Arnold Kling  

Alan Blinder is Not Stupid

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Economic Fallacies... Alan Blinder is not Boring...

Despite Harold Meyerson's make-work bias interpretation, Blinder's actual paper says,


The job categories that will move offshore as the Information Age progresses will not disappear entirely from the U.S. and other rich countries. But their shares of the work forces of industrial countries (now there’s a vestigial term!) will shrink dramatically. And this shrinkage will transform our societies in many ways, most of them hard to foresee, as workers in the rich countries find other things to do.

Just as with the first two industrial revolutions, massive offshoring will not produce massive unemployment. Nor should we view it as a long-run threat to our standard of living.


Contra Meyerson, Blinder writes,

Both history and logic suggest that markets, not governments, will take the lead in effectuating the necessary shift toward personally-delivered services—and that markets will succeed. But the flexible, fluid American labor market will probably adapt better and faster than European labor markets will.


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COMMENTS (4 to date)
T.R. Elliott writes:

Please notice the way in which Blinder is guessing here:

And this shrinkage will transform our societies in many ways, most of them hard to foresee, as workers in the rich countries find other things to do.

Just as with the first two industrial revolutions, massive offshoring will not produce massive unemployment. Nor should we view it as a long-run threat to our standard of living.


And here:

But the flexible, fluid American labor market will probably adapt better and faster than European labor markets will.

Blinder is saying nother more than the fact that he doesn't know where we are going, but we're going to get there faster than anyone else.

I do not argue against globalization. It's inevitable. And good. With appropriate constraints. I believe the linking of global economies should be handled in a way that ensures imbalances are understood and appropriately controlled when necessary. Otherwise, there will be a populist backlash. And then we all lose.

For example: Why do I still hear the economically illiterate argue that current account deficits are not bad. I believe the imbalances are building, and the trajectory of the world economy is not sustainable because the US must rely on debt or asset sales in order to serve as consumer of last resort. That will end. And the unwindng of these imbalances may happen very quickly.

I think it inevitable that globalization will result in a lower standard of living for Americans. It could very well be that the period after WWII was an aberration. Not sustainable. In addition, given what I see to be a continued tightening of global energy production, with all alternatives producing less energy and requiring a diversion of capital into energy production, growth as a panacea to gloss over disparities in wealth distribution may no longer prove tenable. Hence more populist backlash.

In summary, Blinder really doesn't say anything except the obvious.

Now, Meyerson's argument is, in a way, to do exactly what the US has done since WWII. E.g. the US economy has had the largest funding for industrial planning of any economy in the world. It's called DARPA. The DOD. Etc. I can certainly help you guys learn more about this if you're not aware of it. Help you with the origins of technology, for example. And we've had another huge training program in terms of the university system. So I may disagree with the specifics of Meyerson's proposals, but I certainly don't disagree with his general idea that industrial planning has worked in the past and could very well continue to help us with the transition into a globalized economy.

John Pertz writes:

I guess what you are saying is that government funded research is the driving force behind the U.S's growth over the past fifty years? That is kind of true in a small way. It is certainly part of the story. The advent of the internet came from the military however, some argure that we would have an internet even if the military did not develop one in the first place.
BTW, are you trying to make the point that the origins of technology come from the government? That is again only partialy true. Government sponsered RandD has shown great returns in the military and agricultural sector however, it has failed in every other area. So to say that U.S growth has been driven mainly by government sponsered RandD is false at best and dishonest at worst. Also, Private RandD has shown a much much greater return on investment.


I guess what is so sinister about Meyerson's article is that he took a professor's work and politicized it so that he could make his religon, oh Im sorry I meant rational ideology, look better in the context of his article. By quoting Blinder he gives the false appearence that the two are in accord with one another when clearly they are giving roughly the opposite conclusion.

My question to you Elliot is if private RandD has been shown to give far greater rates of return and capital is scarce then what sense does it make to follow Meyerson's advice?

spencer writes:

Is the problem a shortage of capital?

Maybe the real problem is a shortage of investments that is reflected in low rates.

Yes, private R&D provides higher returns,
but that is partially because public sector research concentrates in the early stages when the returns are more uncertain and often much less productive. . Public sector research is generally deliberately targeted this way as a matter of policy.

Binder is bothered because he does not see the source of the new jobs except in the low productivity, low wage service type sectors. It is partially a reflection of recent trends when high paying manufacturing jobs are being replaced by low paying retail and other services jobs.

But to a certain extent isn't he guilty of the same things bearish people talked about a century ago when farming jobs were falling to relatively insignificant levels.

We saw the same thing in new england from the late 1940s to the early 1970s when the old jobs of textiles and shoes left the region and the new jobs in high tech, healthcare, education and finance had not expanded enough to offset the loses in the old industries. New england now specializes in these education intensive, cutting edge areas. It provides a high standard of living for the educated, highly productive, higly flexible individuals in these fields. But the unprepared individuals that can only provide relatively unskilled labor can not afford it and many have to leave the area. Is this the future we are facing? I do not know.

T.R. Elliott writes:
My question to you Elliot is if private RandD has been shown to give far greater rates of return and capital is scarce then what sense does it make to follow Meyerson's advice?

Here's the big picture from my perspective. I'll number then to make it simpler.

1. I'm not myself enthralled with Myerson's advice since it's not clear how his advice will solve the problem. First need to define the problem.

2. I complain about the original post by Kling because he just labels it bad with no supporting discussion. Just assume it's bad? Why is it bad? And I ask why his post is any worse than my rude dismissing about what a lot of the material I find on TCS?

3. The problem to solve: the enormous imbalances that exist in the globalization process. They will unwind, and they are likely to unwind fast. The largely hegemonic nature of the dollar combined with the inability of the US to get its fiscal house in order, combined with what I consider to be a race to the bottom approach to globalization, as well as a bifurcation of the haves and have nots, is creating huge imbalances. They will unwind. I don't think it will be pretty. That is the market at work. Anyone who says "the market is not allowed to work properly" and that's why we have these imbalances might be right but that means they need to (a) allow labor to move freely across borders (b) move away from dollar hegemony and (c) accept that the US is probably going to have a lower median standard of living. Dollar hegemony is not going away, labor will not move 100% freely across borders, though I do think standards of living will degrade. That's the real world to me. How to deal with it.

4. I think the imbalances might be handled by putting in place trade regulators (taxes or otherwise) that ensure the imbalances do not get too large. Instead of political crises which I think are going to occur, in which tit for tat trade wars break out, the globalization process would have been better served by considering each country as an independent economic system, the important central role of the US economy, and regulators to ensure that the trade did not get too far out of balance.

5. Unlike many optimists, I'm not convinced that the US will be able to export it's way out of the current imbalance. What are we going to export? A good part of what we export is derived from imported components. Our productivity itself is reliant on important productivity gains. I think the US can continue to export IPR. That's great. It means QUALCOMM will continue to make lots of money and I don't have to work. How does that help the large number of workers in the US? Developing countries are not building large consumer markets that want to import, I believe they are relying on locally produced goods, even if based on US IPR (phones, computers, etc). Cars, on the other hand, and similar heavy items, are produced locally I bet (and from my experience in places like Thailand, China, and India).

6. The US consumer is tapped out. When the US consumer is tapped out, who will take their place? The rest of the world relies on the growth of the US. I see problems. Soon.

7. I think the real question is whether nation states exist. The purists say no. The purists are wrong. They will be proven wrong. Sooner or later, the mechanism that exist outside the "free market"—in the political realm—will move. And like I said in a previous post, we all lose.

8. There are to many dolts—and I use that word seriously—who are just smart enough to study basic economics and to mouth free market principles who seem to have barely a clue on how the real world works. They live in a vacuum I suppose. Fine. But watch out when angry voters decide to blame someone when trade imbalances unwind. Which I think they will. And it won't be just the free market types. It will be the foreigners. And trade wars may very well be the result.

This does not answer the specific question. E.g. Meyerson's proposals. But I wanted to make a few statements about what I see as the more general issues. Meyerson's proposal are probably pabulum, but no more so than the free market talking points I find at TCS. No serious consideration of the issues. Just talking points slapped together as solutions to problems.

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