Links for the Week of March 5, 2017

Trade Deals and Alternative Facts: No Longer Fresh at Project Syndicate

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Project Syndicate: Trade Deals and Alternative Facts: BERKELEY – In a long recent Vox essay outlining my thinking about US President Donald Trump’s emerging trade policy, I pointed out that a “bad” trade deal such as the North American Free Trade Agreement is responsible for only a vanishingly small fraction of lost US manufacturing jobs over the past 30 years. Just 0.1 percentage points of the 21.4 percentage-point decline in the employment share of manufacturing during this period is attributable to NAFTA, enacted in December 1993.

A half-century ago, the US economy supplied an abundance of manufacturing jobs to a workforce that was well equipped to fill them. Those opportunities have dried up. This is a significant problem: a BIGLY problem. But anyone who claims that the collapse of US manufacturing employment resulted from “bad” trade deals like NAFTA is playing the fool. A BIGLY fool. Read MOAR at Project Syndicate

I had promised Ezra Klein and company 5000 words by late September. I delivered 8000 words in late January. The 8000 words I delivered did only a third of what I had wanted them to. I had wanted to:

  1. show the irrelevance of “bad trade deals” in terms of the causes of the problem of loss and lack of opportunity.
  2. present what our trade—in fact, our industria—policy should be with respect to manufacturing.
  3. explain why the fixation—from both left and right—on “bad trade deals”. As I told union executives, members, and lobbyists in large numbers back in 1993: this energy from you is profoundly lacking on all the much more important issues on which we can agree. And I asked why that was…

I failed. Ezra Klein and company published it anyway, at excessive length. I am very grateful to them.

The third remains a mystery to me. The best partial explanation I have seen starts from Ernest Gellner’s cruel observation that left-wing academics were gobsmacked by the fact that History had delivered the goods to the wrong address: that political energy and organizing mojo were supposed to focus around class, but instead they focus around nation and ethnicity. Political actors seeking to summon the lightning of populist energy thus find themselves summoning hate of foreigners and aliens, thus supping with the devil without any spoon at all. But I do not find that adequate.

Some of the second was covered in my book with Stephen Cohen, Concrete Economics http://amzn.to/2kylcA1: sensible and pragmatic attention to the value of communities of engineering practice and to forward and backward linkages from them should guide industrial policy. The rest is that the United States ought to be acting like a normal rich country: funding the industrialization of the rest of the world via capital export and a trade surplus. It isn’t, and it hasn’t been since the destructive macroeconomic policies of Ronald Reagan.

I did, however, deliver on the first. The U.S. went from 30% of its nonfarm employees in manufacturing to 12% because of rapid growth in manufacturing productivity and limited demand? The U.S. went from 12% to 9% because of stupid and destructive macro policies—the Reagan deficits, the strong-dollar policy pushed well past its sell-by date, too-tight monetary policy—that diverted it from its proper role as a net exporter of capital and finance to economies that need to be net sinks rather than net sources of the global flow of funds for investment. The U.S. went from 9% to 8.7% because of the extraordinarily rapid rise of China. And the U.S. went from 8.7% to 8.6% of its nonfarm employees in manufacturing because of NAFTA.

As Larry Summers https://www.ft.com/content/f710909f-7f26-399f-a135-e24a91c9063b and Barry Eichengreen https://www.ft.com/content/2a01d6c2-de6f-11e6-86ac-f253db7791c6 both observed last week, Donald Trump’s policy initiatives, such as they are—or such as we think they are, because far less is clear than usual at this stage in a transition—are as if designed to further reduce employment in manufacturing in America. It is the strong dollar that sends manufacturers the signal that they are not wanted in America. And Trump’s tax cuts, his urging the Fed to raise interest rates, and his proposed changes to the tax code will all work to strengthen the dollar.

But, of course, the strength of the dollar will be blamed not on incoherent and counterproductive policies, but on the Chinese. And the Mexicans.

And Trump is not alone. The American political system right now is blaming all, 100%, every piece of that decline from 30% to 8.6%, and every problem that can be laid at its door, on brown people from Mexico.

That is a problem. It is a problem for the United States. It is a problem for the world. It is a BIGLY problem.


Housekeeping:

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