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The Democratic Trade Agenda:

Senator Max Baucus (D-MT), the incoming Finance Committee Chair, has an op-ed in today's W$J outlining his vision of "A Democratic Trade Agenda." Is it a good one? That's hard to tell. Here's a taste:

At a time when our country's competitive strength depends increasingly on an aggressive trade policy, Americans are far less willing to embrace one. Many equate trade and globalization with ballooning deficits, stagnating wages and layoffs. Meanwhile, even as China and India have continued their economic reawakening, America has lacked the leadership to tackle the associated challenges through trade. U.S. policy has lurched frantically from one trade agreement to the next, eking out just enough votes to push each one through Congress.

Some think that the new Democratic congressional majority will be bad for trade policy. While it is true that some candidates criticized trade in their campaigns, I believe that the new Congress will have both the desire and opportunity to renew U.S. trade policy, with a unifying purpose that Americans can understand and support. Through trade, we must bolster the nation's innovative economy in an increasingly global marketplace. At the same time, we must tackle with equal vigor the negative domestic consequences of globalization, from trade deficits to job losses.

On the one hand, it's a good sign that Senator Baucus wants to renew fast track authority and recognizes the importance of international trade ot the American economy. On the other, the op-ed can hardly be called a ringing endorsement of free trade, particularly insofar as it endorses greater trade enforcement, increasing export subsidies, and greater dilution of free trade principles with labor and environmental concerns.

Dan Drezner's take (and hbe knows more about trade policy than I do) is that the article is ambiguous because Baucus is simultaneously "laying down a marker against protectionist Democrats" while "trying to get the Bush administration to sign off on Democratic policy proposals with a veneer of soothing rhetoric," and yet is not sure how to balance these two aims. Were it not for the Bush Administration's own spotty record on trade, I'd be quite discouraged.

Tito:
I don't know what Baucus means by his article, but as a 20-something, I can say that I have no great enthusiasm for free trade. In fact, I'm more inclined to believe that all of the free trade agreements that people of your generation so lavishly praise--like so much of what your generation has done and continues to do--has been and will be a tremendous disaster for my generation. I have no idea if increased restrictions on trade are the answer or not, but I'd be more than happy to listen to serious debate about those kinds of proposals. They way in which anything that doesn't have the stamp of 'free-market' or 'Chicago' on it gets dismissed out of hand is intellectually distateful (and probably dishonest and more than a little self-serving) in my view. People on the economic right and older generations really need to wake up to the fact that the world is not a great place for a lot of younger people.
1.4.2007 9:30pm
Steve:
This Tom Friedman quote pretty much sums up how I view free-trade supporters:

"We got this free market, and I admit, I was speaking out in Minnesota--my hometown, in fact, and guy stood up in the audience, said, `Mr. Friedman, is there any free trade agreement you'd oppose?' I said, `No, absolutely not.' I said, `You know what, sir? I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative. I didn't even know what was in it. I just knew two words: free trade."


I'm so tired of people who think Econ 101 taught them everything about how to run a country.
1.4.2007 9:46pm
James of England:
The Bush record on Free Trade Agreements, Bilateral Investment Treaties, Open Skies treaties and Trade and Investment Framework Agreements a is astonishing. While the Doha round offers could have been more generous than wiping out virtually all barriers in 6 years (iirc), the EU was wanting to cut 180% tariffs to 80% (that example is for beef, but there's other horrors out there). He's stopped any serious measures against China from going through (compare European Bra and Shoe wars). He's normalised trade with Vietnam, lifted sanctions in Iraq, Afghanistan, and seems likely to lift 'em in Cuba any month now. He stood with trade over Dubai Ports World. He's worked hard to liberalise trade with Mexico.

You think the new protectionists are better because he had a few months of steel tariffs and slapped on farm subsidies that he tried to Doha away immediately afterwards? There's a lot of things that pro-trade libertarians can be upset with Bush about. Trade just isn't one of them.

OTOH, it's a subject most people are ignorant about and intellectual fashion says that if you don't know about an issue, you should say that Bush sucks on it. You'll certainly have headlines to support you. My favourite headline was the BBC's "No Trade Agreement At Americas Summit", reporting on the day the US and Uruguay signed a BIT at the Americas summit. They reported the socialist President's words rejecting integration with the US economy, but not his actions integrating Uruguay with the US economy.
1.4.2007 9:46pm
Randy R. (mail):
Right you are, Tito. Now, I believe in free markets, up to a point. My business in fact depends uponi international trade. But when people say that free trade is diluted by labor and environmental agreements, I almost want to barf. The only thing wrong with them is that big corporations cannot earn as much money as they would without them.

Case in point: After NAFTA was instituted with Mexico (which I did and continue to support), environmental and labor side agreements were negotiated, at the insistance of the Democrats. Still, corporations hired Mexicans at below poverty level wages, and their excuse was that they were paying these people more than nothing, so everyone should be happy! Still, those low wages were not enough, and so they eventually moved their operations to even cheaper China and India. but now they are finding out that there are problems there and many companies are quietly coming back to the states (it's a complicated issue).

The problem is that the corporations are in a race to the bottom: they will go where ever it is cheaper and fewer environmental or labor laws to hamper them.

So what can you do?
1.4.2007 9:50pm
Randy R. (mail):
Simple. Every dollar you spend is a vote for the kind of world you want. If you continue to shop at places like Walmart, which forces companies to China and other places of low wages, then you are forcing jobs to China.

If you want jobs in America, then you have to spend your money so that the money stays in America to the extend you have control over it, and that it gets recycled in the US. That means you have to forego certain things, or pay higher for other things. But if you insist that the sweater you bought must be the lowest price possible, or that you simply must have that cashmere sweater priced at $35, then you are shipping jobs overseas. This is the only real power you have, and if enough people do it, you will have a better opportunity in the long run.

In the meantime, go to China to find your opportunities.
1.4.2007 9:55pm
Elliot123 (mail):
Tito,

Too bad nobody is handing you the world you think you deserve, merit, or have earned. I wonder if the guys in Calcutta and Shanghai are also whining?
1.4.2007 9:55pm
James of England:
To be fair to Friedman, who sometimes irks me, too, he's not being full with you in that anecdote. The Chilean and post-Chilean FTAs are all pretty much the same, with the exception of the Australian FTA missing the labor, environment, and investment chapters. It's still appauling journalism (or, to be more fair to Friedman, standard trade journalism), but it's not quite as bad as it sounds.

What more information do you think he would need? If the question is whether we should be letting the people of El Salvador lift themselves from poverty, then the answer doesn't seem terribly tough to me. If you're thinking that they're better off without being able to sell to the US or being able to buy cheap American goods, then that's why Friedman needs to churn out the same article several times a month explaining why you're wrong.

Econ 101 (or the knowledge you'd gain from such a class, or aides with such knowledge) isn't sufficient to run a state, but it really does help to not be completely ignorant. In the same way, you or I might be able to write a brief response to a legal issue without knowing too much about it, assuming we were responding to a clear and common mistake. Having taken Con Law 1 might not mean that I'm good enough to write an opinion on state actor doctrine, but it does mean I can understand why most gas stations aren't state actors. Sometimes, that's stuff that people who lack my basic Con Law education need to know.
1.4.2007 9:56pm
Byomtov (mail):
intellectual fashion says that if you don't know about an issue, you should say that Bush sucks on it.

"The race is not always to the swift, nor the battle to the strong, but that's the way to bet."
1.4.2007 10:07pm
James of England:
Randy, do you genuinely believe that companies go wherever the laws are weakest? Have you seen a whole lot of international investment in Somalia? Or, if you think it's just violence that keeps 'em away, Madagascar? If you look at a league table (wiki will do), you'll see China at 87th out of 181 countries by GDP/capita. That's not the richest, but it's not the cheapest either. Even within nations, people invest in the Mexican Border, which is now relatively wealthy, and Mexico City, rather than in Guerrero or Chiapas. There's a lot of factors that go into locating factories, offices, and headquarters and most companies either have someone moderately informed research this or employ someone from outside to do so. Probably the biggest factor for most of them is having the rule of law mean something. Better to have bad laws enforced than a good laws on the books and bad or corrupt enforcement.

Btw, where do you shop to avoid chinese goods? It's getting ever harder for those who miss the Chinese Exclusion Act to be able to enforce their own private embargo. I suspect that some on this thread would appreciate tips.
1.4.2007 10:14pm
James of England:
Byomtov: Sure, I'm totally on board with the Volokh Bros. enthusiasm for rational ignorance. I was just noting that in this instance it's wrong. I should note that I'm not saying that most people should be fans of it. If you're part of the Minuteman "right" or the Dobbs left, you've got very little to like in Bush's trade policy.
1.4.2007 10:17pm
Thorley Winston (mail) (www):
You think the new protectionists are better because he had a few months of steel tariffs and slapped on farm subsidies that he tried to Doha away immediately afterwards? There's a lot of things that pro-trade libertarians can be upset with Bush about. Trade just isn't one of them.


Agreed, even Clinton who is generally regarded as a proto-typical "free trade" president slapped tariffs on steel when he took office, raised them on textiles, and started a trade war with the EU over bananas. As far as farm subsidies, take it up with Tom Harkin who wrote the last Farm Bill and now looks to be writing the next one.
1.4.2007 10:19pm
JohnAnnArbor:
We ought to be working on ridding the developed world of agricultural subsidies, which allow that industry to basically ignore market trends and economic considerations and is literally killing agriculture in the developing world.

Of course, Europe styles itself a friend of the developing world. But let up their subsidies to help actual Africans sell their crops? Not in THEIR lifetime! Let them starve, is their attitude.
1.4.2007 10:23pm
Thorley Winston (mail) (www):
Were it not for the Bush Administration's own spotty record on trade, I'd be quite discouraged.

Okay, I'll ask the question - which administration hasn't had a "spotty record on trade"? Just so what know what standard on trade you think that President Bush has failed to live up to.
1.4.2007 10:38pm
Nick W. (mail):
First of all, Baucus does not speak for the Democratic party and is talking out of his asshole (again). For the past two years, the two senators from North Dakota, Conrad and Dorgan, have quietly been gathering votes from both Democrats and Republicans to kill fast track reauthorization. With the newly-elected, anti-free-trade members, they have more then enough votes to filibuster any reauthorization, which they have vociferously pledged to do. I do not shed any tears, since the Constitution clearly states that it is the Congress who is supposed to mark up and authorize the trade deals. It is anti-democratic to forbid amendments, since it denies the people a voice through their elected officials. Denying reauthorization doesn't mean an end to trade, it just means that the administration will have to listen to the will of the people.
1.4.2007 10:39pm
Nick W. (mail):
Elliot123: Probably because China doesn't allow open dissent or any free-speech for that matter.
1.4.2007 11:11pm
Tito:
Eliot123:

I'm doing quite well for myself, thanks. But I nevertheless find a lot about the kinds of opportunities that are available to many of the people of my generation to be fairly distressing, and I don't think it's all about how hard they've worked, etc., though that is, of course, one of my favorite right wing foils.
1.4.2007 11:17pm
Steve:
It's still appauling journalism (or, to be more fair to Friedman, standard trade journalism), but it's not quite as bad as it sounds. What more information do you think he would need?

Well, he could at least know what the C in CAFTA stands for.
1.4.2007 11:25pm
al rodriquez:
Please explain why a person in Des Moines earns 50 times what a person in Canton or Madagascar does for performing the same task. Is is protecting our children? Is it "all about" democracy? I'd honestly like to know.

Perhaps Americans don't really have to work, but can be paid for new cool thoughts and ideas and fads that can somehow be monetized?
1.4.2007 11:57pm
jelewis (mail):
I admit to being ambivalent about Friedman, although my sense is that, overall, free trade does tend to integrate economies and allow for the freer trafficing of goods, services, and labor and thus gives major powers - such as the United States and China - disincentives to use military (rather than economic) might to resolve political disputes. However, I think a case can be made that free trade between less-than-equals (such as the migration of Arab laborers to France and Belgium and the French and Belgian economies) has the opposite effect. So it isn't as if free trade is good or bad on its merits, its contextual. Which is why Friedman should be more careful - he knows more than most how a freer movement of goods and labor from the Arab world to Europe has had a major, and not entirely benign, effect on European politics
1.4.2007 11:58pm
James of England:
Steve: OK. Good point. Well made.

Nick W: If they could speak, how sad do you think they'd be?

Also, I'm always curious about this argument. Congress can still totally get the stuff they want in FTAs. If you read NAFTA: How The Deal Was Done (one of my favourite books on international politics, albeit a little dry), Congress' mood swings were a dominant part of the negotiations. It just means that they can't engage in lots of tactical abuse of the rules (wrecking amendments, excessive fillibustering etc.)

If you feel that we shouldn't have Congressional-Executive Agreements, then that's fair enough. Suggesting that it's insufficiently democratic when it is considerably more democratic than the usual treaty-making procedure (no amendments, no involvement at all for the House) seems a little odd. Do you think that changing the rules on fillibusters for Judges would be similarly unconstitutional?
1.5.2007 12:00am
guest:
"Please explain why a person in Des Moines earns 50 times what a person in Canton or Madagascar does for performing the same task. Is is protecting our children? Is it "all about" democracy? I'd honestly like to know. "

The Chinese elite supports policies that help Chinese people, even at the expense of others, e.g. the wholesale theft of U.S. intellectual property, trade barriers vs. U.S. goods and so on. The U.S. elite sacrifices Americans to help others. I guess we're on the right side morally, which will be a great comfort in our future role as suppliers of natural resources to the Chinese center.
1.5.2007 12:10am
James of England:
jelewis: Bush's Arab trade agreements (the MEFTA, with some of the negotiations starting under Clinton) have been pretty successful. I don't think there's been any problems at all with Jordan or Morocco's FTAs. Bahrain and Oman, likewise, seems to have gone off without much noise, although Oman has yet to reach Congress. The UAE will probably have to wait a bit. There's a lot of good Arabs as well as bad and we really help keep when we make the sensible businessmen, the typical professionals, the law abiding farmers et. al., successful and prominent.

As a related concern, the issue of immigration in FTAs tends to be restricted to professionals and investors, who rarely cause the kinds of issues that you're talking about. I'm also a fan of liberalised immigration, but you don't have to be to get on board with Doha, the FTAA, the MEFTA, Australia, the ASEAN, and so on.

Friedman is much closer to the view that you're espousing than you seem to think. He is, in general, a big fan of trade being somewhat managed, of it being friends who are dealt with and everything being regulated. Listen to him talking about oil for an insight into how close he's remained to the centrist Democrat reservation.
1.5.2007 12:13am
jelewis (mail):
James of England -- I agree with you: The Bahraini and Omani agreements are beneficial and I agree that there are many talented Arab businessmen and professionals who benefit from such deals. (However, given that many of them leave their home countries to work in North America, one wonders who is left.. but that is a different topic) - The Bahraini and Omani deals also had the benefit of using economic power to resolve political disputes. It is my understanding that both Manama and Muscat had to abide my agreements to no longer participate in the Arab Boycott of Israel - moving inches closer (inches, not miles) to the eventual normalization of economic ties between Israel and Gulf states that have adopted a free trade regime
1.5.2007 12:17am
James of England:
Guest: The Chinese government or, at least, large parts of it are really trying to reduce piracy. The difficulty is that theft is very profitable. Still, the US works hard to reduce that theft. Almost every free trade movement includes stuff about intellectual property (it's a chapter in every FTA, it's in TRIPS, and almost everything else is tied to the 301 list). Being in favour of trade generally means pushing China (and others) to respect IP.

Being against it means putting up a wall around America and watching America stop selling to the world as well as buying from them. How many goods today are manufactured 100% in the same country? That goes as much for services as things. If you can't employ a mixed force of Indians and Americans to write your software, you stop being more efficient than the Germans (and/ or Chinese) and you won't sell to anyone. You force American companies to have their overseas investments at arms length, you lose your leverage over those who want to do business with the US, you lose the successful momentum that capitalism and democracy have built up around the world.

If Intel lost more money to IP theft in China than it gained through access to Chinese human resources, they wouldn't manufacture in China. We don't need the government to make that decision for them. The same goes for cars and for everything else out there. America prospers when people are free to make the choices that they understand best. Damnit. I hate it when I switch into autopilot mode, but there's some perennials that really bring it out, you know? ;-)
1.5.2007 12:26am
tsotha:
Tito,

I'm curious. You say you think free trade has been a disaster for your generation. Why do you say that? From what I can see your generation is entering the job market in a time of unparalleled wealth and opportunity.

When I was your age jobs were scarce, and they didn't pay nearly as well. Capital was more expensive, too, for those with an entrepreneurial bent, and your customers sure as heck didn't have enough money to pay $5 for a cup of coffee. The air and rivers were more polluted. We had six channels on TV, unless you were rural, in which case you were lucky to have two.

When I went to college in-state long distance charges were more than a dollar a minute, and cell phones were only for drug dealers and the obscenely wealthy.

I could go on and on. So, like I said, I'm curious. What's the problem? From what I can see free trade (actually "freer" trade, we've never had free trade) seems to have been quite a boon to Americans in general. Do you have some mad compulsion to assemble toys or stitch Nikes together? Or is it that people your age have been raised to think they all deserve to be hedge fund managers?
1.5.2007 1:04am
HLSbertarian (mail):
As (presumably) a member of Tito's generation, I'd like to say that most us are doing OK with this booming global economy and sky-high standard of living. Don't repeal anything on our account.

Tito: What's so "distressing" about our generation's opportunities?
1.5.2007 1:14am
M. Simon (mail) (www):
Without trade the prosperity America knows will disappear and the world will revert to a dark age:

Decline and Fall
1.5.2007 8:45am
M. Simon (mail) (www):
It is always depressing for the young to find out how hard you have to work and how much experience you need to live like dad and mom.

Welcome to the real world kids.
1.5.2007 8:59am
J. F. Thomas (mail):
The Chinese government or, at least, large parts of it are really trying to reduce piracy. The difficulty is that theft is very profitable. Still, the US works hard to reduce that theft. Almost every free trade movement includes stuff about intellectual property

If you really believe that the Chinese government is trying to reduce piracy, then I have a bridge you might be interested in.

And the intellectual property provisions of free trade agreements raises an interesting question. Why do we demand that IP rights and notions be included in free trade agreements (the concepts behind and enforcement of such rights are extremely complex and often alien to the countries we make these agreements with) yet when it comes to environmental and labor standards we use the very same arguments to say we shouldn't include them in trade agreements?

When I went to college in-state long distance charges were more than a dollar a minute, and cell phones were only for drug dealers and the obscenely wealthy.

And this has exactly what to do with free trade?

The air and rivers were more polluted.

Of course, you are probably constantly deride our environmental laws and probably are 100% against adding environmental standards to trade agreements. We have literally exported much of our pollution to other countries.

Do you have some mad compulsion to assemble toys or stitch Nikes together?

I just love it when someone raises the athletic shoe market as an example of how wonderful offshore manufacturing is. As a matter of fact New Balance has demonstrated that it can compete manufacturing shoes in the U.S. that are every bit as good as Nikes. Because it is a privately held company it doesn't have to satisfy rapacious stockholders every quarter and it doesn't pay NBA stars millions of dollars a year to shill its goods to people who cannot afford them while it pays its assembly workers pennies an hour.
1.5.2007 9:00am
J. F. Thomas (mail):
If you can't employ a mixed force of Indians and Americans to write your software, you stop being more efficient than the Germans (and/ or Chinese) and you won't sell to anyone.

You obviously don't know anything about the software industry. Offshoring, outsourcing (or even the use of H1B visas to bring temporary workers into this country) or whatever you want to call it has nothing whatsoever to do with being more efficient (and btw we are less efficient than the Germans and the dreaded French). It is actually counterproductive and makes everything less efficient. It is all about keeping costs down. It takes more time and outsourced work is less responsive to customer needs, but it is a hell of a lot cheaper. It is a classic case of being pennywise and poundfoolish.
1.5.2007 9:08am
wm13:
Thorley, James: In the academic circles in which Prof. Adler moves, inserting an anti-Bush aside into every political remark is just a standard part of polite discourse, like saying "pax vobiscum" to a medieval priest. I seriously doubt that he's prepared to defend the proposition that the Bush administration is worse on free trade than some prior administration or than the new Congress.
1.5.2007 9:33am
breen (mail):
Am I the only one to find it curious that an op-ed titled A Democratic Trade Agenda gives rise to a post titled The Democratic Trade Agenda?
1.5.2007 10:36am
David W Drake (mail):
I strongly agree with JohnAnnArbor. The trade (and aid) agricultural policies of the U.S. and the E.U. prevent the African nations from developing their own agricultural sectors. Not only can they not export to the richest countries, but free food aid makes their crops uneconomic even in country.
1.5.2007 10:43am
Houston Lawyer:
What seems to be missing here is any idea of the costs of barriers to free trade. I recall seeing data in years past that, in the steel industry, trade barriers cost US consumers $200,000 for every job saved.

Advocates of barriers to trade are invariably rent seekers who are trying to get the government to prop up prices in their industries. Free trade allows the most good for the most people. Poor people shop at Wal-Mart to increase their standard of living. Tell them that paying more for groceries is for their own good.
1.5.2007 10:55am
James of England:
JF Thomas.

Why do we demand that IP rights and notions be included in free trade agreements (the concepts behind and enforcement of such rights are extremely complex and often alien to the countries we make these agreements with) yet when it comes to environmental and labor standards we use the very same arguments to say we shouldn't include them in trade agreements?


All FTAs (except Australia) have labor and environment chapters. Go to USTR.gov and read a few. They could be more brutal, but so could the IP chapters. Perhaps you mean to ask why we have TRIPS but we don't have an ILO? Or why... No, I'm struggling to think of what you could mean. In fact, I'll give you a direct link to the text of the CAFTA so you don't even have to search. Note particularly the helpfully labelled chapters 16 and 17. Or Oman (16 and 17). Or Singapore (17 and 18). There's a whole bunch of them there. Pick any of them. Except Australia. And if you pick the NAFTA, remember that the NAALC is a side-chapter, not an integral chapter like the rest have.

Who argues that Singapore or wherever doesn't understand labor laws or IP laws? That's absurd. What these treaties and suchlike are about is harmonising laws, making accountability more transparent. The reason you get factories making genuine BMWs in the day and identical knockoffs at night is not because the Chinese are too simple and mysterious to understand IP. It's because stealing is really profitable. The effort involved in theft is almost always considerably less than the effort involved in creation. I don't know who would say that they didn't understand labor laws either. Chinese disability discrimination laws are particularly advanced, but their whole labor law system exists. It's not the New Deal system, but they've got 21 active (and broadly western) ILO conventions. The US has 12. China can choke of its growth by overregulating its labor market any time it wants to. It's not deciding to hold back a moment purely out of ignorance. That isn't to say that it wouldn't be better to do so, just that there are bona fide arguments for both sides.
1.5.2007 11:09am
El Capitan (mail):
"What seems to be missing here is any idea of the costs of barriers to free trade. I recall seeing data in years past that, in the steel industry, trade barriers cost US consumers $200,000 for every job saved."

This is exactly right. Tariffs are nothing more than a tax on American consumers, to subsidize certain favored sectors of the workforce. The auto worker in Detroit might get to keep her job, but the teacher in Texas has to pay more for his Rav4. As, for that matter, does the auto worker in Detroit. We can't tariff ourselves into prosperity any more than we can tax ourselves into prosperity. But then again, the left doesn't get the latter point either.
1.5.2007 11:21am
Buckland (mail):
Free trade is an easy subject to demagogue because the victims are easy to find while the beneficiaries are so widely dispersed. Finding a factory that shut down because of offshore competition doesn't require a lot of energy. Showing a good evening news picture of millions of people who have 1% more disgressionary dollars is complex.

This can be seen throughout this thread. Specific examples of problems with free trade -- jobs going "over there", intellectual property theft, etc., are easy to see. But the fact that the poor in America live better than the middle class did just 30 years ago is harder put in a direct cause/effect relationship to free trade. However liberal trade policies are a substantial part of that wealth creation.

But I guess as a country we have to go through this debate every now and then. When times are good there's no perceived need to continue to relax trade restrictions, indeed a need to tighten to preserve what's ours. But this too will pass and Lou Dobbs will find something new to talk about.
1.5.2007 11:24am
James of England:
Thomas again:

You obviously don't know anything about the software industry. Offshoring, outsourcing (or even the use of H1B visas to bring temporary workers into this country) or whatever you want to call it has nothing whatsoever to do with being more efficient (and btw we are less efficient than the Germans and the dreaded French). It is actually counterproductive and makes everything less efficient. It is all about keeping costs down. It takes more time and outsourced work is less responsive to customer needs, but it is a hell of a lot cheaper. It is a classic case of being pennywise and poundfoolish.


Right. I'm sure that Intel, Microsoft, et. al. are just kicking themselves over it. They'll never make the big league if they continue with foolish strategies like this! They clearly know nothing about the software industry.

The French and Germans are more efficient on a work/hour basis. I'm assuming you're familiar with the economics surrounding what happens with labor when you increase its cost, reduce hours and so on, so I won't bore you with the reasons why their workers are more efficient. As companies, they're less efficient. In part because they're less good at outsourcing, although there's a lot of other factors at play. Incidentally, I'm curious as to what your explanation is for the American boom as America has engaged in ever more joint ventures (my line of work, incidentally) and the efficient French lack of a boom?

WM13: Sure, but it is more important to expose widely held errors than minority ones. When in groupthink of Reagan-worship, you'll always see more clearly if you remember that it was Carter who sealed the awesome Tokyo GATT round and installed Volcker etc.

Houston Lawyer: There are a lot of people out there who are wrong without corruption. Most people who are against trade harm their own interests. Hell, Seattle has one of the strongest anti-trade movements. It's always worth remembering that during the cold war there were a lot of journalists, politicians, etc. who took money from the Soviets, but there were many times more who were willing to lie an do the wrong thing without getting paid.
1.5.2007 11:27am
J. F. Thomas (mail):
Or why... No, I'm struggling to think of what you could mean. In fact, I'll give you a direct link to the text of the CAFTA so you don't even have to search. Note particularly the helpfully labelled chapters 16 and 17.

You're joking right? I just love when people claim that things that simply aren't true and are so bold in their assertion that they actually provide a link that proves they are lying. Did you expect me to not bother to follow the link and actually read the sections of CAFTA that you so helpfully pointed me to? You must be a really be a bad poker player because you don't know how to bluff.

So I follow your link and read the agreement. And what does it say, the parties will make every effort to follow their own labor and environmental laws. So I guess you are technically correct, we include environmental and labor standards, but how on earth can you believe that boilerplate that says the participants will make every effort to enforce their own laws has anything to do with "harmonizing" laws?
1.5.2007 11:32am
Buckland (mail):

Chinese disability discrimination laws are particularly advanced, but their whole labor law system exists. It's not the New Deal system, but they've got 21 active (and broadly western) ILO conventions. The US has 12. China can choke of its growth by overregulating its labor market any time it wants to. It's not deciding to hold back a moment purely out of ignorance. That isn't to say that it wouldn't be better to do so, just that there are bona fide arguments for both sides.



One issue with China is the relatively weak central government. Traditionally China had a very weak Emperor and relativly strong governors and city mayors. This went away with rise of the communists as they tried to bring all power to Beijing. However in the last 20 years or so the local authorities have reasserted themselves -- with a vengeance in the last 5. Beijing now has lots of rules that are routinely ignored in the South and even more so in the interior. That's one reason that some areas of China are approaching first world wealth standards and other areas are still poor. It's also why IP protections are so spotty -- the central government can make all the rules it wants, but if the local authorities decide to ignore them not much will happen.
1.5.2007 11:37am
Gordo:
This thread provides ample evidence why the sensible and growth-producing policies of free trade continue to come under chronic assault from protectionists.

History and Economics study clearly and unequivocally demonstrates that free trade increase economic prosperity for everyone involved. Go to any reputable macroeconomics textbook to find the evidence.

But it's hard to explain, and the alternative "zero-sum" economic non-theory is easy and palatable. John Edwards has clearly decided to base his presidential candidacy on this demagoguery, for example.

So the vanguard for economic common sense must continually fight the free trade battle. And I pray that we will prevail.
1.5.2007 11:51am
J. F. Thomas (mail):
Right. I'm sure that Intel, Microsoft, et. al. are just kicking themselves over it. They'll never make the big league if they continue with foolish strategies like this! They clearly know nothing about the software industry.

Well, those particular chickens haven't come home to roost yet. Intel and Microsoft (and I'll quibble with you about Microsoft--its genius is not in the software itself, most of its products are second rate, its forte has always been in the marketing and ruthless predatory pricing and monopolistic practices) and all the other software companies have been doing wholesale outsourcing for the last five years or so. They are under the mistaken impression that they can outsource the grunt and rote work of software development to Singapore and India and retain the high level, conceptual and really creative work in this country. They are simply wrong.

Software engineering is the equivalent of making fine machine tools or watchmaking, things which by the way this country (and yours if you really do live in England) doesn't do any more but countries which you are so quick to deride (like Germany) still do. (Question, do you know who makes the printing presses for both U.S. and U.K. currency?) If you outsource your routine work you are eliminating the training ground and fermentation vat for your truly brilliant developers who will be coming up with the innovative products five or ten years down the line. It's like if Rolex announced they were going to outsource all the routine assembly work of their watches to China. Sure, the quality wouldn't suffer for the first ten or fifteen years, but once the master watchmakers left, there would be no one to replace them and soon it would be just another watch.
1.5.2007 11:53am
J. F. Thomas (mail):
But the fact that the poor in America live better than the middle class did just 30 years ago is harder put in a direct cause/effect relationship to free trade.

This is a fact? How are you measuring that the poor live better than the middle class did 30 years ago? I was middle class and in high school thirty years ago and I certainly had a better life than poor people do today. I had health insurance, a nice house, my public high school education was second to none, even my part time job earned me more money than many poor people make today. I earned $2.90 an hour at Walgreens when the minimum wage was $2.65 (which I believe is about $8.00 in today's dollars).

Are you claiming that today's poor are better off because they have cellphones and DVD players? That is a hardly an indication of "living better".
1.5.2007 12:05pm
J. F. Thomas (mail):
History and Economics study clearly and unequivocally demonstrates that free trade increase economic prosperity for everyone involved.

It also clearly and unequivocally demonstrates that it leads to war, extreme income disparity, exploitation, a race to the bottom, genocide, revolution, and brutal dictatorships. It all depends on the lessons you want to take from it.
1.5.2007 12:12pm
James of England:
Thomas

So I follow your link and read the agreement. And what does it say, the parties will make every effort to follow their own labor and environmental laws. So I guess you are technically correct, we include environmental and labor standards, but how on earth can you believe that boilerplate that says the participants will make every effort to enforce their own laws has anything to do with "harmonizing" laws?

You'll also note there's stuff about capacity building, most of the nations involved (not the US) make key labor reforms as part of the negotiation process (admittedly that's not in the text of the treaty), there's some aspirational stuff, all of which helps to harmonise directly.

The important stuff, though, is enforcing the laws they have. Mexico for example famously has much more stringent labor laws than the US. It just conspicuously failed to enforce them. The NAALC had the same "enforce what you have" and as a result Mexican workers now have statutory pregnacy discrimination protections that they didn't have before. There are tensions and shifts in every legal system, with the result that installing a ratchet and pushing a little is generally all it takes.


To reply to your other post. Perhaps my belief, and the belief of almost every major software CEO, is wrong. I think it's a little unkind of you to suggest that my sharing their view shows that I know nothing about software. I think you're exaggerating their views, btw, and that they're interested in building capacity for high level conceptual work in India (my geographical focus, kinda) as fast as they can. In your Rolex example, if all the training went abroad (which is decidedly not what is happening in the US software industry, where there are large numbers of young men finding employment) the Rolexes would be made in China, or wherever else that generation of Master Rolex Makers moved to. I'm not sure what gets lost in this (I also suspect that the value of watch craftsmanship will have fallen rapidly in a generation's time).

Maybe outsourcing et. al. won't work, but if the giants of the field don't know about software, who does? Likewise, I wasn't passing those links on because I was lying. I passed on the links to show that FTAs have labor and environmental chapters. As it happens, I believe that there has been, empirically, more impact in terms of legal harmonisation than in terms of enforcement. That's somewhat counterintuitive from the text, I agree, and I should perhaps have explained at greater length. I'm not calling you a liar when you say that we don't include labor chapters in FTAs. Please believe that sometimes I make genuine mistakes, that sometimes, as with software punditry, I'm wrong without being totally ignorant, and sometimes I'm right but you haven't understood the issue.
1.5.2007 12:18pm
James of England:

(link)J. F. Thomas (mail):
History and Economics study clearly and unequivocally demonstrates that free trade increase economic prosperity for everyone involved.

It also clearly and unequivocally demonstrates that it leads to war, extreme income disparity, exploitation, a race to the bottom, genocide, revolution, and brutal dictatorships. It all depends on the lessons you want to take from it.

Please cite an example of free trade unequivocally leading to a race to the bottom.
I suspect Daniel Drezner would be almost as intrigued as I was. I link just because I thought that that was quite a neat summary.

Buckland: I think that that is what I was trying to say in an earlier post. In the one you quote I should have suggested that the provincial chinese governments could take that action. I don't believe that the feds would stop them, any more than the Indian feds mess with Kerala and West Bengal. Maybe a bit more.
1.5.2007 12:30pm
Buckland (mail):

Are you claiming that today's poor are better off because they have cellphones and DVD players? That is a hardly an indication of "living better".


To some it is -- witness the large amounts of dollars spent on technology over the Christmas season. To others it's not. Some people don't own cellphones because the price still higher than the conveniece they bring. However it seems that a lot of people have voted with their dollars that technology does make their life better. Indeed, you seem to have voted that the internet makes your life better.

Technology is only a part of living better, not all of it. Indeed getting the marvels of the 70's like color TV is a much smaller piece of the paycheck than it is today. In addition technology just gives better goods now than the -- remember how hard it was to get an 8 track tape unwound from the mechanism when the player malfunctioned? No, I guess you don't. But I've never had to unwind a tape from my iPod.

The biggest improvement over the last 30 years is probably in the area of food. Grocery store prices haven't moved much over the years while the selection has exploded. There was a time when winter produce was expensive and horrible. Now the Chileans and Mexicans ensure that we have really good grapes and tomatoes year round. Look in your neighborhood at the number of backyard gardens. The count is probably much smaller than it was 30 years ago. Suburban gardens are now reserved for those who enjoy the art; making a meaningful contribution to the family budget with a garden is a fool's errand. Specialists in every state and many foreign countries grow our food now. They're much more efficient at it.
1.5.2007 12:34pm
J. F. Thomas (mail):
I think you're exaggerating their views, btw, and that they're interested in building capacity for high level conceptual work in India (my geographical focus, kinda) as fast as they can.

Well as a former software engineer (I worked not for a software developer but for a telecommunications company) I know that the decision to outsource at my company was purely based on cost savings and absolutely nothing else. And the claim was made that the high-level work would be kept in house when it was obvious within a few years the people doing the high level work would disappear and there would be no one to replace them. Furthermore, there is no doubt that the product coming from India was inferior because of a myriad of issues including the distance, time, lack of physical proximity, language and culture barriers. But the budget numbers sure looked good.

As for your assertion that they (CEOs) are "interested in building capacity for high level conceptual work in India". What possible reason besides cutting costs do they have for wanting to do this? There is no shortage of software engineers in the U.S. or, as far as I know, in the U.K. The rush to outsource is simply about the desire to lower costs and increase profits by paying the people who create the product less money. It's not like the lower costs are going to be passed on to the consumer (which is the traditional excuse for moving manufacturing offshore). It is just going to be used to further enrich stockholders at the expense of software engineers (and former software engineers) in the U.S. or the U.K.

Of course you will tell us we all need to find a new career in a new innovative industry. Any ideas? By the way, your assertion that the software industry in the U.S. is healthy is simply not true. People are leaving it in droves and most importantly, college students are avoiding computer related careers in droves. The number of computer majors has dropped precipitously in the last few years as anyone with half a brain knows that the industry is dying.
1.5.2007 12:43pm
J. F. Thomas (mail):
Please cite an example of free trade unequivocally leading to a race to the bottom.

The shift of manufacturing from the U.S. to Mexico to Southeast Asia outside China to China.

Technology is only a part of living better, not all of it. Indeed getting the marvels of the 70's like color TV is a much smaller piece of the paycheck than it is today. In addition technology just gives better goods now than the -- remember how hard it was to get an 8 track tape unwound from the mechanism when the player malfunctioned? No, I guess you don't. But I've never had to unwind a tape from my iPod.

You apparently have no idea what it is like to be poor if you think that you can judge living the equivalent of a middle class life on a jammed tape or the variety of food available at a grocery store. Here's a clue for you. For poor people the issue is often not the variety of food available but if there is even a grocery store in their neighborhood, or if they have enough money to buy food.

Maybe you should go down to your local food bank and help out one day. Tell the people who come in for their food baskets how they are better off than middle class people of thirty years ago because they don't have to deal with the horrors of the 8-track and the Whole Foods in your neighborhood has white asparagus from Peru and plantains from Jamaica.
1.5.2007 12:54pm
William Tanksley (mail):
It also clearly and unequivocally demonstrates that it leads to war, extreme income disparity, exploitation, a race to the bottom, genocide, revolution, and brutal dictatorships. It all depends on the lessons you want to take from it.


This contradicts what I know of history, and what I understand of the mechanisms of economics. Can you support any of those claims?

It seems to me that when trade is hindered, there is an additional cause for war which is not present when trade is free. Furthermore, it seems that when trade is free, there is incentive to NOT go to war, because your customers and suppliers would be cut off.

I have no idea how free trade would increase income disparity; it seems certain that blocking trade would cause income rates in different countries to become entirely independent of one another, so that the resource-rich (lucky) nations would have strong incomes and the less lucky ones wouldn't. That would be extreme.

The word "exploitation" is hopelessly vague. I won't address it until you clarify.

"A race to the bottom"? Presumably you mean asking the people who earn the least to do all your work? But this (if it were true) would be a race of MONEY to the people who need it the most. How is that bad? It's also not entirely true; although everyone wants to pay less for what they get, they also want to be reasonably sure of not being shafted in the process by corruption and bad law.

"Genocide, revolution." This is clear, but I don't know how it could relate to free trade. (I don't have any reason handy why free trade should increase or decrease genocide or revolution.) Provide reasons, please.

"Brutal dictatorships." This is nonsense. A brutal dictator is poison for free trade; a dictatorship is a control economy, not a free one.
1.5.2007 1:18pm
J. F. Thomas (mail):
This contradicts what I know of history, and what I understand of the mechanisms of economics. Can you support any of those claims?

Well, then you don't know much history or economics (or more likely, like most conservatives and libertarians you refuse to acknowledge the history and economics of the last time we had almost unrestrained free trade and capitalism). I am course am referring to the events that led up to World War I and its aftermath.
1.5.2007 1:26pm
El Capitan (mail):

Well, then you don't know much history or economics (or more likely, like most conservatives and libertarians you refuse to acknowledge the history and economics of the last time we had almost unrestrained free trade and capitalism). I am course am referring to the events that led up to World War I and its aftermath.


Um, I think that got left out of my History of Europe 1870-1945 course. I even googled "'free trade' world war i" to see if there was something obvious I was missing, and came up with nothing. Care to enlighten?

PS I'm pretty sure that the liberal point of view in international relations used to hold that free trade was a key to global peace, rather than antagonistic to it (much less causing genocide, death, four horsemen of the apocalypse, etc), so I'm really interested in hearing this explained.
1.5.2007 1:45pm
Gabriel Malor (mail):
JF Thomas, the events that led to World War I include a drastic increase in trade barriers. Your example runs exactly counter to your argument.
1.5.2007 1:51pm
totochi:
JF Thomas: The company I work for hire hundreds of H1B candidates. We look for the best HW/SW engineers and worry about immigration status later. It also has no impact on what we offer wrt salary/benefits. Don't take your one personal experience and apply it to the entire industry.
1.5.2007 2:45pm
Jeff S.:
JF Thomas: There ought to be something analagous to Godwin's Law which can be invoked every time someone claims to prove something about "the poor" by intimation that they have the inside scoop about what goes on at a food bank. Until that post, I'd been admiring your stamina if not your arguments.
1.5.2007 3:07pm
Adeez (mail):
"Are you claiming that today's poor are better off because they have cellphones and DVD players? That is a hardly an indication of 'living better'."

Great point my friend. My knowledge of economics is inferior to that of many on this cite. But as a reasonably intelligent observer, I do not believe things are getting better for the "bottom" 90 or so percent. It seems everyone who states the contrary cites consumer goods like TV's and DVD's. Gas is definitely a big exception, b/c it really is cheaper. But to me the best measure is home ownership. A generation ago, it seems that young married couples owned their own homes while one spouse stayed home. That seems unthinkable today: personally this poorly-paid lawyer with a wife who works in finance with a well known financial instutution cannot even fathom owning anything decent yet. We're in our late 20's, and as we receive no handouts from anyone (which seems to be the main way people in their 20's buy these days---with down payments from mommy and daddy), accumulating, say, $50k for a down payment sounds like fantasy. And forget kids.

Yes, I know it's anecdotal. And yes, we live in NYC, which is grossly expensive. But I believe our story is becoming more and more common.

And please, while most of us here are adults, there are some knuckleheads. So this is just for them: I am not whining. In fact, I'm as happy as ever. I'm making a simple observation, so relax.

If the middle class continues to decrease while the wealth discrepancy increases, the economy and all of us is will suffer dearly.
1.5.2007 3:14pm
Gabriel Malor (mail):
Adeez, again your example, though anectodally supportive, in general runs counter to your argument. Home ownership is at an all-time high in this country. See Figure 1 on the second page of this report (PDF) for the long-term homeownership rate. Yes, I know the rate this year is slightly down from last, but it's still significantly higher than it was even 10 years ago.
1.5.2007 3:28pm
Adeez (mail):
Gabriel: I admittedly did not check your link. But, I did recently read that a very large percentage of home recent home purchases were purchases of SECOND homes. If that's the case, doesn't that skew the other stats? In any event, I don't know how my example (which illustrated how a married couple with good jobs are far off from owning a decent home) contradicts my argument, which is that the economy seems to be getting worse for the vast majority of us. But that's a tangent; kindly address my first point if you will.

And very generally, how can people claim that our economy is strong when China owns us? If I am in possession of valuable assets, none of which are paid for, can I say I'm wealthy? I'm not being a smartass. I really wanna know the answer if someone can help me out here.
1.5.2007 3:38pm
Mike Buckland (mail):
Adeez,

I think the rub is in 2 words you used -- "anything decent". What you consider below decent would have been a treasure to folks of times past. Lots of people in NYC own homes, and I would guess that many, possibly most, of them have a lower income than you. It may be true that you can't afford a home as large as you want, in the area you desire, with the latest amenities, etc., but I don't think you can generalize to 2 professionals can't afford a home in NYC. Thousands of NYers, especially those outside of Manhattan and SI, own homes on far less than I would guess you make. And heck, some of them even have kids.

People make choices. Yours to rent is a nice area is once choice, but others have bought on the same or less income, especially in previous generations. Giving up some current consumption to save for the house is a time honored tradition. But choosing not to compromise or scrimp to save is not the same as not being able to buy a house.
1.5.2007 4:01pm
STBuckley:
Adeez - 2 points on the home ownership:

1) I think you misunderstand the meaning of homeownership rate. It means the percentage of the population that owns at least one home. Wealthy families owning more than one do not effect the ownership rate (well, I suppose that more homes purchased might have some upward effect on home prices, but that is ancillary to this discussion).

2) Today's Generation Y first-time homebuyers are younger than their Generation X and baby boomer counterparts. The average age for first-time homebuyers was 26 among Generation Y respondents, which is three years younger than Generation X (29) and baby boomer (29) survey participants.

Survey of age of First time Home Ownership
Take a look here:
Census Information

In your defense, home ownership rates in the Northeast definitely lag behind the rest of the country. Still, comparing the Q3 1965 rate in the NE (57.2%) to the most recent info in Q3 2006 (65.5%) does show significant gains. In fact, that 65.5% number reflects the highest rate in the NE since tracking began in 1965.

I strongly agree with Gabriel and his cautions about using anecdotal evidence to deduce larger and longer-term trends.
1.5.2007 4:02pm
toni23:
J.F. Thomas writes:

You apparently have no idea what it is like to be poor if you think that you can judge living the equivalent of a middle class life on a jammed tape or the variety of food available at a grocery store. Here's a clue for you. For poor people the issue is often not the variety of food available but if there is even a grocery store in their neighborhood, or if they have enough money to buy food.

Erm--

Most legitimate grocers won't locate in "inner cities" because they work with very slim margins and endemic and pervasive "shrinkage" in these venues eliminates all possibilities of management's fulfilling their fiduciary responsibilities to their shareholders.

Do they have "enough money to buy food?"

Please show me even *one* lazy person who is not entitled to food stamps, at the great expense of those who actually work.
1.5.2007 4:11pm
STBuckley:
A little more digging on the Census site reveals the home ownership rate by state from 1984 to Present. For New York the rate has risen over that period from 51.1% to 55.9%. The second worst rate in the US (to the District of Columbia) but still better than it used to be.
1.5.2007 4:17pm
El Capitan (mail):
Adeez,

Not to pile on, but I'd suggest reading the link. People under 35 still own homes at a relatively low percentage -- less than 50%. This number is higher than 20 years ago. Of course, there is a lesson there -- and it is an important one for all wealth discussions -- which is that wealth and income disparities are often the difference between being young and starting out in your career (and accumulating wealth), and being old and at the end of your career (and finishing accumulating wealth). 81% of people hit retirement age owning a portion of America (again, up from 20 years ago), which is pretty astounding.
1.5.2007 4:23pm
Adeez (mail):
"I think you misunderstand the meaning of homeownership rate."

No sir (or ma'am), I do not. I get it. If indeed a greater percentage of our population own their own homes, then yes, that would indicate a growing middle class. And a growing middle class would also be evinced by your assertion that people are buying at younger ages. So conceding your points, and given your apparently greater knowledge of econ, is it your claim that the middle class is growing? That wealth disparity is decreasing? I really wanna know, b/c while I "feel" that the answer is a resounding NO, I am open-minded and willing to consider all evidence to the contrary.

And please reconcile your answer with the fact that the country is in enormous debt.

While I certainly understand that anecdotal evidence can be flawed, I respectfully submit that some stats are often just as easy to manipulate.
1.5.2007 4:24pm
STBuckley:
Adeez - Actually I would dispute that home ownership is the sole metric for the size of the "middle-class". I make no claims about the growth of the "middle-class" or changes in wealth disparity. Interestingly, earlier in this thread other posters touched on the disparity vs. individual point. But in trying to find ownership rates by income, I did come across the rates by race. While this requires some extrapolation to gauge rate by income, we do see increases for every minority group (too lazy to type the tag. Just go to the Census site linked above and search for (CPS/HVS)).

Not sure how reconcile statistics with your views.
1.5.2007 4:52pm
tsotha:
Adeez,

The definition of an acceptable standard of living has changed over the years.

My family had one car. My siblings and I shared rooms, and I wore hand-me-downs until I was a teenager. We mowed our own lawn. My Dad fixed appliances when they broke instead of replacing them (including the television). He also fixed the car as necessary and did all the maintennence himself on the car he bought used and kept until it just wouldn't run anymore. Dad yelled at us when we left a light on in an unoccupied room. He drank American beer - imported beers were a luxury. He drove more than an hour to work each day because we couldn't afford a house in the city (LA, in this case). My mother clipped coupons for an hour or two every week, and we rarely went out for dinner.

At the time we were considered solidly middle class, wheras today this is gut-wrenching poverty. As others have pointed out, home ownership rates are much higher than a generation ago. Do you really believe life is harder for young people today?
1.5.2007 4:56pm
DeezRightWingNutz:
I'd like to point out that a growing middle class (if defined by absolute real income) and increasing income disparity between the rich/middle class/poor aren't mutually exclusive.
1.5.2007 5:09pm
J. F. Thomas (mail):
JF Thomas, the events that led to World War I include a drastic increase in trade barriers. Your example runs exactly counter to your argument.

No, check your dates. The protectionism came after World War I. The conditions before WWI were just the kind of laissez faire capitalist society that libertarians dream they could have today. Free flow of capital all over the world and industry booming. But you are right in that conflicts were beginning to arise because countries, especially England and Germany, were beginning to interfere with each other's breakneck expansion. The war brought out the social strains caused by the concentration in wealth and led to the collapse of all those rich empires and revolutions (and the rise of social democracies and the acceptance of unionization in other countries).

And of course you didn't learn that in your history classes since we don't teach labor or even leftist history in this country--no matter how much you complain about the Marxists.
1.5.2007 5:20pm
El Capitan (mail):
"And please reconcile your answer with the fact that the country is in enormous debt."

The country has always been in debt. Debt in and of itself is not a bad thing, if you take it on to generate the debt to grow the economy to a point where the debt is sustainable. Our current debt is actually less as a percentage of GDP than it was back in the "good ol' days" of the Truman Presidency -- note that we never paid off much of this debt from back then; we merely increased our national income to improve our ability to pay on it.

Along those lines, our deficit is actually a lower share of GDP than it was in the 70s, before the Reagan tax cuts.
1.5.2007 5:20pm
El Capitan (mail):
"And of course you didn't learn that in your history classes since we don't teach labor or even leftist history in this country--no matter how much you complain about the Marxists."

Pft. I don't know where you went to college . . .
1.5.2007 5:21pm
El Capitan (mail):
"gut-wrenching poverty."

Overstating the case a bit. It would qualify you squarely in "working class" or "lower middle class," though, not middle class.
1.5.2007 5:24pm
J. F. Thomas (mail):
Please show me even *one* lazy person who is not entitled to food stamps, at the great expense of those who actually work.

So now we're just back to "the poor are poor because they are lazy (and their thieves too)".

Home ownership is at an all-time high in this country.

Yeah, and how did we achieve that rate? By creating all kinds of sub-prime and wacky (interest only, balloon, teaser adjustable rate) loans that banked on unsustainable and ahistoric inflation in housing prices. People were suckered into loans that they could not afford with the promise that when the time came to refinance their house would be worth twice as much as they paid for it. Why on earth should it be? There is no good reason for the recent boom in housing prices other than speculation. And not only has the boom by fed by "irrational exuberance" but the problem has been compounded by the liquidation of equity in the form of home equity loans. People are are facing the end of the teaser rates learning that they can't afford to make their payments and they are actually "upside down" in their home loans (a term usually reserved in the past for auto loans).

Since I have been derided for being an economic idiot, I'll make a deal with all of you. My in-laws live in Phoenix and I was there over Christmas. I was reading the real estate section and was dumbfounded to read that in 2005 residential real estate appreciated 30%. If any of you can explain to me, in plain English, why this makes the least bit of sense in a rational market (or under any reasonable market-based system), I will accept I don't know shit about economics. Remember, Phoenix doesn't have a shortage of real estate. They should be restricting building permits based on the availability of future water supplies, but they don't (apparently they believe the water will just magically appear when they run out in twenty years or so).
1.5.2007 5:41pm
J. F. Thomas (mail):
I don't know where you went to college . . .

I went to college where I was taught history by honest to god Marxists and card carrying members of the communist party. They actually taught real leftist history and European history from a Marxist perspective. Therefore, I know that all these conservatives that complain about leftist indoctrination on college campuses probably wouldn't know a real communist if one hit them over the head with a hammer and sickle.

And it is obvious from posting here that all you people who complain about leftist indoctrination from the media and on college campuses, you people don't know the first thing about what it truly means to be left wing. You think single payer health insurance is socialized medicine for crying out loud.
1.5.2007 5:49pm
El Capitan (mail):
"I went to college where I was taught history by honest to god Marxists and card carrying members of the communist party. They actually taught real leftist history and European history from a Marxist perspective. Therefore, I know that all these conservatives that complain about leftist indoctrination on college campuses probably wouldn't know a real communist if one hit them over the head with a hammer and sickle."

I'm not sure how this follows. Most of us got taught by the same type of fools (I know I sure did, including the political philosophy prof who invited us all to his CPUSA meetings and told us that the Soviet Union lost the cold war "because socialism is a philosophy designed only for peace," among other wonders; same class spent more time on Habermas than on Mill and Locke combined, plus six weeks on Marx), which is precisely why we think there's leftist indoctrination on college campus. Although, in my experience, the Hegelians were worse.

Housing prices have jacked up in some markets, but not others -- and if this was all the result of those poor uneducated people being "suckered" into loans they couldn't afford (which usually translates into (a) they expect higher incomes in the future or (b) they plan on selling before they get their ARM kicks in, neither of which is irrational) you would see a more even distribution. I'm no expert on the Phoenix real estate market, but common reasons for the spike in places that did spike include: (1) interest rates were low, stimulating demand and encouraging people to buy before rates rose (even with an ARM on a second mortgage, most people could get a fixed rate on 80% of their mortgage payment); (2) because certain areas (like, say, Phoenix) are booming, resulting in increased demand; (3) some places with notorious spikes (eg Miami) are running out of land, given the protected swamp to the west and the ocean to the east; (4) even in places that aren't running out of land (like Phoenix), areas near the city core are always going to be at a premium due to quality of life concerns about traffic, etc; (5) the revitalization of inner cities compounds this by taking slums that were worth next to nothing and turning them into yuppie communities -- resulting in massive percentage increases in the property; (6) and yes, there is plenty of speculation going on with house flipping, etc., which isn't automatically a bad thing.
1.5.2007 6:33pm
Jeff S.:
"...honest to god Marxists..."?

JF, all your posts have just been a put on, right?
1.5.2007 6:33pm
Adeez (mail):
"The country has always been in debt. Debt in and of itself is not a bad thing, if you take it on to generate the debt to grow the economy to a point where the debt is sustainable. Our current debt is actually less as a percentage of GDP than it was back in the "good ol' days" of the Truman Presidency -- note that we never paid off much of this debt from back then; we merely increased our national income to improve our ability to pay on it. Along those lines, our deficit is actually a lower share of GDP than it was in the 70s, before the Reagan tax cuts."

I appreciate your thoughtful response, el capitan. So I ask you in all seriousness: are you not worried about our enormous budget and trade deficits? And the fact that the dollar's shrinking faster and faster? Are me and my lefty brethren crazy for seeing these as signs as doom and gloom? What about the fact that we the people have a negative savings rate for the first time either ever, or at least since the Depression? Do you believe all this debt is truly "sustainable?" And what about JF Thomas's point that millions of people will have to foreclose in the near future? That certainly shows that the fact that we have a higher percentage of homeowners now is not as big a deal as it seems.

Please, I wanna be wrong. Really. Every sign I see is bad. So show me that me and JF are wrong. I would love to start this weekend on a lighter note.
1.5.2007 6:37pm
Elliot123 (mail):
JF Thomas,

While I am not familiar with the particular situation in the Phoenix housing market, one upward pressure on prices in the southwest and midwest is the influx of people from both coasts who are attracted by the lower housing and living costs. Even with a 30% increase, Phoenix may still be significantly cheaper than LA.

A rational market is based on rational actors. If someone can sell a house for $800K in LA, and buy one for $400 in Phoenix, that is a rational decision. It doesn't matter if the $400K house sold for $300 last year. ($300 x 1.3 = $390)

This is simply an example of free trade. We have free trade among the 50 states. Does anybody think we would be better off if each state had its own tariffs and trade regulations? Why not? If free trade is not good between nations, why is it good between states? Many states are larger and more populous than many nations.

Does anyone think free trade among the 50 states has led to "war, extreme income disparity, exploitation, a race to the bottom, genocide, revolution, and brutal dictatorships."
1.5.2007 6:41pm
Elliot123 (mail):
Adeez,

I'm not sure about the millions defaulting in ARMs, but let's say it's true. Millions defaulting would be a huge downward pressure on housing.

As for the dollar shrinking faster and faster? Over what period of time, and against what currency? And what has inflation been over the same period? And GDP? Employment? An economy does not pivot on a single statistic.

Using selective stats to make an economic point is a time honored practice, and I certainly don't discourage the sport; too many economists on both left and right would be unemployed. But I am reminded of John Kerry's use of the Misery Index in 2004. The classic index just added infation and unemployment. But that wouldn't work against Bush since both unemployment and inflation were low. So, the left just redefined the index to include only items which would show an increasing index.
1.5.2007 7:03pm
abean:

Please explain why a person in Des Moines earns 50 times what a person in Canton or Madagascar does for performing the same task.

This just isn't so. It may look like a person in China or some other country has a vastly lower wage for the 'same' work. Don't believe it. It is true that some of it because of productivity, the ability to work with capital, and supply/demand differences. But a good portion of world-wide wage disparity is due to currency imbalances. Third-world countries have both significant risk&fear factors built into the value of their currencies. Consequently, comparisons of their wages are difficult at best. Nor is the 'Big Mac' index particularly sound. First of all it is a single good, not a broad market basket, and second it isn't clear how detacted it is from exchange distortion.

Some goods &services are very domestic in nature, but exchange rates ultimately contaminate the price of every good and service to some degree. Moreover, a good may be 'domestic' because of the exchange rate. Point being these comparisons are methodologically suspect.

If you must, please stick to discussing countries whose currencies are on par with the dollar for risk or otherwise pegged to the dollar.
1.5.2007 7:18pm
J. F. Thomas (mail):
It doesn't matter if the $400K house sold for $300 last year. ($300 x 1.3 = $390)

Well actually it matters a hell of a lot. If you look at the value of residential real estate in this country from the end of WWII to 2000, it pretty much appreciated just slightly above the rate of inflation. It was a sound investment, but you weren't going to get rich from your home. Of course there were certain parts of the country that experienced booms and busts or where real estate experienced ridiculous (although often explicable) inflation. But if you look at the last five years, the inflation in residential real estate was absolutely insane, and completely unprecedented. It is no coincidence that it was due almost entirely to the loosening of credit and "creative" financing.

Face it, the rich and powerful in this country, in the last twenty-five years, have systematically stole the nest egg the hard-working middle and working class people of this country fought, worked and sometimes died for through the depression, World War II, and the thirty years that followed the war. First they robbed the pension plans by converting them to 401Ks and underfunding the ones that remained. After all the pension plans were eliminated or underfunded they bankrupted the companies so they could escape the commitments they had made. Next they attacked the 401K plans by destroying the very companies themselves. They even tried to get their hands on the last safe nest egg, Social Security. When that failed, they turned to the last asset the middle and working classes in this country have--their homes. Question is, now that they have bled that dry in a frenzy of speculation, what will support the base of the pyramid now?
1.5.2007 8:03pm
J. F. Thomas (mail):
JF, all your posts have just been a put on, right?

Do I posit positions more extreme than I actually support to keep all you righties and libertarians on your toes? Of course I do. Am I dead serious about my base convictions and think our current economic policy has us headed on a course of disaster. You bet your ass.

BTW, my undergraduate degree was in chemistry, but the school I went to (Northern Illinois University) was notorious for having a Marxist history department. It was a legacy of when they switched from being a teachers college to a university. In order to build up their history department quickly and cheaply they went out and hired a bunch of blacklisted academics (this was the mid-sixties when they did this). So their history department was full of a bunch of raving communists. My best friend was a history major (as was my brother--he used to be a communist too).
1.5.2007 8:15pm
Mark Field (mail):

Our current debt is actually less as a percentage of GDP than it was back in the "good ol' days" of the Truman Presidency


Yes, but it's much higher than it was under Carter or Clinton (end of term).


our deficit is actually a lower share of GDP than it was in the 70s, before the Reagan tax cuts.


Not according to the chart here.
1.5.2007 10:01pm
tsotha:
Adeez,

I'm not so worried about the trade deficit. The Chinese have been keeping the yuan to dollar exchange rate artificially low as a means to generate jobs. As long as US unemployment is reasonable an exchange rate that favors the dollar is good for us because it keeps inflation down.

But think about what's happening here: The Chinese are trading materials and labor for dollars at firesale prices, and then buying US government debt with the dollars. Or, put another way, they're trading goods and services for little pieces of paper that have a promise of repayment written on them.

So who do you think has the power in this relationship? The lender with all the paper but no means to enforce payment, or the borrower that could bankrupt him in a day?

At some point they'll have to let the yuan float, and when that happens they're gonna lose their asses on all that dollar-denominated debt.
1.5.2007 11:01pm
Elliot123 (mail):
JF Thomas,
Well actually it matters a hell of a lot. If you look at the value of residential real estate in this country from the end of WWII to 2000, it pretty much appreciated just slightly above the rate of inflation.

I agree it matters when prices change, and it matters when a house increases in value by 30% in one year. My point, which I didn't make well enough, is that a rational actor in a rational market can be making a rational decision to pay $400K even after 30% appreciation. The fact that the house apppreciated 30% does not negate the rationality of either the market or the buyer.

But if you look at the last five years, the inflation in residential real estate was absolutely insane, and completely unprecedented.

Look at the housing market in LA in the Eighties. That's a precedent. And, who benefited from the appreciation of the last five years? I'd say it was all those people who owned the houses. Middle class folks who bought between the end of WWII and 2000? Surely you don't begrudge those working families an increase in ther nest egg?

After all the pension plans were eliminated or underfunded they bankrupted the companies so they could escape the commitments they had made. Next they attacked the 401K plans by destroying the very companies themselves.

Our economy is full of healthy and profitable companies. What companies were destroyed? Millions have stock in these companies through their 401k programs. It's interesting that 401Ks have served to widen the base of corporate ownership more than anything else. These programs have accomplished what socialism only dreamed of doing. Pension and 401Ks have a huge stake in corporate ownership.

They even tried to get their hands on the last safe nest egg, Social Security.

What nest egg? SS has no nest egg. It's a pure pay-as-you-go program. People pay taxes each month, and that money is given to retirees. It's a transfer payment. No investment, no savings, no nest egg. Bush's plan actually would have created nest eggs, but the current plan has none and never did.
1.6.2007 12:19am
STBuckley:
Before I comment further, I would like to thank all the posters. This discussion, polite and thoughtful, is one of the reasons I enjoy this site so much.

There seem to be 2 issues here: real growth of wealth for lower income groups vs. the disparity in wealth between top and bottom quintiles. It seems to me that the poor are getting a shrinking piece of a growing pie. While the economy is growing (as yesterday's job numbers show) then the disparity issue is one of "fairness" rather than actual damage. If the economy should stop growing than the disparity issue becomes more evident. As my father would say, "Reasonable men can disagree" on the proper allocation of this increase in wealth. This is an important issue, but let us not lose sight of the fact that everyone is currently better off than, say, 30 years ago.

As to the falling dollar, well, when the Euro was introduced, it was set at $1.30 to the Euro. As of yesterday it was at $1.29934 to the Euro. Not such a big difference, eh?
1.6.2007 12:38am
Elliot123 (mail):
Regarding he guy in Des Moines earning 50 times as much as the guy in Madagascar, try inverting the observation a bit. Who thinks the guy in Des Moines could live in Des Moines on 1/50th of his current wages?

Let's say he earns $50K, has two small kids, and his wife is taking care of the kids and not working. Anyone think four people could survive in Des Moines on $400/month? Then we could make it more fun and say he was self-employed and paid 15% is Social Security, reducing his $50K to $42.5K in maximum net income. Then the four are living on $354/month, or $11.80/day.

The local economies and exchange rates make such comparisons meaningless.
1.6.2007 12:58am
Mark Field (mail):

As to the falling dollar, well, when the Euro was introduced, it was set at $1.30 to the Euro.


No, it was set at $1.17 IIRC. That would mean a rise of 11%. Of course, for most of the last 6 years the Euro was running far below its initial value. Currencies fluctuate.
1.6.2007 10:59am
STBuckley:
Mark - You are absolutely right. I stand corrected. :)
1.6.2007 12:08pm
El Capitan (mail):

Yes, but it's much higher than it was under Carter or Clinton (end of term).


Has nothing to do with my point, which is simply that our current debt level is historically sustainable. Debt in and of itself is not bothersome. It can even be healthy. I'm glad I have a huge amount of debt -- without it, I would never have been able to attend law school, which would mean that I would still be a bartender. And I wouldn't be able to own the house I own now until I was 50 or so. Similarly, I'm glad that the country took on a huge amount of debt to fight the civil war (most of which we still carry), WWI and II (Again, most of which we still carry), to build the interstate highway system, etc.


Not according to the chart here.


That is debt to GDP. My point is that our deficit to GDP level is the same as it was at the end of Carter's term, back when the top tax bracket was in the 70s (as opposed to the 30s today).

Adeez,

are you not worried about our enormous budget and trade deficits?
Certainly not the trade deficit, which I've been hearing doom and gloom about since the 80s. As I've said before, compared to our GDP -- the relevant metric -- our budget deficit isn't that enormous, so no, it doesn't keep me awake at night.

And what about JF Thomas's point that millions of people will have to foreclose in the near future? That certainly shows that the fact that we have a higher percentage of homeowners now is not as big a deal as it seems.


I'm not sure that's right. Most people got ARMs because they believed that their incomes would be higher in five years than when they bought in the early '00s, so if their monthly payments went up, they would be able to afford them. And a lot of them will be correct. It's the same reason I went interest-only on my student loans for the first couple years -- it meant a higher monthly payment later on, but at a time when my salary would likely be higher (it is), and I could better afford it (and I was able to use some of the difference to pay off higher interest credit card debt and put some in a 401k). I think there are some flippers and speculators who let themselves get overextended who will get nailed, but the vast majority of people will be fine (especially since many who had ARMs only had them on their second mortgage, or refinanced when interest rates started to go up, so they should have some equity and be able to cover their remaining mortgage should they have to sell.

Or we could be heading toward a depression. Who knows. If I could predict the economy, I'd be a lot richer than I am today.

As to your other statistics, you'd have to get me a link. Those things mean different things depending who is saying them.
1.6.2007 10:44pm
Mark Field (mail):

Debt in and of itself is not bothersome. It can even be healthy.


Agreed.


That is debt to GDP. My point is that our deficit to GDP level is the same as it was at the end of Carter's term


Sorry, for some reason I read it as debt.
1.6.2007 11:10pm
William Tanksley (mail):
I found the claim about unparalleled free trade prior to WWI to be contrary to my knowledge about history, so I did some digging. I believe that the author is referring to Britain's unilateral free trade policy at the time, since there's nothing else I could find that would support such a claim. The US in particular was vastly increasing its protectionism in the decades leading up to the war.

So... Now, can you show anything that links Britain's unilateral free trade policies to the "Great War"?

Come on. You made a LOT of really strong claims, and I called you on all of them. Your ONLY response was to claim that ONE war was caused by enormously high levels of free trade, a claim for which you provide no support or evidence of any kind.

I'm calling you on ALL your claims. And I provided specific reasoning for my doubts.

-Billy
1.7.2007 1:04pm
J. F. Thomas (mail):
WWI and II (Again, most of which we still carry)

Actually, you're simply wrong about this. Most of the debt from both WWI and II was financed specifically through war bonds with an expiration date (and almost two-thirds of the debt for WWII was carried directly by the people of the U.S. when they purchased individual war bonds). That debt was substantially paid off by the early '60s, which is why Kennedy was able to lower taxes so much and it is why top income rates were so high during the forties and fifties. You see there once was a time when the people and government of this country believed in paying for wars in the generation they fought them. (As an interesting aside the UK just last week retired the last of its debt it owed the U.S. for loans during WWII).
1.7.2007 1:14pm
El Capitan (mail):

Actually, you're simply wrong about this. Most of the debt from both WWI and II was financed specifically through war bonds with an expiration date (and almost two-thirds of the debt for WWII was carried directly by the people of the U.S. when they purchased individual war bonds). That debt was substantially paid off by the early '60s, which is why Kennedy was able to lower taxes so much and it is why top income rates were so high during the forties and fifties. You see there once was a time when the people and government of this country believed in paying for wars in the generation they fought them. (As an interesting aside the UK just last week retired the last of its debt it owed the U.S. for loans during WWII).


Ummmmm...I'm pretty sure you're not right here. In the 18 years from 1946-1963, we ran (modest) surpluses in seven of them. They totaled 30 billion dollars. That covers the deficit we ran in 1942 and for about the first 1/4 of 1943. While it is true that we retired war bonds, this was paid for by issuing new debt.
1.7.2007 10:06pm
J. F. Thomas (mail):
Come on. You made a LOT of really strong claims, and I called you on all of them. Your ONLY response was to claim that ONE war was caused by enormously high levels of free trade, a claim for which you provide no support or evidence of any kind.

This is the initial really strong claim I responded to:

History and Economics study clearly and unequivocally demonstrates that free trade increase economic prosperity for everyone involved. Go to any reputable macroeconomics textbook to find the evidence.



I guess I should have left it with a snarky reply of with my assertion and "Go to any reputable textbook of European 19th and early 20th century history that takes a Marxist interpretation of history". Because there is ample interpretations out there that the disasters of the twentieth century began with tensions between the three great powers of Europe when there economic empires reached the limits of their expansion and the conflicts that had been simmering (which were after all economic in nature) finally exploded. Furthermore, as the war dragged on, the inequities of the class structure led to the social unrest that racked the great empires of Europe after the war (and to a lesser extent, even the U.S.) and led to communism in Russia (and eventually China), Nazism and fascism in Germany, Italy and Spain, and recognition of labor rights and social democracy in much of the rest of Western Europe (and again to a lesser extent in the U.S.)

The assertion stated is really meaningless because it doesn't define "free trade", "everyone", or "economic prosperity". From a macroeconomic sense I suppose that if some people in a very rich country end up substantially poorer (go from making athletic shoes for $17 an hour with full benefits and frequent overtime to working at WalMart at $8 with no benefits and no overtime) while some very poor people in another country go from earning a $2 or $3 a day to $.50 an hour (but with no workers' rights and in dangerous and unhealthy conditions) while the Corporation's profits jump from $15 to $25 million from lowered labor costs, I guess "everyone" is more prosperous. But the former shoemaker, who can't afford dental care or a doctor's visit for his child, sure doesn't feel more prosperous. But his relative loss of prosperity doesn't matter to the macroeconomist because the stockholder (or the NBA star who shills the $150 pair of shoes) of his former employer is much richer (he now makes $6 million a year rather than $5 million, which of course he spends on imported cars thanks to free trade) because of free trade.
1.8.2007 11:07am
William Tanksley (mail):
"I guess I should have left it with a snarky reply..."

Perhaps so. I wouldn't have challenged a content-free post, even one making the absurd pseudohistorical claims you made and make.

May I take this as a withdrawal of your claim that free trade causes war, oppressive dictatorships, and all those other nasty things on your list?

I see your claim about an anecdotal result of free trade, and I agree that kind of thing does happen. The problem is that it'll also happen without free trade between nations, so long as you have any kind of division of labor. With division of labor, you wind up with economic changes that can throw people out of work; without division of labor, your economy will stay small enough that the changes within it usually won't throw people out of work (of course, the economy also won't be able to protect you from things like a slightly dry harvest season).

The problem is that without division of labor and free trade, economics is a zero or negative sum game. With both, it's a positive sum game. Without free trade, war is the only way to grow past a certain point; with it, war is counterproductive (to economic interests; ideology is another matter).
1.8.2007 12:29pm