs as likely to be affected among the 500-plus major occupations tracked by the Bureau of Labor Statistics (BLS). He ranked each by the share of jobs employers are likely to shift abroad by 2015. His conclusion: The cumulative job outflow will total 3.4 million over that period. That comes to 6% of the 57 million people who work in these 242 occupations today.

If that’s in the ballpark, U.S. white-collar wages would get whacked, says Harvard University labor economist Lawrence F. Katz. [Shaking Up Trade Theory]

Once the jobs are off-shored to improve corporate profits, workers end up on the really short end of the stick:

Another way economists gauge the potential wage impact is to look at examples of how people fare when they lose a job and extrapolate for those who might get displaced by offshoring. Turns out that just 30% of laid-off workers earn the same or more after three years, according to a study of 22 years of BLS data by economics professor Lori G. Kletzer of the University of California at Santa Cruz. Only 68% even hold a job at that point, while the rest are unemployed, retired, or perhaps at home with children. On average, those reemployed earn 10% less than before, Kletzer found.

"Clearly, offshoring will be bad for U.S. wages, given what the job displacement numbers tell us," says Princeton University economics professor Henry S. Farber, who has written extensively about displaced workers. [Shaking Up Trade Theory]

And just as clearly, the 32% who won’t even have a job will be much worse off than that.

So what to do?

Sorry, kids – that’s your problem, not mine.

But maybe you should have paid attention.

Readings (links open in new windows):
"Free Trade" – I Told You So 11/29/04
Bush Receives A Warm Welcome In Chile 11/21/04
Government Of Business, By Business, For Business – Part III 11/16/04
Bush Seems To Have Broken The American Jobs Machine 10/27/04
Bushonomics And Jobs: A Total Failure 10/17/04
"Results Matter" But Bush Flops On The Economy 08/06/04
Jobs – "Creativity And Innovation" Isn’t Cutting It 05/02/04
De-mythifying The Heritage Foundation’s ’10 Jobs Myths’ 04/05/04:
The "Cargo Cult" Is Alive And Well – Today It’s Called "Free Trade" 03/08/04
Small-biz Bankruptcies Up, Bush Slams The Door On The Job Machine 03/05/04
Off-shore Jobs: Bill Thomas Wants You To Subsidize Them 03/03/04:
Off-Shoring Jobs: An Ember of Hope in the Distance? 03/02/04?
The Shell Game On Jobs 02/26/04
A perfect example of "ignorance is bliss" on jobs 02/25/04
Why your job is moving to Bangalore
Neocons on jobs: are they totally losing it? 02/16/04
"Sending jobs overseas helps U.S." – more from our misleader 02/10/04
Free Traders and Globalizers – Waking Up At Last? 01/26/04
The Myth of Job Recovery 01/22/04
Stop Subsidies For Offshore Jobs 12/16/03
Let’s Sue the Republicans For Breach of Contract 12/08/03
Get a job – in Shanghai or Bombay 10/20/03


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About Hal

  • Predicting the perfect storm of bad things combined with 100% unpreparedness and inactivity here at home doesn’t really make much sense. SOME of these things could happen, but surely not all. Things change. Why do you think financial and economic models are always limited in duration? Predicting out ten years, not to mention longer, doesn’t make any sense because everything will have changed by then.

    I also failed to see anything (maybe I just missed it) that discussed the huge wave of retirees who will need to be replaced in the work force over the next 15 years. There is a potential labor scarcity coming. That should drive up wages even in the face of manufacturing jobs exiting our shores.

  • Dream on, Craig.

    Ricardo is dead.

  • ok… maybe I am dumb today, but I don’t get it… is that a perfect storm reference? I don’t remember a Ricardo in that movie.

  • Craig, there’s already a labour scarcity which is being filled by a black market. All your demographic projection means is that the black market will be filled with indigenous, disenfrachised indentured labour.

    Or were you fantasizing that somebody in the oligarchy would think living wages would be a good thing?

    A friend of mine got back from Argentina, and he says it looks a lot like the USA in the near future. If you have money, you have guards and enclaves, to protect you from everybody else.

  • Those aren’t the kind of job vacancies I am talking about. And they won’t be filled by folks on the black market with low wages. I am talking about the white collar types of jobs with folks who are predominantly in their 60’s.

  • Keith Sikora

    I used to think that Conservatives in this country were either ignorant, evil, or both. But now I realize that they’re just unbelieveably farsighted! They want the revolution to occur just as much as I do, so they’re going to squeeze the middle class until we revolt!

    Francis Fukuyama, you were right!

  • what is farsighted about it? Maybe you are being shortsighted?

  • Let me guess, you’re not concerned about being laid off from Innotech because you’ve created a party game called “Jumping to Consequences”.

    And then there’s always selling magazine subscriptions.

    The whole point with white collar workers in their 60s is that the economy doesn’t need to replace them, and nobody wants to support them.

  • First things first: Hal, I think you and I agree that we do not have free trade in this country, or anywhere in the world. Please correct me if I am wrong on that.

    So, I get your position- Malthusian Blues on the same order of doom and gloom that has been predicted for the American economy since textile jobs started moving out of New England not long after the Industrial Revolution took off. The very doom and gloom has NEVER panned out. The American standard of living (a very general thing) has continuously improved, even in New England.

    I ask in earnest: How about offering us a solution to these complaints? I honor that you are interested in elevation of the standard of living in this country even beyond the gains we have enjoyed. That’s outstanding. What policies would you offer that you believe will lift higher than today’s mixed economy?

    P.S. We do NOT have free trade. We have a mixed economy.

  • You’re not paying attention, Mike.

    The American standard of living is dropping: real wages down; average net worth down; salaries down for about a quarter of the work force; taxes, fees, energy, education costs up; millions leaving the workforce – all in the last four years.

    It’s today’s reality, with no resemblance to classical “g & d” – even people like Samuelson are finally noticing.

    But hey, if you want to be like Scarlett O’Hara and “think about that tomorrow,” good luck.

  • Actually, I was hoping for the policy you would promote. Sorry to have troubled you.