Krugman: The Trade Tightrope

[RamboLiberal]

http://www.nytimes.com/2004/02/27/opinion/27KRUG.html?hp

You can't blame the Democrats for making the most of the Bush administration's message malfunction on trade and jobs. When the president's top economist suggests, even hypothetically, considering hamburger-flipping a form of manufacturing, it's a golden opportunity to accuse the White House of being out of touch with the concerns of working Americans. ("Will special sauce now be counted as a durable good?" Representative John Dingell asks.) And the accusation sticks, because it's true.

But the Democratic presidential candidates have to walk a tightrope. To exploit the administration's vulnerability, they must offer relief to threatened workers. But they also have to avoid falling into destructive protectionism.

Let me spare you the usual economist's sermon on the virtues of free trade, except to say this: although old fallacies about international trade have been making a comeback lately (yes, Senator Charles Schumer, that means you), it is as true as ever that the U.S. economy would be poorer and less productive if we turned our back on world markets. Furthermore, if the United States were to turn protectionist, other countries would follow. The result would be a less hopeful, more dangerous world.

Yet it's bad economics to pretend that free trade is good for everyone, all the time. "Trade often produces losers as well as winners," declares the best-selling textbook in international economics (by Maurice Obstfeld and yours truly). The accelerated pace of globalization means more losers as well as more winners; workers' fears that they will lose their jobs to Chinese factories and Indian call centers aren't irrational.

Addressing those fears isn't protectionist. On the contrary, it's an essential part of any realistic political strategy in support of world trade. That's why the Nelson Report, a strongly free-trade newsletter on international affairs, recently had kind words for John Kerry. It suggested that he is basically a free trader who understands that "without some kind of political safety valve, Congress may yet be stampeded into protectionism, which benefits no one."

[mhr]

1. Paul Krugman Is An Economist And He Is Out To Lunch On This Issue

Out of work here for 44 months.

On other issues, Krugman is very good.

[Jeff in Cincinnati]

3. I don't think so...

He appears to be saying that we need legislation that will prevent a "race to the bottom" in terms of job quality. That means if a job is going to Mexico, the Mexican government has to guarantee basic health and safety regulation, and the employer has to offer at least a living wage and minimal benefits.

Domestically, the U.S. government needs to stop greasing the skids by offering tax breaks to companies that outsource, and it needs to provide health insurance, extended unemployment benefits and job retraining to ease the blow of lost jobs.

International trade is a genie that can't be stuffed back into the bottle -- nor should we try. The choice is between a government that will be flexible and responsive to the needs of workers and their families, or compliant to the greed of industry.

[Gulf Coast J]

4. This is what Krugman knows best

He received the Clark Medal - given every other year to the top economist under the age 40, considered by some to be more prestigous than the Nobel Prize - for his work in international economics.

He is not out to lunch on this!

[Eric J in MN]

2. The govt should do more to reduce outsourcing than

The govt should do more to reduce outsourcing than writer Paul Krugman or Senator John Kerry are proposing.

Any US company which replaces its workers with foreign workers should be banned from all federal contracts.

Not just banned from contracts involving those workers, but all federal contracts.

[T_i_B]

5. Olnly the 2nd time I've logged onto the NYT website

But by 'eck was it worth it. That is a superb article.

[orwell]

6. Trader or Traitor?

This article seems extremely rational in its analysis. Protectionism, especially in such an interdependent world, is not only impossible, but undesirable, for a myriad of reasons.

This is an incredibly complex subject, but one that must be addressed. The problem with meta frameworks such as WTO and NAFTA isn't that they establish multilateral trade rules, but that the people who write the rules are doing so in their narrow self interest.

Global trade does increase total economic wealth creation. The real question is for whom? If the elites, both corporate and private, write the rules, they will gain the benefits. It is time labor and environmentalists had a seat at the table. I believe that cooler heads are starting to understand this.

O

[IrateCitizen]

9. Orwell, you just hit the crux of this better than I ever could!

This is an incredibly complex subject, but one that must be addressed. The problem with meta frameworks such as WTO and NAFTA isn't that they establish multilateral trade rules, but that the people who write the rules are doing so in their narrow self interest.

Global trade does increase total economic wealth creation. The real question is for whom? If the elites, both corporate and private, write the rules, they will gain the benefits. It is time labor and environmentalists had a seat at the table. I believe that cooler heads are starting to understand this.

I really can't offer anything else here, except to say that you just hit the proverbial nail on the head.

[swinney]

13. Trade can be con tolled

Why was it not a big issue in 1990's?

It was. By economists.

But we had a great job creating economy. Now? Yuk!

Trade is not fair when we allow our businesses to take tax benefits by moving overseas.

It is not fair when plants move to Mexico and pay lower taxes.

It is not fair when (as I have done) move plants to Puerto Rico because of hugh tax breaks given us by both governments.

It was not labor costs. Not a great difference It was taxes.

You own a plant overseas and ship your product to us then you should pay us for allowing you to sell here. .

There must be a stopping point.

Hamburger chains cannot support our economy.Wal-Mart cannot.

If manufacturing leaves what is left. Service each other.

Loss of Union strength due to Reagan administration has been a major factor. Build a monument to him. Cooking hamburgers.

Wal-Mart. I boycott it. Show me Made In USA in a store. Rarity.

When Unions had power they pushed Buy America.

[teryang]

7. Not only jobs, but profits and tax revenues

The outsourcing of jobs is only one aspect of corporate exploitation of American markets.

Corporations want tax free access to American markets with no reciprocal social obligations of any kind. They move their production offshore for the cheapest and most exploitive relationship to labor that they can find (persuing a marxist theory of labor capital). Then rather than realize profits when their goods are sold in the states, they conduct sham middle man transactions with captive subsidiaries in offshore island tax shelters moving the profits from the American market offshore as well so it won't be taxed. Then the final distribution takes place as goods are moved across the border to wholesale distribution points where only the most marginal profits are realized in the United States for IRS tax purposes.

In this manner, the corporation gets the benefit of American infrastructure and American law effectively without paying taxes and employing as few Americans as possible.

With all due respect to Mr. Krugman, American government has proven powerless thus far to stop this trend, of placing virtually all costs of running our society on the working or unemployed American, while giving all the benefits to major corporations who now effectively control the government.

This sort of structual change in social relationships in which the more privileged institutions and their leadership simply skim wealth off the top while the masses absorb all the costs is of a nature to lead to significant social unrest and instability. It is a momentous change which can eventually lead to radical political and economic instability if corrective measures are not instituted. Part of the solution includes restoring balance in the relationship between corporations and the taxing and regulating authority. I don't see this happening any time soon.

As pointed out by Senator Conrad today in a press conference, the Greenspan proposal (and avowed regime policy) to cut social security to pay for tax cuts for the rich is the latest and most extreme example of the increasingly irresponsible imbalance in social priorities. It is not an accident that the pseudo debate taking place has focused on whether social security is an obligation, with the right emphasizing that there is no such obligation while they convert fica revenues to general revenue priorities.

Notice that the increasing absence of corporate tax revenues as a part of budget revenue equations are not even discussed, but this too is a serious social problem contributing to the dangerous instability in our society and fiscal oppression of the citizens.

[KoKo]

11. They will address only what they think their constiuencies can understand

unfortunately. The Buzz this weekend with the Media was that it's the Retiring Baby Boomers who are at fault for needed so much SS that it will drain the system. They don't acknowledge that this was addressed by the Clinton Administration and fixed. SS funds were borrowed from all during Reagan and Poppy and now they are back to the same game with Dumbya. But, they know public's attention span is so short they will use scare tactics to make it seem that Clinton never fixed the problem.

Trade will be used as a talking point of restrcting oursourcing and hyped up with endless jawboning about what can be done, while in redoing parts of Nafta (Chapter 13 of NAFTA would be a start according to Moyers show) and eliminating or renegotiating the "off shore" tax schemes by American Multinationals. They certainly don't want to bring up "off shore tax schemes" in an election year. Both parties are totally dependent on the big donations.

So, there will be much "jawboning" while the public calls into C-Span complaining and nothing will be done.

Hopefully Krugman will do a series of articles like this where he will get into the issues of Free Trade/Fair Trade in more and more depth and propose some solutions that the Average Joe/Jane can get behind. Unfortunately most Americans aren't reading Krugman, but the "powers that be" are, and that's where the reform will have to come from. When members of Congress start to see unrest and disorder start to threaten their jobs probably by election time or shortly after when everything will start to implode and the full impact of their failed policies with our Nations economic health can no longer be denied or whitewashed over. :-(

[amandabeech]

12. Does Friedman's model account for the massive financial costs

that would accrue if "radical political and economic stability" ensued in the U.S. if the jobs that are being outsourced are not replaced by other decent jobs here in the U.S. Or are these external costs?

To me, it seems that no job here is safe unless it requires face to face contact. That pretty much leaves repair, maintenance, education, much of health care and distribution and in-person sales, for example. Others here probably have a lot more ideas. Of course, we may be importing cheap labor for many of these positions to bring down costs.

With labor rates so much cheaper overseas, the only brakes on the system would be availability of qualified overseas personnel when it comes to brain work, and virtually nothing when it comes to manufacturing.

Taken to its extreme, this would even out wage rates throughout the world. If that were the case, then the U.S. would be a huge loser and the third world would be a huge winner.

We would, I think, end up with a few wealthy people, like Mr. Krugman, unless he can be replaced by a very intelligent and insightful person in Pakistan, a few middle class types serving them and a lot of frightfully poor. I do not believe that a liberal democracy would thrive under these conditions.

Does anyone know what Mr. Krugman suggests we do here to maintain decently paying jobs against world-wide wage competition or how he plans to deal with social dislocation? In his piece, he asks us to trust him and like-minded individuals. Personally, I would like him to specifically address these issues and show us just what he has in mind.


Amanda

[idlisambar]

8. not persuasive

Krugman acknowledges that free trade is destructive in some cases...

Yet it's bad economics to pretend that free trade is good for everyone, all the time. "Trade often produces losers as well as winners," declares the best-selling textbook in international economics (by Maurice Obstfeld and yours truly). The accelerated pace of globalization means more losers as well as more winners; workers' fears that they will lose their jobs to Chinese factories and Indian call centers aren't irrational.

It would be nice if he could explain when and under what conditions trade is desirable. If the condidtions are not being met then what reason do we have to believe that free trade is a good thing and protectectism is bad? :shrug:

[tom_paine]

10. kick for Krugman

:kick: