Scott Sumner  

Random thoughts on globalization

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Here's Scott Alexander:

An article by Freddie deBoer in this month's Current Affairs proposes "Journalistic Self-Outsourcing". DeBoer notes that lots of journalists and intellectuals suggest that protectionism and other anti-globalization policies are immoral. For example, Zack Beauchamp of Vox calls Bernie Sanders' skepticism of free trade "screwing the global poor"; Brad deLong calls the same "a call to keep China a society of poor subsistence rice farmers as long as possible - keep them poor, barefoot, uneducated, and by no means allow them to work at any of the high-value manufacturing occupations we want to keep in the United States."
Here's how Fredrik deBoer begins his response to DeLong:
We have entered another phase of journalists, raised in affluence and currently enjoying at least middle class incomes -- who are thus, according to their own moral calculus, very economically privileged -- telling Americans devastated by the collapse of the uneducated labor market that their poverty, marginalization, and hopelessness is Actually Good, because people in Bangladesh can now move from absolutely abject poverty to slightly-less-abject poverty. Provided the sweatshop where they work doesn't collapse on them. And provided they are willing to endure a nightmare of nonexistent labor power, terrible health and safety standards, total impunity from their bosses, and for the women, an atmosphere of near-constant sexual threat and exploitation.
I'm not familiar with deBoer, so I have no idea whether he's being dishonest or if he's simply unaware of global realities. But he's got things exactly backwards. The gain in living standards in recent decades (due to neoliberalism, including globalization) is one of the best things that has ever happened. Yet look at the adjectives that deBoer uses:
Americans devastated by the collapse
and
people in Bangladesh can now move from absolutely abject poverty to slightly-less-abject poverty
The losses to certain segments of America, while large in an absolute sense, are utterly trivial compared to the gains in living standards seen in places like Asia. And yet deBoer makes it seem like it's the Asian gains that are trivial. Does he not know what it means to see per capita income rise from say $1000 to $2000, or $5000, or $10,000? Or is he just trying to score debating points? I don't know.

I basically agree with Scott's take on all this, but I'd like to comment on this paragraph in Scott's long post:

Again, there's a contingent argument otherwise. If you're really pro-globalization, you might believe that it's impossible for the Chinese to take all our jobs, in the same way that the Luddite Fallacy says it's impossible for robots to take all our jobs. The more Chinese take manufacturing jobs, the more Americans will have lots of money which will encourage new service jobs that the Chinese can't easily take. If this is Beauchamp's argument, he could say that we should globalize all the jobs that can be globalized, including his if possible, and then he will just move to an unglobalizable job. Since his job hasn't been globalized yet, maybe he's already in an unglobalizable job, so people should just stop bothering him.
I don't think that's a useful way to frame things---it makes it seem like rich countries simply outsource tradable goods jobs to poor countries, which is not at all what's going on. When thinking about the impact of globalization on the US it's useful to view the US trade account as balanced. You might find this claim strange, as we actually run a large deficit. So let me explain in 4 steps:

1. I am fairly confident that for the developed world as a whole, trade is roughly balanced. The rise of manufacturing in developing countries does not cause significant trade deficits in the developed world. Some developed countries, especially English-speaking countries such as the US and Australia, run trade deficits, while other developed countries such as Germany, Japan and the Nordics run big trade surpluses. But overall you have a roughly balanced trade account for rich countries. Thus even if you believed that trade deficits destroyed jobs in manufacturing (I don't), the argument would be very hard to apply to the developed world as a whole, because we export about as much as we import. So when we import more, we also export more. If there are fewer jobs in manufacturing in the developed world (and there are) it's due to automation, not trade.

2. I hope you are with me so far, as the preceding argument isn't particularly controversial. The next step may be controversial. When countries do have trade surpluses or deficits, they reflect shifts in savings/investment propensities, and are essentially unrelated to globalization. Because the US invests more than it saves, it would run a big trade deficit even if China were not a big factor. In fact, before China became a big factor we did have big deficits with places like Taiwan, Japan, Germany, etc. Germany has labor costs comparable to the US, but doesn't see their manufacturing jobs being taken away by China. They run trade surpluses because they save more than they invest.

3. I was unable to get good data on manufacturing, but for what it's worth one source claimed the US exports $1.4 trillion in manufacturing goods each year, and various sources had total manufacturing output in the US as just above $2 trillion (I am not certain this data is correct.) The point is that workers in the export part of the manufacturing sector are actually helped by trade liberalization. Given a trade deficit of say 3% of GDP, any big boost in imports will lead to an equally big boost in exports, and in jobs manufacturing those exports. Less that 9% of American workers are in manufacturing, and most of those seem to be in sectors helped by trade.

4. To summarize, trade deficits are not a problem, and don't cause a higher unemployment rate. But even if I am wrong about deficits, globalization is not causing our deficits, as indicated by the fact that the entire developed world has been heavily impacted by globalization, but has roughly balanced trade. It's (almost) all about automation.

Some commenters claim that economists are hypocrites because they don't advocate outsourcing their own jobs to Asia. DeBoer makes a similar accusation against DeLong. I'm not sure that's true, as I see increasing numbers of Asian job candidates at the AEA meetings, looking for academic jobs, and I approve of that trend, as do most economists that I know. On the other hand, I suppose economists might be opposed to an otherwise desirable policy change that immediately took away 100% of our jobs, so perhaps in that sense the accusation is true. But beside the point. I am pretty sure that DeLong doesn't complain when factory workers fail to advocate the outsourcing of their jobs.

Our models predict that trade will hurt people in some industries, and that the losers from trade will lobby Congress to prevent open markets. If I were an American textile worker I'd be pissed off right now. And yet cynics who contrast the views of economists and unemployed textile workers are missing the point. The really interesting divergence is between economists and those non-economists who have the same economic interest as economists.

Doctors, lawyers, plumbers, and electricians, are all helped by free trade, as their jobs are not threatened by imports, and they gain as consumers. Just like economists. However their views on trade are very different from the views of economists, in two ways:

1. Most people believe that if you like a domestically built car almost as much as an import, the patriotic thing to do is to buy the American car. Economists believe that if the imported car makes you a tiny bit happier, the patriotic thing to do is to buy the BMW. (Or at least good economists, who probably account for at least 37% of the profession.)

2. Most people view trade and automation as being radically different issues. Technological progress is viewed as good; trade is viewed with some suspicion. Economists see the two issues as being quite similar; creative destruction that improves overall welfare at a cost of painful dislocation for some workers and companies. Just imagine if Trump started railing against technological progress---even his supporters would be perplexed. Belief in "progress" is almost a religion in America. And yet it's automation, not trade, which is destroying millions of manufacturing jobs all over the developed world. Again, for the developed world as a whole, trade is roughly balanced. It's automation that destroyed factory jobs in the developed world.

The bottom line is that it's too easy to dismiss the views of economists by pointing to their comfy position, unthreatened by Chinese imports. For better or worse, we really do have a radically different view of how the world works. I can respect someone who goes full bore Luddite. I won't agree with them, but I can respect them. I cannot respect anyone who becomes an anti-globalization activist without also railing against technological progress. Instead, I assume they don't understand the issue---they haven't yet absorbed the message in Paul Krugman's Pop Internationalism. They aren't rejecting comparative advantage and trade; rather they don't yet understand the concept.

PS. I am not certain about my trade account claim. I found some recent current account data that seemed to show a net surplus for the developed world, defined as Western Europe, plus the US, Canada, Australia and the rich parts of East Asia. I'm pretty confident that if the trade balance is smaller than the CA balance, the difference is not dramatic enough to affect my claim that trade is roughly balanced for the developed world. In any case, the Swiss will tell you that service exports are nothing to sneeze at.

Update:
Tyler Cowen has a new post reminding us that reduced employment in manufacturing is about automation, not trade. However contrary to the title of his post, China is not really deindustrializing (prematurely or not), it is becoming more efficient at a rapid rate--the mark of a successful economy. Manufacturing output in China, already the world's largest, continues to rise rapidly.




COMMENTS (24 to date)
Philo writes:

Another outstanding post by a master of economics (never mind philosophy). I trust your comments, even if they conflict with those of "the crowd" of economists--after all, only 37% of the latter are any good. (But where did you get that figure? Seems high.)

Market Fiscalist writes:

Is 'Doctors, lawyers, plumbers, and electricians, are all helped by free trade, as their jobs are not threatened by imports, and they gain as consumers' true ?

If I am a plumber in a town whose income has been hit by competition with more efficient producers elsewhere - don't I likely see a drop in income too ?

ZC writes:

'Doctors, lawyers, plumbers, and electricians, are all helped by free trade, as their jobs are not threatened by imports, and they gain as consumers' true...

People in said professions almost certainly benefit, however, they are exposed to the downside. I'll let Market FIscalist's reply above speak for plumbers. Physicians and attorneys have been negatively impacted directly by imports...imports of foreign trained physicians and attorneys. Shift the supply curve...etc., etc., etc.

Scott Sumner writes:

Philo, You asked:

"Seems high."

I was in a generous mood.

Market, Because the country (overall) is enriched by trade, the average plumber is better off. However a small minority in places like Youngstown might be adversely affected.

ZC, That's really immigration, not trade, a different issue. Overall however, doctors and lawyers have probably been helped in net terms by international transactions as a whole, including both trade and immigration. There are lots of foreign born economists entering our profession as well, but wages remain very strong.

AbsoluteZero writes:

Scott,
Completely agree.

I often wonder why step 2 in your 4 steps is considered controversial. Since in macro savings = investment, if a country invests more than it saves, the difference has to come from countries that save more than they invest. That's it.

What Market Fiscalist said is another example of a common habit. When a statement is made that a certain class benefits from a certain policy, say, many have a tendency to think the statement is only true if literally every individual in that class benefits, when it almost always means the class as a whole, on net, benefits.

Kevin Erdmann writes:

This is an example, I think, of the phenomenon where progressivism is becoming the ascendant conservative power base of our age. Most of the conversation I see among progessives involves rhetorical scale. Which sins are cardinal and which are forgivable, which people are bad and which are good. In this paradigm, capital plays the foil like socially deviant or heretical people did under the old regime. Just as Adam Smith may have tended to shade things toward a distinct rhetoric to match the language of his day, now one needs to explicitly give a nod to egalitarianism. But, as in the example above, it is a peculiar egalitarianism. Just as a constant rhetorical salve had to be applied in the previous regime to mold perception in a way that hid the difference between lived values and the values described in the Bible that was supposedly their foundation, it is a constant job today to create a rhetorically perverse sense of scale about different forms of progress so that the values at the center can be maintained without up ending the set of villains and hero's that are the main source of ideological motivation.

Airman Spry Shark writes:
I'm not familiar with deBoer, so I have no idea whether he's being dishonest or if he's simply unaware of global realities.
FWIW, I've seen enough of his writing over the years to conclude that he is sincere, if deeply deluded.
Kevin Erdmann writes:

Following on my earlier comment, the linked post from de Boer, of course, contains the progressive ' s version of the old fallback that, when all else fails you need to have more faith. The new version is that when all else fails you need more money from the rich.

Lorenzo from Oz writes:

I read deBoer intermittently, I believe he is sincere. He is also one of the better young progressivist voices, because he is able to be self-reflective about progressivist misfirings and shortcomings.

That being said, he is typical of modern progressivism in a deeper sense -- no sense of social achievement. The West is a mass of flaws and sins, with a history of crime and oppression, and that is all that really counts; what Noah Smith calls Haan history. DeBoer's examination of the life of Louis Farrakhan in Harper's has this as a strong subtext, for example.

Can you really talk about

as a citizen of a country that seems determined to strangle the ambitions of its black children in the cradle,
in a country with a black President? Or whose African descended population are the richest group of African descent in the world (apart from Bermudans)?

Economists find it very difficult to be modern progressivists, or entirely get it, because they have too much of a sense of achievement as a broad social fact.

Lorenzo from Oz writes:

Hit return too soon. I was going to add "and in a country whose sporting, artistic and entertainment life is pervaded by black faces". It is an instructive exercise, for example, to look down the list of actors by film gross. It is apparently better to be a black man than a white woman if you want to reach the top of the hit parade.

(Though I suppose Hillary supporters were telling us that back in 2008. And it is true that the evidence is that gender stereotypes are much more embedded than racial ones.)

Grant Gould writes:

DeBoer is a sincere and smart Marxist. In my experience he's always worth taking seriously, especially when he's wrong because he's usually wrong for interesting reasons.

I think the risk of your analysis -- and one of the few things that Marxists get right -- is that you treat political institutions as exogenous while Marxists typically treat political institutions as endogenous, an outgrowth of the distribution of wealth and power in a society rather than its cause.

In that view, getting a few extra dollars into Bangladesh's sweatshops does not improve matters, because it simply increases the incentives of the extractive political order to remain extractive. The economy will remain a statist, hyperregulated morass with property rights stable only for the rich for as long as the political elites profit from keeping it a morass, and sweatshop profits are part of how that self-reinforcing deal gets done.

(Another way to view that is to see a persistent trade surplus from cheap labor denied clear property rights as a sort of resource curse. That might form the basis for some sort of argument that trade deficit/surplus actually matters for something.)

I believe that view probably overstates the case -- history suggests that that effect, while present, is not so large as to overcome the benefits and in any event the moral case for free exchange. But it does clarify that there are multiple effects of trade that balance against each other, and that from a consequentialist point of view at least the argument is not trivial.

Harold Cockerill writes:

I see globalization as an easy explanation for our ills as once it's accepted there's the equally easy treatment of protectionism to fix it. I believe the real roots of our economic problems are instead the growth of an administrative state that smothers what should be a very dynamic organism coupled with an education system that fails to prepare citizens for that dynamism. That is a much harder problem to fix with large entrenched powers working to maintain the status quo. Actually I don't see that problem getting addressed any time soon (if ever).

Nathan W writes:

Regardless of what aspects seem more important about how things have gone for the Western working class, it's pretty hard to argue that the "global poor", as in the actual "global" part of "global poor", is worse off than they used to be.

Philo writes:

@ Grant Gould:

You write: "you treat political institutions as exogenous while Marxists typically treat political institutions as endogenous, an outgrowth of the distribution of wealth and power in a society rather than its cause." Of course, the distribution of "wealth and power" (i.e., of power) in a society will be both a cause and an effect of the political institutions. And to deny, in particular, the influence that social power has on political institutions would be bizarre--is Scott really doing that?--since "power" is influence on, inter alia, the political institutions. On the other hand, Marxists tend to maintain that this power, in the hands of a particular individual, is exercised simply on behalf of the economic interests of that individual's class. That, surely, is a mistake--at best, a partial, "one-eyed" view.

Scott Sumner writes:

Everyone, Lots of excellent comments.

Grant, It might be possible to construct that sort of argument (although like you I am skeptical.) But I would insist that before doing so one has to have some idea of what's going on in Bangladesh, and the broader developing world.

Most commenters tell me that deBoer is sincere, so I'll just assume he's uninformed. Not well enough versed in economic realities to have an intelligent opinion on the subject on international trade.

As far as endogenous/exogenous, if you are debating policy you must assume policy is exogenous, otherwise there is nothing to debate. I'm happy to contemplate revolutionary change in Bangladesh, if it's in the right direction. Right now Bangladesh is going in the wrong direction (politically).

Here's a link discussing the explosive growth in cell phone ownership and internet usage in Bangladesh. It's still a very poor country, but things are certainly much less bad than 30 years ago.

http://bdnews24.com/business/2015/10/01/mobile-phone-users-in-bangladesh-cross-130-million-mark

Gordon writes:

International trade is not only benefiting the poor in other countries, here's a good example of how it's benefiting the poor in the US. As David Henderson has pointed out, labor unions sought a minimum wage increase in the 50s to act as a disincentive for manufacturing jobs moving to southern states. But recently, China announced that it will build a billion dollar paper plant in Arkansas:

http://www.pressherald.com/2016/04/26/chinese-company-to-build-1-billion-state-of-the-art-paper-mill-in-arkansas/

So thanks to China having all those US dollars from trade, regional inequality in the US that was fostered by labor unions is being subverted.

Brian Donohue writes:

Great post, Scott!

floccina writes:

Ironically many who see the trade deficit as a big problem and see buy American as patriotic would also see buying stocks in foreign companies as un-patriotic.

Me, I am doing something about the trade deficit by buying PID and VIGI because I see them as better valued than US stocks right now.

Benjamin Cole writes:

Free trade is wonderful and always a topic. But the suffocating results of property zoning are probably a more-important topic.

Btw Germany is building a robotized shoe factory. We may see some interesting shifts in manufacturing.

Bryan Riley writes:

I thought the choice of BMW as the imported car was interesting given this: "The [South Carolina BMW] factory, which will employ 8,800 people by 2016, is already the biggest exporter of U.S.-made cars to markets outside North America, beating any facility run by General Motors Co., Ford Motor Co. or Fiat SpA’s Chrysler as well as the entire state of Michigan, the historic home of the American auto industry."

http://www.bloomberg.com/news/articles/2014-07-10/bmws-made-in-america-surging-as-biggest-auto-export-cars

Todd Kreider writes:

So in terms of DP per capita, Bangladesh at $3,000 is where India, now at $6,000 was around 2005. And China at $13,000 was at $6,000 in 2005 where India is at today.

There is no reason Bangladesh couldn't be even higher than $13,000 by 2035.

Michael Savage writes:

[Comment removed. Please consult our comment policies and check your email for explanation.--Econlib Ed.]

Glen writes:

Modern trade (a.k.a globalization) is almost entirely the result of technological progress, and of specifically three inventions: the Internet, containerized shipping, and wide-body airliners.

For example, the concept of a manufacturing “supply chain” — not to mention predominantly long and thin ones — simply didn't and wouldn't exist without the command, control and coordination capabilities made possible by the Internet.

“Railing against” trade is railing against technological progress. But there's no reason to presume that Donald Trump and his supporters wouldn't be perfectly content to do so.

Philo writes:

At a generous estimate, only 37% of economists are competent; thus the opinion of "the crowd" of economists on any issue is valueless. But we are supposed to withhold our assent from the view of any individual economist (or smaller group of economists) when it conflicts with the view of the crowd. So we end up complete skeptics--about economics and, probably, about every other academic subject.

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