What’s so Great about Free Trade?

When Wall Street bankers and hedge fund managers and the corporate media use the term "free trade",
what they are really talking about is labor arbitrage and developed countires rip-off of less developed countries

News Key Myths of Neoliberalism Neoliberalism Bookshelf Recommended Links The Great Transformation Deception as an art form Mayberry Machiavellians Neoclassical Pseudo Theories and Crooked and Bought Economists as Fifth Column of Financial Oligarchy
Small government smoke screen Universal quantification  "Starving the beast" bait and switch Invisible Hand Hypothesys: The Theory of Self-regulation of the Markets Shareholder value scam Neoliberal rationality Neoliberalism as secular religion, "idolatry of money" Over-consumption of Luxury Goods as Market Failure
Financization of everything in sight Machiavellism Deification of market Globalization of Financial Flows Pope Francis on danger of neoliberalism Neoliberalism credibility trap Greenspan humor Etc

Bad Samaritans The Myth of Free Trade and the Secret History of Capitalism Ha-Joon Chang

Bad Samaritans was an introduction to open-minded economists and political free-thinkers to Ha-Joon Chang's theories of the dangers of free-trade. With irreverent wit, an engagingly personal style, and a keen grasp of history, Chang blasts holes in the "World Is Flat" orthodoxy of Thomas Friedman and others who argue that only unfettered capitalism and wide-open international trade can lift struggling nations out of poverty. On the contrary, Chang shows, today's economic superpowers-from the U.S. to Britain to his native Korea-all attained prosperity by shameless protectionism and government intervention in industry, a fact conveniently forgotten now that they want to compete in foreign markets. Chang's cage-rattling, contrarian history of global capital appeals to readers new to economic theory as well as members of the old school looking for a fresh take.

Richard Schafferon June 22, 2015

Strong factual argument against economic austerity and free trade.

An argument against the acceptance of free trade as a panacea and the IMF GATT etc. imposing it on the less developed nation. Rather than a comprehensive economic history of trade policies and their effects. Documents numerous examples of: The use of trade restrictions by the wealth nations to get wealthy, Il effects of imposition of free trade on the poorer nations, the problems caused by economic austerity and the non use of the preceding by the wealthy nations. ( although the author doesn't address the negative impacts of economic austerity during the euro zone crisis and the Great Recession.). The author takes a definet position and argues it. A more comprehensive viewpoint would have been more persuasive. Not so strong on what should be done, rather illustrates that tariff protection of nascent industry works and austerity often fails and always inflicts pain on the poor.

Dick_Burkharton October 12, 2013

Pragmatism vs Ideology

This book is the best attack yet on the dogmas of "free markets" and "free trade". It is a fun and informative read, full of trenchant satire of the kind you'd expect to come from a best selling muckracker, not a Cambridge (UK) professor. What's most unusual for an economist, is that he is pragmatic rather than ideological. He simply asks, "What trade practices have actually worked for developing countries?"

Yet Professor Chang not only lampoons the obvious failures of Chicago School orthodoxy, he explains in simple terms where it goes wrong. One comes away with a solid understanding of why many activists from developing countries regard the present world order as "neo-colonial". That is, while the IMF, World Bank, and WTO preach that free markets and free trade will be a "golden straightjacket" leading to rapid development, the results have been the opposite. Instead successful countries like the Asian Tigers have used strongly protectionistic measures to build their "infant industries" (the term coined by Alexander Hamilton, the architect of US protectionism). These results expose a hidden neo-colonial agenda, designed to benefit first world mega-corporations and speculators.

However Chang's book totally misses the most fundamental economic issue of our times, namely, limits to growth. Mainstream economic theory is based not only on "greed is good" but also "growth is good". Yet resource and environmental limits to growth are bearing down hard, threatening global "ecological overshoot and collapse" over the coming decades. The kind of economic growth that would bring all developing countries up to current first world standards is simply impossible, no matter what the trade or industrial policies. Instead a determined attempt to achieve that growth will simply hasten the collapse. How to do justice in this situation, let alone survive, is a tall order.

Ben Hillon August 24, 2013

Easy to read rational attack on globalization

Ha-Joon Chang has the gift of making difficult subjects easy to laypeople to understand.

He makes a rational spirited attack on what he feels is the hypocrisy of the developed countries, the ridged ideology of the free market economists which drive agencies like the IMF.

Most chapters are filled with history lessons on how developed countries in the early days engaged in tariffs, capital controls, intellectual property theft and hard limits on foreign ownership. At least until their industries had matured to level of competing in the global market. Then changed the tune, started lecturing all the developing countries through the IMF and other agencies not to do any of those things. Usually, the countries that followed the IMF advice had more negative results than positive. The author states the trade offs between political economy and the free market, in a detailed section on the rise of South Korea, his home.

Two chapters in the book were particularly eye opening, My six-year old should get a job and Lazy Japanese and Thieving Germans. The first chapter points out the problems with not protecting an industry while it gains technical expertise and capacity. Give the child time to go to school and get bigger. The second chapter is about how some developed countries were considered basket cases, their people are not capable of achieving developed status, a claim I have heard used against developing countries that have listened to the IMF, then fallen on hard times.

The book is good ammo for having a rational discussion about the trade offs and short comings of unfettered free market ideology.

Neoliberalism's Myth on Benefits of Free Trade

Monthly Review magazine, founded in 1949.  The Leading economic & political journal without a pro-capitalism spin. 

Its lead article in 1949 was Why Socialism by Albert Einstein. 

http://www.monthlyreview.org/0406hart-landsberg.htm

Neoliberalism: Myths and Reality by Martin Hart-Landsberg

Agreements like the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO) have enhanced transnational capitalist power and profits at the cost of growing economic instability and deteriorating working and living conditions. Despite this reality, neoliberal claims that liberalization, deregulation, and privatization produce unrivaled benefits have been repeated so often that many working people accept them as unchallengeable truths. Thus, business and political leaders in the

United States and other developed capitalist countries routinely defend their efforts to expand the WTO and secure new agreements like the Free Trade Area of the

Americas (FTAA) as necessary to ensure a brighter future for the world’s people, especially those living in poverty.

For example, Renato Ruggiero, the first Director-General of the WTO, declared that WTO liberalization efforts have “the potential for eradicating global poverty in the early part of the next [twenty-first] century—a utopian notion even a few decades ago, but a real possibility today.”1 Similarly, writing shortly before the December 2005 WTO ministerial meeting in Hong Kong, William Cline, a senior fellow for the Institute for International Economics, claimed that “if all global trade barriers were eliminated, approximately 500 million people could be lifted out of poverty over 15 years....The current Doha Round of multilateral trade negotiations in the World Trade Organization provides the best single chance for the international community to achieve these gains.”2

Therefore, if we are going to mount an effective challenge to the neoliberal globalization project, we must redouble our efforts to win the “battle of ideas.” Winning this battle requires, among other things, demonstrating that neoliberalism functions as an ideological cover for the promotion of capitalist interests, not as a scientific framework for illuminating the economic and social consequences of capitalist dynamics. It also requires showing the processes by which capitalism, as an international system, undermines rather than promotes working class interests in both third world and developed capitalist countries.

The Myth of the Superiority of ‘Free Trade’: Theoretical Arguments

According to supporters of the WTO and agreements such as the FTAA, these institutions/agreements seek to promote free trade in order to enhance efficiency and maximize economic well being. This focus on trade hides what is in fact a much broader political-economic agenda: the expansion and enhancement of corporate profit making opportunities. In the case of the WTO, this agenda has been pursued through a variety of agreements that are explicitly designed to limit or actually block public regulation of economic activity in contexts that have little to do with trade as normally understood.

For example, the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) limits the ability of states to deny patents on certain products (including over living organisms) or control the use of products patented in their respective nations (including the use of compulsory licensing to ensure affordability of critical medicines). It also forces states to accept a significant increase in the length of time during which patents remain in force. The Agreement on Trade Related Investment Measures (TRIMS) restricts the ability of states to put performance requirements on foreign direct investment (FDI), encompassing those that would require the use of local inputs (including labor) or technology transfer. A proposed expansion of the General Agreement on Trade in Services (GATS) would force states to open their national service markets (which include everything from health care and education to public utilities and retail trade) to foreign providers as well as limit public regulation of their activity. Similarly, a proposed Government Procurement Agreement would deny states the ability to use non-economic criteria, such as labor and environmental practices, in awarding contracts.

These agreements are rarely discussed in the mainstream media precisely because they directly raise issues of private versus public power and are not easily defended. This is one of the most important reasons why those who support the capitalist globalization project prefer to describe the institutional arrangements that help underpin it as trade agreements and defend them on the basis of the alleged virtues of free trade. This is a defense that unfortunately and undeservedly holds enormous sway among working people, especially in the developed capitalist countries. And, using it as a theoretical foundation, capitalist globalization advocates find it relatively easy to encourage popular acceptance of the broader proposition that market determined outcomes are superior to socially determined ones in all spheres of activity. Therefore, it is critical that we develop an effective and accessible critique of this myth of the superiority of free trade. In fact, this is an easier task than generally assumed.

Arguments promoting free trade generally rest on the theory of comparative advantage. David Ricardo introduced this theory in 1821 in his Principles of Political Economy and Taxation. It is commonly misunderstood to assert the obvious, that countries have or can create different comparative advantages or that trade can be helpful. In fact, it supports a very specific policy conclusion: a country’s best economic policy is to allow unregulated international market activity to determine its comparative advantage and national patterns of production.3   {The logic behind Ricardo’s argument was that when ever government intervened in trade it was for the benefit of a special interest, and the increased prices of the good effected was a harsh burden upon the downtrodden masses.  The masses would be better off without such intervention—jk}.

Ricardo “proved” his theory of comparative advantage using a two country, static model of the world, in which Portugal is assumed to be a more efficient producer of both wine and cloth than England, but with greatest superiority in wine production. Ricardo demonstrated that, in his created world, both Portugal and England would gain by an international division of labor in which each produced the good in which it had the greatest relative or comparative advantage. Thus, even though England’s production efficiency was inferior to that of Portugal in both goods, the logic of free trade would lead Portugal to concentrate on wine production and England on cloth production, with the resulting trade between them generating maximum benefits for both countries.

Mainstream economists, while continuing to accept the basic outlines of Ricardo’s theory, have developed refinements to it. The most important are the Hecksher-Olin theory which argues that since a country’s comparative advantage is shaped by its resource base, capital-poor third world countries should specialize in labor intensive products; the factor-price equalization theory which argues that free trade will raise the price of the intensively used factor (which will be unskilled labor in the third world) until all factor prices are equalized worldwide; and the Stopler-Samuleson theory which argues that the incomes of the scarce factor (labor in rich countries; capital in poor countries) will suffer the most from free trade. None of these refinements challenge the basic conclusion of Ricardo’s theory of comparative advantage. In fact they offer additional support for the argument that workers in the third world will be the greatest beneficiaries of free trade.

Like all theories, the theory of comparative advantage (and its conclusion) is based on a number of assumptions. Among the most important are:

Even a quick consideration of these assumptions reveals that they are extensive and unrealistic. Moreover, if they are not satisfied, there is no basis for accepting the theory’s conclusion that free-market policies will promote international well being. For example, the assumption of full employment of all factors of production, including labor, is obviously false. Equally problematic is the theory’s implied restructuring process, which assumes that (but never explains how) workers who lose their jobs as a result of free-trade generated imports will quickly find new employment in the expanding export sector of the economy. In reality, workers (and other factors of production) may not be equally productive in alternative uses. Even if we ignore this problem, if their reallocation is not sufficiently fast, the newly liberalized economy will likely suffer an increase in unemployment, leading to a reduction in aggregate demand and perhaps recession. Thus, even if all factors of production eventually become fully employed, it is quite possible that the cost of adjustment would outweigh the alleged efficiency gains from the trade induced restructuring.

The assumption that prices reflect social costs is also problematic. Many product markets are dominated by monopolies, many firms receive substantial government subsidies that influence their production and pricing decisions, and many production activities generate significant negative externalities (especially environmental ones). Therefore, trade specialization based on existing market prices could easily produce a structure of international economic activity with lower overall efficiency, leading to a reduction in social well being.

There is also reason to challenge the assumption that external trade will remain in balance. This assumption depends on another, that exchange rate movements will automatically and quickly correct trade imbalances. However, exchange rates can easily be influenced by speculative financial activity, causing them to move in destabilizing rather than equilibrating directions. In addition, as trade increasingly takes place through transnational corporate controlled production networks, it is far less likely that exchange rate movements will generate the desired new production patterns. To the extent that exchange rate movements fail to produce the necessary trade adjustments in a reasonably short period, imports will have to be reduced (and the trade balance restored) through a forced reduction in aggregate demand, and perhaps recession.

Also worthy of challenge is the assumption that capital is not highly mobile across national borders. This assumption helps to underpin others, including the assumptions of full employment and balanced trade. If capital is highly mobile, then free-market/free-trade policies could produce capital flight leading to deindustrialization, unbalanced trade, unemployment, and economic crisis. In short, the free-trade supporting policy recommendations that flow from the theory of comparative advantage rest on a series of very dubious assumptions.4

The Myth of the Superiority of ‘Free Trade’: Empirical Arguments

Proponents of neoliberal policies often cite the results of highly sophisticated simulation studies to buttress their arguments. However, these studies are themselves seriously flawed, in large part because they rely on many of the same assumptions as the theory of comparative advantage. The following examination of two prominent studies reveals how reliance on these assumptions undermines the credibility of their results.

In 2001, Drusilla Brown, Alan Deardoff, and Robert Stern published a study that claimed that a WTO-sponsored elimination of all trade barriers would add $1.9 trillion to the world’s gross economic product by 2005.5 Their study was widely showcased in media stories that appeared before the November 2001 start of WTO negotiations in Doha, Qatar.

The World Bank has also attempted to calculate, as part of its Global Economic Prospects series, the expected benefits from trade liberalization. In Global Economic Prospects 2002, it concluded that “faster integration through lowering barriers to merchandise trade would increase growth and provide some $1.5 trillion of additional cumulative income to developing countries over the period 2005–2015. Liberalization of services in developing countries could provide even greater gains—perhaps as much as four times larger than this amount. [The results also] show that labor’s share of national income would rise throughout the developing world.”6

The studies by Brown, Deardoff, and Stern, and the World Bank are based on computable general equilibrium models, in which economies are defined by a set of interconnected markets. When prices change—in this case because of a change in tariffs—national product markets are assumed to adjust to restore equilibrium. Since economies are themselves connected through trade, price changes are also assumed to generate more complex global adjustments before a new equilibrium outcome is achieved. It is on the basis of such modeling that the authors of these studies try to determine the economic consequences of trade liberalization.

This type of modeling is very challenging. Specific assumptions must be made about consumer and producer behavior in different markets and in different nations, including their speed of adjustment. Detailed national input-output tables are also required. But even more is required. For example, in order to ensure that their model will be solvable, Brown, Deardoff, and Stern assume that there is only one unique equilibrium outcome for each trade liberalization scenario. They also assume there are just two inputs, capital and labor, which are perfectly mobile across sectors in each country, but bound by national borders. In addition, they assume total aggregate expenditure in each economy is sufficient, and will automatically adjust, to ensure full employment of all resources. Finally, they also assume that flexible exchange rates will prevent tariff changes from causing changes in trade balances.

Said differently, the authors created a model in which liberalization cannot, by assumption, cause or worsen unemployment, capital flight, or trade imbalances. Thanks to these assumptions, if a country drops its trade restrictions, market forces will quickly and effortlessly encourage capital and labor to shift into new, more productive uses. And, since trade always remains in balance, this restructuring will, by definition, generate a dollar’s worth of new exports for every dollar’s worth of new imports. As Peter Dorman notes in his critique of this study: “Of course, workers and governments would have little to worry about in such a world—provided they could shift readily between expanding and contracting sectors of the economy.”7

World Bank economists also use computable general equilibrium modeling in their work. In Global Economic Prospects 2002, they begin their simulation study with “a baseline view about the likely evolution of developing countries, based upon best guesses about generally stable parameters—savings, investment, population growth, trade and productivity growth.”8 This baseline view incorporates only those changes in the “global trading regime” that occurred up through 1997 and uses these best guesses to estimate economic outcomes for the years 2005 to 2015. Next, they assume the removal of all trade restrictions in the period 2005 to 2010, with the restrictions reduced by one-sixth in each year.9 Finally, they compare the estimated economic outcomes from this liberalization scenario with those from the initial baseline scenario to determine the gains from liberalization.

This modeling effort also depends on several critical and unrealistic assumptions. One is that tariff reductions will have no effect on government deficits; they will remain unchanged from what they were in the baseline projection. This assumption claims that governments will automatically be able to replace lost tariff revenue with new revenue from other sources. Another assumption is that tariff reductions will have no effect on trade balances; they will remain the same as in the baseline projection. The final one is the existence of full employment. Once again, a powerful free-trade bias is built into the heart of the model by assumption, thereby ensuring a pro-liberalization outcome.

Although this bias is sufficient to dismiss the study’s usefulness as a guide to policy, its results are still worth examining for two reasons: First, the projected benefits are smaller than one might imagine given the World Bank’s unqualified support for liberalization. Second, later World Bank studies have revealed significantly smaller benefits. In its 2002 study, the World Bank concluded that “measured in static terms, world income in 2015 would be $355 billion more with [merchandise] trade liberalization than in the baseline.”10 Third world countries as a group would receive $184 billion, or approximately 52 percent of these total benefits. Significantly, $142 billion of this third world gain is projected to come from the liberalization of trade in agricultural goods. Even more noteworthy, $114 billion is estimated to come from third world liberalization of its own agricultural sector.11 Liberalization of trade in manufactures turns out to be a minor affair. Total estimated third world gains from a complete liberalization of world trade in manufactures amount to only $44 billion.

If we were to take these numbers seriously, they certainly suggest that the third world has little to gain from an actual WTO agreement. As Mark Weisbrot and Dean Baker note in their critique of this study, “the removal of all of the rich countries’ barriers to the merchandise exports of developing countries—including agriculture, textiles, and other manufactured goods—would...when such changes were fully implemented by 2015...add 0.6 percent to the GDP of low and middle-income countries. This means that a country in Sub-Saharan Africa that would, under present trade arrangements have a per capita income of $500 per year in 2015, would instead have a per capita income of $503.”12 Moreover, as they also point out, these meager gains would be far outweighed by losses incurred from compliance with other associated WTO agreements.

More recent World Bank estimates show even smaller gains from liberalization. In Global Economic Prospects 2005, the World Bank incorporated new data sets, which allowed it to “capture the considerable reform between 1997 and 2001 (e.g., continued implementation of the Uruguay Round and China’s progress toward WTO accession), and an improved treatment of preferential trade agreements.”13 As a result, total projected static gains from merchandise trade liberalization fell to $260 billion (in 2015 relative to the baseline scenario), with only 41 percent of the gains accruing to the third world.

Although working people have been ill-served by capitalist globalization, many are reluctant to challenge it because they have been intimidated by the “scholarly” arguments of those who support it. However, as we have seen, these arguments are based on theories and highly artificial simulations that deliberately misrepresent the workings of capitalism. They can and should be challenged and rejected.

Neoliberalism: The Reality

The post-1980 neoliberal era has been marked by slower growth, greater trade imbalances, and deteriorating social conditions. The United Nations Conference on Trade and Development (UNCTAD) reports that, “for developing countries as a whole (excluding China), the average trade deficit in the 1990s is higher than in the 1970s by almost 3 percentage points of GDP, while the average growth rate is lower by 2 percent per annum.”14 Moreover,

The pattern is broadly similar in all developing regions. In Latin America the average growth rate is lower by 3 percent per annum in the 1990s than in the 1970s, while trade deficits as a proportion of GDP are much the same. In sub-Saharan Africa growth fell, but deficits rose. The Asian countries managed to grow faster in the 1980s, while reducing their payments deficits, but in the 1990s they have run greater deficits without achieving faster growth.15

A study by Mark Weisbrot, Dean Baker, and David Rosnick on the consequences of neoliberal policies on third world development comes to similar conclusions. The authors note that “contrary to popular belief, the past 25 years (1980–2005) have seen a sharply slower rate of economic growth and reduced progress on social indicators for the vast majority of low- and middle-income countries [compared with the prior two decades].”16

For those that reject the major assumptions underlying mainstream arguments for the “freeing” of international economic activity, this outcome is not surprising. In broad brush, trade liberalization contributed to the deindustrialization of many third world countries, thereby increasing their import dependence. By making them cheaper and easier to obtain, it also encouraged an increase in the importation of luxury goods. And finally, by attracting transnational corporate production to the third world, it also increased the import intensity of most third world exports. Export earnings could not keep pace largely because growing third world export activity and competition (prompted by the need to offset the rise in imports) tended to drive down export earnings. Exports were also limited by slower growth and protectionism in most developed capitalist countries.

In an effort to keep growing trade and current account deficits manageable, third world states, often pressured by the IMF and World Bank, used austerity measures (especially draconian cuts in social programs) to slow economic growth (and imports). They also deregulated capital markets, privatized economic activity, and relaxed foreign investment regulatory regimes in an effort to attract the financing needed to offset the existing deficits. While devastating to working people and national development possibilities, these policies were, as intended, responsive to the interests of transnational capital in general and a small but influential sector of third world capital. This is the reality of neoliberalism.

The Dynamics of Contemporary Capitalism

While the term “neoliberalism” does, in many ways, capture the essence of contemporary capitalist practices and policies, it is also in some important respects a problematic term. In particular, it encourages the view that a wide range of policy options simultaneously exist under capitalism, with neoliberalism just one of the possibilities. States could reject neoliberalism, if they wanted, and implement more social democratic or interventionist policies, similar to those employed in the 1960s and 1970s. Unfortunately, things are not so simple. The “freeing” of economic activity that is generally identified with neoliberalism is not so much a bad policy choice as it is a forced structural response on the part of many third world states to capitalist generated tensions and contradictions. Said differently, it is capitalism (as a dynamic and exploitative system), rather than neoliberalism (as a set of policies), that must be challenged and overcome.

Mainstream theorists usually consider international trade, finance, and investment as separate processes. In fact, they are interrelated. And, as highlighted above, the capitalist drive for greater profitability has generally worked to pressure third world states into an overarching liberalization and deregulation. This dynamic has had important consequences, especially, but not exclusively, for the third world. In particular, it has encouraged transnational corporations to advance their aims through the establishment and extension of international production networks. This has led to new forms of dominance over third world industrial activity that involve its reshaping and integration across borders in ways that are ever more destructive of the social, economic, and political needs of working people.

During the 1960s and 1970s, most third world countries pursued state directed import-substitution industrialization strategies and financed their trade deficits with bank loans. This pattern ended suddenly in the early 1980s, when economic instabilities in the developed capitalist world, especially in the United States, led to rising interest rates and global recession. Third world borrowing costs soared and export earnings plummeted, triggering the third world “debt crisis.” With debt repayment in question, banks greatly reduced their lending, leading to ever deepening third world economic and social problems.

To overcome these problems, third world states sought new ways to boost exports and new sources of international funds. Increasingly, they came to see export-oriented foreign direct investment as the answer. The competition for this investment was fierce. Country after country made changes in their investment regimes, with the great majority designed to create a more liberalized, deregulated, and “business friendly” environment. Transnational corporations responded eagerly to these changes, many of which they and their governments helped promote. And, over the years 1991–98, FDI became the single greatest source of net capital inflow into the third world, accounting for 34 percent of the total.17

New technologies had made it possible for transnational corporations to cheapen production costs for many goods by segmenting and geographically dividing their production processes. They therefore used their investments to locate the labor intensive production segments of these goods—in particular the production or assembly of parts and components—in the third world. This was especially true for electronic and electrical goods, clothing and apparel, and certain technologically advanced goods such as optical instruments.

The result was the establishment or expansion of numerous vertically structured international production networks, many of which extended over several different countries. According to UNCTAD, “it has been estimated, on the basis of input-output tables from a number of OECD and emerging-market countries, that trade based on specialization within vertical production networks accounts for up to 30 percent of world exports, and that it has grown by as much as 40 percent in the last 25 years.”18

Despite the fierce third world competition to attract FDI, transnational corporations tended to concentrate their investments in only a few countries. In general, U.S. capital emphasized North America (NAFTA), while Japanese capital focused on East Asia, and European capital on Central Europe. The countries that “lost out” in the FDI competition were generally forced to manage their trade and finance problems with austerity. Those countries that “won” usually experienced a relatively fast industrial transformation. More specifically, they became major exporters of manufactures, especially of high-technology products such as transistors and semiconductors, computers, parts of computers and office machines, telecommunications equipment and parts, and electrical machinery.

As a consequence of this development, the share of third world exports that were manufactures soared from 20 percent in the 1970s and early 1980s, to 70 percent by the late 1990s.19 The third world share of world manufacturing exports also jumped from 4.4 percent in 1965 to 30.1 percent in 2003.20

Mainstream economists claim that this rise in manufactured exports demonstrates the benefits of liberalization, and thus the importance of WTO-style liberalization agreements for development. However, this argument falsely identifies FDI and exports of manufactures with development, thereby seriously misrepresenting the dynamics of transnational capital accumulation. The reality is that participation in transnational corporate controlled production networks has done little to support rising standards of living, economic stability, or national development prospects.

There are many reasons for this failure. First, those countries that have succeeded in attracting FDI have usually done so in the context of liberalizing and deregulating their economies. This has generally resulted in the destruction of their domestic import-competing industries, causing unemployment, a rapid rise in imports, and industrial hollowing out. Second, the activities located in the third world rarely transfer skills or technology, or encourage domestic industrial linkages. This means that these activities are seldom able to promote a dynamic or nationally integrated process of development. Furthermore the exports produced are highly import dependent, thereby greatly reducing their foreign exchange earning benefits.

Finally, the transnational accumulation process makes third world growth increasingly dependent on external demand. In most cases, the primary final market for these networks is the United States, which means that third world growth comes to depend ever more on the ability of the United States to sustain ever larger trade deficits—an increasingly dubious proposition.

Few countries have escaped these problems. For example, UNCTAD studied the economic performances of “seven of the more advanced developing countries” over the period 1981–96: Hong Kong (China), Malaysia, Mexico, Republic of Korea, Singapore, Taiwan Province of China, and Turkey. These are among the most successful third world exporters of manufactures. Yet, because much of their export activity is organized within transnational corporate controlled production networks, the gains to worker well being or national development have been limited.

For example, average manufacturing value added for the group as a whole remained consistently below the value of manufactured exports over the entire period, with the ratio declining from 76 percent in 1981 to 55 percent in 1996. And, although the group’s average ratio of manufactured exports to GDP rose sharply, its average ratio of manufacturing value added to GDP remained generally unchanged.21 Moreover, while the group as a whole generally maintained a rough balance in manufactured goods trade until the late 1980s, after that point imports grew much faster than exports. Mexico’s experience perhaps best symbolizes the bankruptcy of this growth strategy: “between 1980 and 1997 Mexico’s share in world manufactured exports rose tenfold, while its share in world manufacturing valued added fell by more than one third, and its share in world income (at current dollars) [fell] by about 13 percent.”22

China: The Latest Neoliberal Success Story

Capitalism’s failure to deliver development is not due to its lack of dynamism; in fact quite the opposite is true. By intensifying the development and application of new production and exchange relationships within and between countries, this dynamism causes rapid shifts in the economic fortunes of nations, creating a constantly changing (and shrinking) group of “winners” and (an ever larger) group of “losers,” and masking the connection between the two. Even East Asia has been subject to the instabilities of capitalist dynamics, as the East Asian crisis of 1997–98 devastated such past “star performers” as South Korea, Indonesia, Thailand, and Malaysia. After quickly distancing themselves from these countries (and their past praise for their growth), most neoliberals have now eagerly embraced a new champion, China.23

According to the conventional wisdom, China has become the third world’s biggest recipient of foreign direct investment, exporter of manufactures, and fastest growing economy, largely because its government adopted a growth strategy based on privileging private enterprise and international market forces. In response to this new strategy, net FDI in China grew from $3.5 billion in 1990 to $60.6 billion in 2004. Foreign manufacturing affiliates now account for approximately one-third of China’s total manufacturing sales. They also produce 55 percent of the country’s exports and a significantly higher percentage of its higher technology exports. As a consequence of these trends, the country’s ratio of exports to GDP has climbed steadily, from 16 percent in 1990 to 36 percent in 2003.24 Thus, China’s growth has become increasingly dependent on transnational corporate organized export activity.

Foreign investment has indeed transformed China into a fast growing export platform, with some significant domestic production capacity. At the same time, many of the limitations of this growth strategy, which were highlighted above, are also visible in China. For example, foreign dominated export activity has done little to support the development of nationally integrated production or technology supply networks.25 Moreover, as the Chinese state continues to lose its planning and directing capability, and the country’s resources are increasingly incorporated into foreign networks largely for the purpose of satisfying external market demands, the country’s autonomous development potential is being lost.

China’s growth has enriched a relatively small but numerically significant upper income group of Chinese, who enjoy greatly expanded consumption opportunities. However, these gains have been largely underwritten by the exploitation of the great majority of Chinese working people. For example, as a consequence of Chinese state liberalization policies, state owned enterprises laid off 30 million workers over the period 1998 to 2004. With urban unemployment rates in double digits, few of these former state workers were able to find adequate re-employment. In fact, over 21.8 million of them currently depend on the government’s “average minimum living allowance” for their survival. As of June 2005, this allowance was equal to approximately $19 a month; by comparison, the average monthly income of an urban worker was approximately $165 dollars.26

While the new foreign dominated export production has generated new employment opportunities, most of these jobs are extremely low paid. A consultant for the U.S. Bureau of Labor Statistics has estimated that Chinese factory workers earn an average of sixty-four cents an hour (including benefits).27 In Guangdong, where approximately one-third of China’s exports are produced, base manufacturing wages have been frozen for the past decade. Moreover, few if any of these workers have access to affordable housing, health care, pensions, or education.28

China’s economic transformation has not only come at high cost for Chinese working people, it has also intensified (as well as benefited from) the contradictions of capitalist development in other countries, including in East Asia. For example, China’s export successes in advanced capitalist markets, in particular that of the United States, have forced other East Asian producers out of those markets. Out of necessity, they have reoriented their export activity to the production of parts and components for use by export-oriented transnational corporations operating in China. Thus, all of East Asia is being knitted together into a regional accumulation regime that crosses many borders and in so doing restructures national activity and resources away from meeting domestic needs. Instead, activity and resources are being organized to serve export markets out of the region under the direction of transnational corporations whose interests are largely in cost reduction regardless of the social or environmental consequences.29

The much slower post-crisis growth of East Asian countries, and the heightened competitiveness pressures that are squeezing living standards throughout the region, provide strong proof that this new arrangement of regional economic relations is incapable of promoting a stable process of long-term development. Meanwhile, China’s export explosion has also accelerated the industrial hollowing out of the Japanese and U.S. economies as well as the unsustainable U.S. trade deficit.

At some point the (economic and political) imbalances generated by this accumulation process will become too great, and corrections will have to take place. Insofar as the logic of capitalist competition goes unchallenged, governments can be expected to manage the adjustment process with policies that will likely worsen conditions for workers in both third world and developed capitalist countries. Neoliberal advocates can also be expected to embrace this process of adjustment as the means to “discover” their next success story, whose experience will then be cited as proof of the superiority of market forces.

Our Challenge

As we have seen, arguments purporting to demonstrate that free-trade/free-market policies will transform economic activities and relations in ways that universally benefit working people are based on theories and simulations that distort the actual workings of capitalism. The reality is that growing numbers of workers are being captured by an increasingly unified and transnational process of capital accumulation. Wealth is being generated but working people in all the countries involved are being pitted against each other and suffering similar consequences, including unemployment and worsening living and working conditions.

Working people and their communities are engaged in growing, although uneven, resistance to the situation. While increasingly effective, this resistance still remains largely defensive and politically unfocused. One reason is that neoliberal theory continues to provide a powerful ideological cover for capitalist globalization, despite the fact that it is both generated by and designed to advance capitalist class interests. Another is the dynamic nature of contemporary capitalism, which tends to mask its destructive nature. Therefore, as participants in the resistance, we must work to ensure that our many struggles are waged in ways that help working people better understand the nature of the accumulation processes that are reshaping our lives. In this way, we can illuminate the common capitalist roots of the problems we face and the importance of building movements committed to radical social transformation and (international) solidarity.

Notes

  1. Quoted in Ha-Joon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective (London: Anthem Press, 2002), 15.
  2. William Cline, “Doha Can Achieve Much More than Skeptics Expect,” Finance and Development (March 2005), 22.
  3. Significantly, most neoliberal theorists do not include the free movement of people in their argument.
  4. Additional discussion of the theoretical weaknesses underlying free-trade theories can be found in Arthur MacEwan, Neo-Liberalism or Democracy: Economic Strategy, Markets, and Alternatives for the 21st Century (New York: Zed Press, 1999), chapter 2; Graham Dunkley, The Free Trade Adventure: The WTO, the Uruguay Round and Globalism—A Critique (New York: Zed Press, 2000), chapter 6; and Anwar Shaikh, “The Economic Mythology of Neoliberalism,” in Alfredo Saad-Filho, ed., Neoliberalism: A Critical Reader (London: Pluto Press, 2005).
  5. Drusilla Brown, Alan Deardoff, & Robert Stern, CGE Modeling and Analysis of Multilateral and Regional Negotiating Options, Discussion Paper 468 (University of Michigan School of Public Policy Research Seminar in International Economics, 2001), http://www.fordschool.umich.edu/rsie/workingpapers/
    Papers451-475/r468.pdf
    .
  6. The World Bank, Global Economic Prospects 2002 (Washington D.C.: World Bank, 2002), xiii.
  7. Peter Dorman, The Free Trade Magic Act, Briefing Paper (Washington, D.C., Economic Policy Institute, 2001), 2.
  8. World Bank, Global Economic Prospects 2002, (Washington, D.C.: World Bank Publications, 2001), 166.
  9. The restrictions that are eliminated include import tariffs, export subsidies, and domestic production subsidies.
  10. World Bank, Global Economic Prospects 2002, 167.
  11. This result is largely a reflection of the assumptions of the World Bank model. Because the agricultural sector in the third world is protected by relatively high tariffs and assumed inefficient, its liberalization produces the biggest gains for the third world. This view of third world agricultural production ignores all cultural and ecological considerations.
  12. Mark Weisbrot & Dean Baker, The Relative Impact of Trade Liberalization on Developing Countries, Briefing Paper (Washington, D.C., Center for Economic and Policy Research, 2002), 1.
  13. World Bank, Global Economic Prospects 2005 (Washington D.C.: World Bank, 2005), 127.
  14. UNCTAD, Trade and Development Report 1999 (New York: United Nations, 1999), vi.
  15. UNCTAD, Trade and Development Report 1999, vi.
  16. Mark Weisbrot, Dean Baker, & David Rosnick, The Scorecard on Development: 25 Years of Diminished Progress (Washington, D.C., Center for Economic and Policy Research, 2005), 1.
  17. UNCTAD, Trade and Development Report 2002 (New York: United Nations, 2002), 103.
  18. UNCTAD, Trade and Development Report 2002, 63.
  19. UNCTAD, Trade and Development Report 2002, 51.
  20. UNCTAD, Trade and Development Report 2005 (New York: United Nations, 2005), 131.
  21. UNCTAD, Trade and Development Report 2002, 77.
  22. UNCTAD, Trade and Development Report 2002, 80.
  23. For a discussion of the rise of China as a neoliberal success story see Martin Hart-Landsberg & Paul Burkett, China and Socialism: Market Reform and Class Struggle (New York: Monthly Review, 2005), especially chapter 1.
  24. Martin Hart-Landsberg & Paul Burkett, “China and the Dynamics of Transnational Accumulation: Causes and Consequences of Global Restructuring,” Historical Materialism (forthcoming 2006).
  25. Hart-Landsberg & Burkett, “China and the Dynamics of Transnational Accumulation.”
  26. China Labor Bulletin, “Subsistence Living for Millions of Former State Workers” (September 7, 2005).
  27. Edward Cody, “Workers In China Shed Passivity, Spate of Walkouts Shakes Factories,” Washington Post, November 27, 2004.
  28. For more discussion of the destructive social consequences of Chinese state policies on working people as well as their growing resistance to these policies see Hart-Landsberg & Burkett, China and Socialism, chapter 3.
  29. This restructuring is examined in detail in Hart-Landsberg & Burkett, China and Socialism, chapter 4, and “China and the Dynamics of Transnational Accumulation.”

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[Oct 17, 2017] Agents of Neoliberal Globalization Corporate Networks, State Structures, and Trade Policy by Michael C. Dreiling, Derek Y. Darve

Notable quotes:
"... Amid the global financial crisis of 2008, a new chapter in the history of neoliberal globalization emerged. Simple assumptions about markets as pure and neutral arbiters of economic transactions faced new challenges from beyond the pages of economic history and sociology. ..."
"... The apparent triumph of global capitalism came into temporary question, and with it, the reigning economic paradigm of neoliberalism. ..."
"... The specter of the Occupy movement in 1011, with its sweeping critique of corporate power, took root in ways not seen in the United States since the 1999 World Trade Organization protests in Seattle. ..."
"... In response, proponents of neoliberalism heightened their demands for a market-governed society, further tax cuts, deregulation, trade liberalization, and more. From the GOP and Tea Party's politics of austerity arose a fresh defense of free market politics in the United States, as well as a rcinvigorated denial of class as a structuring force in US society. These social tensions persist even as neoliberalism, as an ideology and a model for institutional restructuring, exhibits remarkable resilience. ..."
"... From the early 1980s onward, it provided the basic policy framework for "structural adjustment" in the global south, for "rescuing" the welfare state in the global north, and as a vision for a global economy unbound from centrally planned markets, dying industries, or rent-seeking interest groups. ..."
"... One cornerstone of this paradigm that remains mostly unchallenged among political elites is the principal of "free trade." Broadly speaking, neoliberalism and free trade have provided the ideological framework for most reciprocal trade agreements since the early 1980s, when President Reagan initiated a wave of new trade policies in February 1982 during a speech to the Organization of American States (OAS). ..."
"... This formulaic discourse of free markets, free trade, and personal liberty - hallmark features of Reagan's popular rhetoric - also captured what would later be acknowledged as core principles of an incipient neoliberal ideology that promised a restoration of US economic hegemony (Mudge 2008). Domestically and internationally, neoliberal trade proposals were generally presented in tandem with calls for privatization, deregulation, and a reduction in the size of government spending as a share of GDP. ..."
"... Was it the fever pitch of a new' policy ideology acted out by government partisans and policy makers committed to its mantra? Or did the very economic actors benefitting from market liberalization act politically and concertedly to unleash it? And if so, did this coordinated corporate political campaign arise from a reorganized and newly emboldened economic class, or simply through ad hoc alignments created by shared organizational interests? Specifically, can we detect class political signatures on the wave of free trade policies, like the CBI, the North American Free Trade Agreement (NAFTA), or the World Trade Organization (WTO), that erected the institutional framework of neoliberal globalization? 6 ..."
"... We believe that our approach, rooted in the "elite studies" and "power structure" research traditions, expands (and, in some areas, corrects) conventional explanations of neoliberal trade and globalization that emphasize market, institutional, and ideological factors, while neglecting to incorporate a concept of class political action ..."
Oct 17, 2017 | www.amazon.com

Amid the global financial crisis of 2008, a new chapter in the history of neoliberal globalization emerged. Simple assumptions about markets as pure and neutral arbiters of economic transactions faced new challenges from beyond the pages of economic history and sociology.

The apparent triumph of global capitalism came into temporary question, and with it, the reigning economic paradigm of neoliberalism. From the left wing of US politics, a newly invigorated discourse of class and income inequality began to challenge corporate power with calls for greater accountability on Wall Street. The specter of the Occupy movement in 1011, with its sweeping critique of corporate power, took root in ways not seen in the United States since the 1999 World Trade Organization protests in Seattle.

In response, proponents of neoliberalism heightened their demands for a market-governed society, further tax cuts, deregulation, trade liberalization, and more. From the GOP and Tea Party's politics of austerity arose a fresh defense of free market politics in the United States, as well as a rcinvigorated denial of class as a structuring force in US society. These social tensions persist even as neoliberalism, as an ideology and a model for institutional restructuring, exhibits remarkable resilience.

Neoliberalism - which promises to efficiently generate wealth while disciplining states and bureaucracies with market forces - took shape over the course of decades. As a kind of governing philosophy, it has been offered, variously, as a remedy for economic stagnation, bureaucratic bloat, corruption, inflation, and more (Bourdieu 1999; Mirowski and Plehwe 2009; Mudge 2008). From the early 1980s onward, it provided the basic policy framework for "structural adjustment" in the global south, for "rescuing" the welfare state in the global north, and as a vision for a global economy unbound from centrally planned markets, dying industries, or rent-seeking interest groups.

One cornerstone of this paradigm that remains mostly unchallenged among political elites is the principal of "free trade." Broadly speaking, neoliberalism and free trade have provided the ideological framework for most reciprocal trade agreements since the early 1980s, when President Reagan initiated a wave of new trade policies in February 1982 during a speech to the Organization of American States (OAS). There, Reagan unilaterally called for a Caribbean Basin Initiative (CBI) that would "make use of the magic of the marketplace of the Americas, to earn their own way toward self-sustaining growth" (quoted in Polanyi-Levitt 1985: 232)/ This formulaic discourse of free markets, free trade, and personal liberty - hallmark features of Reagan's popular rhetoric - also captured what would later be acknowledged as core principles of an incipient neoliberal ideology that promised a restoration of US economic hegemony (Mudge 2008). Domestically and internationally, neoliberal trade proposals were generally presented in tandem with calls for privatization, deregulation, and a reduction in the size of government spending as a share of GDP. 5

Although a large and varied group of economists, policy wonks, and government leaders supported the general principles of neoliberal globalization, the "market fever" of the 1980s did not spread simply because certain individuals espoused free trade and domestic deregulation. The fact that many of these noncorporate actors assume a central role in many popular and academic accounts of this era does not reduce the many empirical problems with this view.

In particular, the problem with this "triumphant" vision of neoliberal history is the manner in which the very engines of capital behind the market mania - globalizing corporations appear as liberated historical agents acting out their market freedoms, not as class political actors foisting new institutional realities on the world. We contest this prevailing view and instead ask who liberated, or in Blyth's (2001) terminology, "disembedded," these markets from national social and political institutions?

Was it the fever pitch of a new' policy ideology acted out by government partisans and policy makers committed to its mantra? Or did the very economic actors benefitting from market liberalization act politically and concertedly to unleash it? And if so, did this coordinated corporate political campaign arise from a reorganized and newly emboldened economic class, or simply through ad hoc alignments created by shared organizational interests? Specifically, can we detect class political signatures on the wave of free trade policies, like the CBI, the North American Free Trade Agreement (NAFTA), or the World Trade Organization (WTO), that erected the institutional framework of neoliberal globalization? 6

The answer to these questions and, in particular, the role of class agency within these macroeconomic shifts, is not simply a question of whether one likes Karl Marx or Adam Smith. Notwithstanding the recent tendency to equate the mention of class with "class warfare," it is our contention that removing class from accounts of recent economic history creates, at best, a narrow and distorted perspective on this important era. The primary purpose of this book, then, is to introduce and empirically validate a concept of class agency that deepens our understanding of both the trade policy-making apparatus as well as the neoliberal globalization "project" more generally.

We believe that our approach, rooted in the "elite studies" and "power structure" research traditions, expands (and, in some areas, corrects) conventional explanations of neoliberal trade and globalization that emphasize market, institutional, and ideological factors, while neglecting to incorporate a concept of class political action .

Our general line of argument historicizes US trade policy and neoliberal globalization, highlighting the active and at times contradictory processes that shape the state and class relationships responsible for propelling institutions, like the WTO, into existence. Following McMichael (2001: 207), we concur that globalization is best understood as a "historical project rather than a culminating process." Treating neoliberal trade policies as part of a much larger historical project - made and remade by collective actors - offers a more realistic and empirically grounded framework for exploring the intersection of class and state actors in the political articulation of globalization.

Whereas much of the literature on globalization assigns an important role to the economic activity of multinational corporations, the force of their collective political agency in pressuring states to ratify trade agreements and enact institutional reforms is mostly attributed to narrow sectoral interests, like factor mobility', economies of scale, or various industry-specific characteristics...

[Aug 21, 2017] If you're Canadian, bend over and grab your ankles.

Aug 21, 2017 | www.moonofalabama.org

spudski | Aug 20, 2017 8:25:35 PM | 13

"After years without result, with days to the deadline, Canada's negotiator, Simon Reisman, who Chrystia Freeland recalls in the fond tones Hillary Clinton uses for Henry Kissinger, walked. Why? Because the U.S. wouldn't agree to a "mechanism" that superceded U.S. law. Ottawa was grim. Without a deal, we'd perish. The U.S. negotiator said: Canada needs a "face-saving gesture." President Reagan told his team to get creative.

They did. They didn't replace the U.S.'s unilateral right to impose costs on Canadian stuff with a neutral process to decide what's fair. They created a process to decide only whether the U.S. was accurately enforcing its own rules. That left everything as it was but called it dispute resolution."

http://rabble.ca/columnists/2017/08/minister-freeland-propagates-neoliberal-myth-free-trades-benefits

https://www.thestar.com/news/canada/2017/08/19/us-signals-trumps-buy-american-agenda-non-negotiable-in-nafta-talks.html

John Gilberts | Aug 20, 2017 9:30:54 PM | 15

Re Spudski - 13 and the NAFTA reneg: Good thing Chrystia Freeland and Justin Trudeau have the very best advising them...

Taking Summers' Advice Defies Logic
http://www.torontosun.com/2015/04/08/taking-summers-advice-defies-logic

[Jul 01, 2017] The Slogan Globalization Equals Growth Is Wrong by Daniel Gros

Notable quotes:
"... Trade liberalisation has been a significant driver of globalization over the past half century. However, global trade has slowed down in recent years. This column argues that globalization can also be driven by higher commodity prices can also drive, as commodities constitute a large fraction of global trade. This is reflected in trade volumes and commodity prices, which increased until around 2014 but have fallen since. However, commodity price-driven globalization implies lower living standards in advanced countries, as the higher commodity prices diminish the purchasing power of workers. ..."
"... See original post for references ..."
"... "His conclusions are compelling and disturbing: that developed countries are attempting to 'kick away the ladder' with which they have climbed to the top, thereby preventing developing counties from adopting policies and institutions that they themselves have used." ..."
Jun 30, 2017 | www.nakedcapitalism.com
By Daniel Gros, Director of the Centre for European Policy Studies, Brussels. Originally published at VoxEU

Trade liberalisation has been a significant driver of globalization over the past half century. However, global trade has slowed down in recent years. This column argues that globalization can also be driven by higher commodity prices can also drive, as commodities constitute a large fraction of global trade. This is reflected in trade volumes and commodity prices, which increased until around 2014 but have fallen since. However, commodity price-driven globalization implies lower living standards in advanced countries, as the higher commodity prices diminish the purchasing power of workers.

Trade and international financial transactions have grown massively in recent decades. This phenomenon, also called globalization, is often described as a 'mega-trend'. Business and political leaders never tire of repeating that 'globalization' is the future, that it delivers more jobs and higher incomes. However, more recently globalization seems to be in retreat-in 2015 trade actually fell, both in absolute terms and relative to GDP. Does this mean globalization has gone into reverse (OECD 2016, IMF 2015, 2016)?

In this column, I argue that the slogan 'globalization equals growth' is wrong. There is no general economic theorem that links more trade to growth and other economic benefits. Economic theory implies only that, under most circumstances, lower trade barriers will lead to more trade and more jobs. The simplification, that more trade is thus always beneficial, is not warranted. If trade increases for reasons other than the lowering of trade barriers, it is far from clear that this will benefit everybody.

The distinction between globalization driven by lower trade barriers and increases in trade driven by other factors is not just an academic point. It is the key to understanding why globalization has become so unpopular in most advanced countries, and why the recent slowdown in trade is not something to worry about.

What Drove 'Hyper-Globalization'?

The massive increase in trade flows over the last two decades has always been difficult to explain with 'classic' causes, such as trade liberalisation lowering trade costs. Tariffs (and other trade barriers) had of course been reduced radically in several stages in the 1960s, 70s, and 80s. However, by the late 1990s the remaining tariffs were already rather low; and many non-tariff barriers (such as the Multi Fibre Arrangement, which had seriously limited trade in textiles) had also been eliminated. 1

Transport costs of course fell with containerisation, but this improvement had yielded most of its benefits by the late 1990s. Estimates of the overall cost of trade based on the ratio of CIF prices (which incorporate transport costs) and FoB prices (which do not) actually suggest that transport costs slightly increased over the last 20 years; before1995 they had fallen almost continuously (Baldwin and Taglioni 2004). Figure 1 shows that transport costs have fallen again very recently, but that this coincided with a slowdown of trade – the opposite of what one would expect.

Figure 1 Word transport costs

[Imports(CIF)/Exports(FoB]-1

How can one reconcile 'hyper-globalization' (Subramanian and Kessler 2013) with stagnating tariffs and transport costs? Baldwin (2017) provides one answer. He argues that the key driver of globalization today is the falling price of 'transporting' ideas, as opposed to the cost of moving goods.

This contribution provides an additional, maybe complementary, explanation-higher oil (and other commodity) prices increase both trade volumes and transport costs for goods, but not ideas. The impact of oil prices on transport costs is clear-fuel is an important element of overall transport costs. A sharp increase in fuel prices can more than outweigh, at least in the short to medium run, the costs savings due to containerisation. (Cosar and Demir 2017 also argue that most of the cost savings from the latter have been realised.)

But the key point is that higher commodity prices also automatically create more trade, because commodities constitute a large fraction of global trade.

An Illustrative Example

Assume that one tonne of steel and ten barrels of oil are needed to produce one car. In 2002-03, that bundle of raw materials was worth around $800, or about 5% of the value of a car priced at $16,000. This implies that during the early 2000s, industrialised countries had to export five cars for imports of 100 bundles of these raw materials. By 2012–13, the value of the raw materials needed for one car increased to about $2,000, now representing about 10% of the cost of a car (prices of cars had gone up much less). Industrialised countries thus had to export 10 cars, double the previous quantity, for the same amount of raw material imports.

This example shows that the value of trade would double if commodity prices double. There is thus a direct link between the growth of trade and commodity prices. Increasing commodity prices lead to more trade (globalization), whereas falling commodity prices have the opposite effect.

An immediate objection to this example is that it looks at the value of trade, but one also finds that over the last decades the growth of trade in volume has exceeded that of the volume of real growth. However, this excess growth in trade volume also follows in this example-an industrialised country would need to double its exports in volume just to pay for an unchanged volume of raw material imports.

Since food, fuels, and raw materials make up about a quarter of global trade, the huge price movements in raw materials, especially energy, over the last few decades, must have had a big impact on aggregate trade figures. The run up in commodity, and especially crude oil, prices until about 2014 drove hyper-globalization, and the fall in prices since then has now reduced globalization. There is thus little need to look for other explanations for the recent slowdown in trade.

Figure 2 illustrates this phenomenon with three lines, each of which show three variants of the global trade/GDP ratio. The top-most line is just the ratio of total global exports to global GDP. It is the one that shows most globalization-trade accounted for a little over 15% of GDP in 1995, but 25% at the peak in 2007 (an increase of almost 10 percentage points).

The middle line shows global exports of manufacturing goods as a percentage of GDP. The difference to the first line is, of course, trade in raw materials, which increased in value along with their prices, as argued above. Trade in manufacturing goods shows much less globalization, having increased from only 13% to 17.5% of global GDP.

The lowest line takes into account the fact that higher raw material prices also means that industrialised countries have to export more manufacturing goods to pay for their more expensive raw material imports. This last line, which could be called 'manufacturing trade net of payment for raw materials' shows even less globalization, with the ratio relative to GDP going from 10.5% to 13.6% of global GDP (an increase of only 3 percentage points, one third of the headline increase mentioned above).

Figure 2 World trade as a percentage of GDP

Source : Own calculations based on OECD and WTO data.

This decomposition of trade flows suggests that there has indeed been some globalization, but it has been much less strong than the hyper-globalization one sees in the aggregate data. Moreover, the recent fall in commodity prices can fully explain the fall in trade since 2014 with trade in 'net manufacturing' showing no 'de-globalization'.

But back during the heyday of hyper-globalization, no responsible politician dared to explain that globalization driven by higher commodity prices would have different implications (for advanced economies) than globalization driven by trade liberalisation-this new globalization meant lower living standards in advanced countries as higher commodity prices diminished the purchasing power for OECD workers. The widespread popular disenchantment with globalization can thus be easily explained-workers in Europe and the US were told that more trade would make everybody better off. But in reality there was no 'surplus' to be distributed, and workers just noticed a decline in their living standards. 2

But hype and exaggeration are sure ways to bring a valid cause into disrepute. This is what has happened to globalization. The decades of gradual liberalisation of trade and capital flows that followed post-war reconstruction fostered a resumption of global trade that was hugely beneficial. However, at exactly the point when economic analysis would suggest that these gains from trading more freely were largely exhausted, actual trade accelerated. This surge in trade was driven largely by higher commodity prices and could not deliver higher living standards for workers in industrialised countries.

A popular backlash was thus unavoidable and Donald Trump became its standard bearer. The political consequences in Europe are also visible-the Brexit referendum, the difficulties in ratifying the free trade agreement between the EU and Canada (CETA) and the stand-still in the negotiations on the Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US are all expressions of this disenchantment with globalization.

What Could Be Done to Avoid Throwing the Baby Out With the Bath Water?

A first step would be to stop the overselling. CETA and TTIP would be useful to have, but the economic benefits can only be of second order importance (and the potential damage feared by some as well). A second step would be to look where there are still trade barriers whose removal could bring significant welfare benefits. They are likely to be found in emerging markets, whose tariffs and non-tariff barriers are still several times higher than those of the EU or the US. European trade policy should thus concentrate on free trade deals with India or China, rather than the US.

See original post for references

0 0 5 1 0 This entry was posted in Commodities , Free markets and their discontents , Globalization , Guest Post , Income disparity , Politics , The destruction of the middle class , The dismal science , TPP on June 30, 2017 by Yves Smith . Subscribe to Post Comments 19 comments justanotherprogressive , June 30, 2017 at 10:38 am

Silly boy! What makes you think that Globalization was ever meant to grow "economies"? It was never more than a means for mega-corporations to improve their bottom lines just another form of arbitrage .

ChrisAtRU , June 30, 2017 at 11:43 am

Globalization and the "free trade" it espoused were – in the words of economist Ha-Joon Chang – tantamount to ladder-kicking :

"His conclusions are compelling and disturbing: that developed countries are attempting to 'kick away the ladder' with which they have climbed to the top, thereby preventing developing counties from adopting policies and institutions that they themselves have used."

sgt_doom , June 30, 2017 at 2:29 pm

What Drove 'Hyper-Globalization'?

What a silly question!

Inflating financial assets - theirs (the super-rich), not ours!

RBHoughton , June 30, 2017 at 9:06 pm

The inclusion of the fatuous 'trade in money' that our agreements contain suggests you are right. Ripping-off by agreement might be the new game.

CD , June 30, 2017 at 11:22 am

Yes, it's surprising how most politicians and economists have missed this. Globalization was always meant to grow corporate revenue in their home saturated markets. Their effects on their home countries' welfare or their home country employees was not important.

Trump voters showed us otherwise.

Also, mergers are not about scale economies or some market benefits. Mergers and acquisitions are about letting top execs ask for higher benefits.

It's amazing that few see thru this persiflage.

JTMcPhee , June 30, 2017 at 1:56 pm

Which corporations have "home countries?" Any more than "our" empire is any respecter of silly old national boundaries. Nations were and are just springboards for "commercial interests " https://www.librarything.com/work/73551 They're the substrates that made and make "legal" the giant falsehoods and frauds that are corporate persons

Massinissa , June 30, 2017 at 3:03 pm

Theres a reason corporations are called 'multinationals'. They don't have actual 'home countries'.

Enquiring Mind , June 30, 2017 at 7:06 pm

Once upon a time, we older people learned about MNCs and their penchant for playing countries off against one another. That seems so quaint in retrospect, given the more brazen behaviors on offer. More recently, families give up citizenship to save some wealth and to hide some wealth. To what kind of world are they running? When loyalty, duty and character become passé, then the replacement characteristics are cause for alarm and disgust.

CD , June 30, 2017 at 5:25 pm

My overall takeway - Decisions by large corporations have huge consequences for the locals, especially if their jobs swim overseas. Locals' feelings at some point, maybe years later, become their votes and political opinions.

So if this is correct, Trump is the payback, greatly delayed. B Clinton's and Obama's politics changed our economy and that in turn became the new politics.

So economics has become politics, and not for the better.

Steven , June 30, 2017 at 11:35 am

The widespread popular disenchantment with globalization can thus be easily explained-workers in Europe and the US were told that more trade would make everybody better off. But in reality there was no 'surplus' to be distributed, and workers just noticed a decline in their living standards.2

There was a surplus alright. But even if promised to "everybody" it didn't go and wasn't intended to go – to "everybody".

Workers without jobs not only can not enjoy the fruits of globalization (AKA lower prices by employing the 'slave labor' of developing nations and raping and pillaging their environment). Western workers can not pay into their (unlocked by resident politicians and oligarchs) 'Social Security lock boxes'.

Left in Wisconsin , June 30, 2017 at 12:13 pm

I don't get a couple of things said in this post:

1. How come the huge run-up in commodities didn't translate to higher (measured) inflation? The author even makes the point that car prices went up much less than steel and oil. (Also, the doubling of oil and/or steel prices seems strange to me, as I thought neither had seen a big run-up in this period.) Granted problems with measured inflation but clearly the bigger problem with working class real wage growth was wage pressure, not inflation pressure.

2. The author seems to presume that trade must balance within countries: exports of cars must double to pay for higher commodities costs. That certainly does not explain car exports from the US (not to mention the lack of balanced trade). And I don't think it explains car exports from Europe or Asia either, unless the argument is that higher commodities costs affected exchange rates, lowering them for car exporters compared to commodities exporters. Nor would it seem to explain Chinese exports, again unless there is some argument as to why China "needs" (in an economic, not political, sense) to run a particular level of massive trade surplus.

3. The author completely ignores China's accession to the WTO in 2000, which some recent studies have suggested was the primary driver for dramatic increases in China exports to US from that point.

PKMKII , June 30, 2017 at 2:15 pm

The lack of car inflation may be explained by the increase in the same period in auto loan debt . If you can make a hefty profit off the loan interest and other service fees, they you don't need to increase the base car price. There may even be a motivation to keep the prices low, as the cheap sticker price gets the customers in the door, and it's not until they've gone through the ringer with the salesman and loan guy that they realized they've been duped into paying way more than advertised.

sgt_doom , June 30, 2017 at 2:32 pm

1. By globalizing wages downwards.

Jeremy Grimm , June 30, 2017 at 4:53 pm

There are a lot of things said in this post that I don't get. [And is this guy really Director of the Centre for European Policy Studies, Brussels? That's scary!]

This author explicitly equates trade with globalization and implicitly equates growth with increases in GDP figures. I believe the term "globalization" covers much more than trade. I believe it also includes the deliberate movement of production out of the U.S. [or out of Europe] to far-away lands with cheaper labor and fewer annoying regulations. I believe it also includes an intent to weaken labor and nation states.

I doubt that figures for GDP provide an adequate measure for growth and similarly doubt that trade measured in terms of a currency provides an adequate measure for trade. Although I suppose this way of measuring trade might support the assertion:

"But the key point is that higher commodity prices also automatically create more trade, because commodities constitute a large fraction of global trade."

I don't know what that assertion really means given my bias against the measures this author uses. In turn, this assertion leads to another odd assertion:

"This example shows that the value of trade would double if commodity prices double. There is thus a direct link between the growth of trade and commodity prices. Increasing commodity prices lead to more trade (globalization), whereas falling commodity prices have the opposite effect."

So using the authors terminology I have trouble with the assertion: "Globalization equals growth" is wrong. If globalization means bigger trade numbers and growth means bigger GDP numbers and if trade is a positive additive component of growth the assertion that globalization equals growth - more clearly - that globalization increases growth seems a tautology. The author's slight of hand correcting for "higher raw material prices" in the trade figures does not convince me of the title assertion - and by this point in the argument the assertion - whether true or false - is devoid of meaning for me.

As Thuto notes in a comment below the author assumes globalization driven by trade liberalization is "somehow better" - I would say the author tacitly assumes globalization driven by trade liberalization does equal growth - contribute to "true" growth. This leads to the author's conclusion that CETA and TTIP might have some marginal benefits and might cause some marginal potential damage neatly avoiding the non-trade issues in those deals - like the ISDS "investor-state dispute settlement" and various intellectual property enhancements contained in the TTP. Given that globalization by trade liberalization does grow GDP and assuming that growing GDP is a good thing for all parties the author can conclude that "European trade policy should thus concentrate on free trade deals with India or China, rather than the US."

We know how globalization's free trade deals with India or China benefited the US. Does this author really desire similar benefits for Europe?

RBHoughton , June 30, 2017 at 9:10 pm

I'm with you Leftie. How inflation hardly appears in our hugely inflated western economies is one of the greatest magic tricks. We all know food and clothing has got more expensive but "inflation?" – not a hint.

I am guessing its like the paper gold market. We have the means to mis-price everything.

nonsense factory , June 30, 2017 at 12:21 pm

Conditions under which trade between nation-states is beneficial to both partners:
(1) Each nation exports goods which it has a competitive advantage in producing. Agricultural products are the classic example.
(2) The profits from sale of such goods remain in the country of origin. Transfer of profits out of the country of origin mean that the country is just a plantation run by absentee landlords.
(3) Trade between the nation-states must be balanced on both sides; i.e. exports and imports are on the same scale.
(4) Both nation-states must have a condition of full employment.
(Ricardo 1817)
Only when conditions 2-4 are met will condition 1, the ideal situation, be realized. Now, globalization of capital flows across nation-state borders (the key element of neoliberalism, or neocolonialism) defeats this. Instead of trade between independent nation-states, what we have is the imperial system – backed up by a $600 billion yearly military budget that is used to attack any entities that refuse to go along with the program, by covert means such as destablization and ultimately by military assault (as long as the target does not possess nuclear weapons, that is).

Furthermore, late 19th-century and 20th century economists have created a set of false assumptions and theorems with no basis in reality to justify this kind of thing. Notions like 'utility', 'externalities', and 'GDP' are just sloppy propaganda games; there are no 'general theorems' in economics that have any solid basis in reality – the entire game of modern academic economic theory is nothing but smoke and mirrors, whose primary function (as with Soviet economic theory and communism) is to promote the ideology of investment capitalism, protecting shareholder interests in the corporate system. If economists want to put their discipline on a sound physical and mathematical basis, they should start by studying a real science like ecology in natural science departments. My own opinion is that anything written by academic economists from the latter half of the 19th century to the present can be discarded with no loss at all.

Instead, read an ecologist like Hutchinson, and think about how those real concepts (in which there are no 'externalities') would apply to a study of human economic activity.

sunny 129 , June 30, 2017 at 1:31 pm

Globalization favored Mega Corporations and Multi-Nationals (+ their corporate share holders, lenders) over the rest of the society including labor b/c global labor wage arbitrage!

Living standards went down for working blue collar ( and some white collar) in the West. There was some 'patchy' RELATIVE increase in living standards of their middle class in some of the Countries, like India!

Sad reality:
The CAPITAL is mobile but the LABOR is NOT!

Thuto , June 30, 2017 at 2:11 pm

The author seems to be arguing that globalization driven by trade liberalization is somehow better and more palatable than globalisation driven by higher commodity prices. Yet history has demonstrated that trade liberalization leads sooner or later to the transfer of manufacturing capacity from high to low income countries, wiping out entire swathes of jobs in said high income countries. So the argument that globalization driven by trade liberalization benefits workers in rich countries is shaky at best and demonstrably false at worst

JTMcPhee , June 30, 2017 at 2:25 pm

So much understanding of "what's wrong" (from the mopes' standpoint, of course) and so little in the way of prescriptions for "what is to be done" about conditions as described Kind of like Tomgram, from the more military- and foreign-adventurism corner of the blogspace

One might guess that we thinking people, with our perceptions and little debates about syntax and the elements of political economy and composition skills, are maybe just tolerated by the Blob, because we don't pose much of a challenge to oligarchy and hegemony And we vent off righteous steam that might get up too much of a head, and also reinforce, via our perceptions of the massiveness of "the problem," the futility of resistance to something so yuuuuge, all interlocking directorates and self-licking incentives Small mice can sometimes avoid being crushed by the elephants' feet, if they are quick and inoffensive.

One wonders where the notion that elephants fear mice, a stock item in comedy, came from

[Jun 28, 2017] Whats so Great about Free Trade?

Notable quotes:
"... It is not becoming involuntarily unemployed that is devastating. It is the loss of income security that sucks. I was laid off 6/16/2015, but I was 66 years and 2 months old having earned 37 years of service credit in our defined benefits pension plan and then granted an additional 6 years pension service credit by virtue of taking my severance benefits in the form of enhanced retirement. ..."
"... I had wanted to work six more years so I could take survivor benefit and still have a sufficient retirement income, but the severance package allowed me that freedom instead. ..."
"... There is no such thing as free trade. At best, there are treaties which successively approximate free trade. The problem comes in with who negotiates these agreements, the agreements largely addressing the concerns of those selected to do so, while ignoring the concerns of those not selected to do so. Which is the entire problem. Capital is selected; labor is not. ..."
"... So who ends up liking these things? Capital. Who ends up not liking them? Labor and environment. Duh? Is this really that hard to figure out? ..."
"... "Free trade" (whatever that is) is not necessarily fair trade. Free trade is a slogan special interest use to protect their capture of trade profits. Fair trade would be the attempt to manage trade such that the maximum number of winners is produced. ..."
Apr 01, 2016 | economistsview.typepad.com

David Glasner (I cut quite a bit -- the original is more than twice as long):

What's so Great about Free Trade? : Free trade is about as close to a sacred tenet as can be found in classical and neoclassical economic theory. ... Despite the love and devotion that the doctrine of free trade inspires in economists, the doctrine ... has never been popular among the masses. ...

The key to understanding that disconnect is, I suggest, the way in which economists have been trained to think about individual and social welfare, which, it seems to me, is totally different from how most people think about their well-being. In the standard utility-maximization framework, individual well-being is a monotonically increasing function of individual consumption, leisure being one of the "goods" being consumed, so that reductions in hours worked is, when consumption of everything else is held constant, welfare-increasing. Even at a superficial level, this seems totally wrong. ...

What people do is a far more important determinant of their overall estimation of how well-off they are than what they consume. When you meet someone, you are likely, if you are at all interested in finding out about the person, to ask him or her about what he or she does, not about what he or she consumes. Most of the waking hours of an adult person are spent in work-related activities. ... It seems to me that what matters to most people is the nature of their relationships with their family and friends and the people they work with, and whether they get satisfaction from their jobs or from a sense that they are accomplishing or are on their way to accomplish some important life goals. ...

Moreover, insofar as people depend on being employed in order to finance their routine consumption purchases..., the unplanned loss of their current job would be a personal disaster, which means that being employed is the dominant – the overwhelming – determinant of their well-being. Ordinary people seem to understand how closely their well-being is tied to the stability of their employment, which is why people are so viscerally opposed to policies that, they fear, could increase the likelihood of losing their jobs.

To think that an increased chance of losing one's job in exchange for a slight gain in purchasing power owing to the availability of low-cost imports is an acceptable trade-off for most workers does not seem at all realistic. Questioning the acceptability of this trade-off doesn't mean that ... in principle, the gains from free trade are[n't] large enough to provide monetary compensation to workers who lose their jobs, but I do question whether such compensation is possible in practice or that the compensation would be adequate for the loss of psychic well-being associated with losing one's job, even if money income is maintained. ...

The psychic effects of losing a job (an increase in leisure!) are ignored by the standard calculations of welfare effects in which well-being is identified with, and measured by, consumption. And these losses are compounded and amplified when they are concentrated in specific communities and regions...

The goal of this post is not to make an argument for protectionist policies, let alone for any of the candidates arguing for protectionist policies. The aim is to show how inadequate the standard arguments for free trade are in responding to the concerns of the people who feel that they have been hurt by free-trade policies or feel that the jobs that they have now are vulnerable to continued free trade and ever-increasing globalization. I don't say that responses can't be made, just that they haven't been made.

The larger philosophical or methodological point is that ... economic theory can tell us that an excise tax on sugar tends to cause an increase in the price, and a reduction in output, of sugar. But the idea that we can reliably make welfare comparisons between alternative states of the world when welfare is assumed to be a function of consumption, and that nothing else matters, is simply preposterous. And it's about time that economists enlarged their notions of what constitutes well-being if they want to make useful recommendations about the welfare implications of public policy, especially trade policy.

Barkley Rosser April 01, 2016 at 12:32 AM

The happiness literature on the impact of involuntary unemployment on happiness is quite large, with people like David Blanchflower having played important roles. An offhand summary is that becoming involuntarily unemployed is indeed one of the events that is most devastating to the happiness of most people, with only a few events worse, including having one's spouse die or being thrown in jail.

RC AKA Darryl, Ron -> Barkley Rosser ...

It is not becoming involuntarily unemployed that is devastating. It is the loss of income security that sucks. I was laid off 6/16/2015, but I was 66 years and 2 months old having earned 37 years of service credit in our defined benefits pension plan and then granted an additional 6 years pension service credit by virtue of taking my severance benefits in the form of enhanced retirement.

I had wanted to work six more years so I could take survivor benefit and still have a sufficient retirement income, but the severance package allowed me that freedom instead.

With firms no longer offering defined benefits pension plans then we need to expand social security into a full income pension plan. We need to increase unemployment benefits as well. Once we have paid for that then the plutocrats will find that they are better off paying US workers to make stuff since all their global price arbitrage profits have been clawed back.

DrDick -> RC AKA Darryl, Ron... Reply Friday, April 01, 2016 at 06:58 AM

I think this is an important factor. It is certainly the case that a certain level of consumption increases happiness, but beyond a fairly moderate level, I do not think it actually adds much. Another important factor is having something meaningful to do with your time. For most people, that is work. Boredom is a serious problem among the retired.

PPaine -> DrDick... April 01, 2016 at 07:10 AM

We have more then just skill crushing, job experience crushing. Impacts of domestic production erasing imports. We have the implied competition on wages. Of import threats

Wage stag --

JohnH -> PPaine ... April 01, 2016 at 07:31 AM

Economists largely ignore distribution of benefits, focusing on efficiency and the 'total good.' How that total good is divvied up is largely irrelevant to them, unless the populace gets testy.

In fact, most people would be better off if the economy were slightly smaller but distributed much more evenly. Economists just can't seem to wrap their heads around that concept.

RC AKA Darryl, Ron -> DrDick... April 01, 2016 at 09:58 AM

"I think this is an important factor."

[Not sure which this that you are agreeing with. So, let's say that income security means a roof over are heads and food to eat for the whole family. Then there is this boredom thingy. With a little acreage and a sound mind and body then staying occupied, productive (in some manner of speaking - a rose is a rose is a rose), and happy is a piece of cake. A tenement room with nothing but a TV would be death sentence for me. If not for money then I would never have needed to work for someone else. I see good honest work to do everywhere I look.]

reason April 01, 2016 at 12:45 AM

He came close but he missed the major point. SECURITY.

What do most people see as their life goal? To raise a family. How long does it take? Decades. Flexibility isn't a boon - it is a disaster for most people.

If you only look at a static picture of the world (which is the traditional view of economists) how can you possibility see this?

ilsm -> reason... April 01, 2016 at 04:35 AM

Economics is about "distribution of scarce resources......." if I recall ECON 101.

That phrase is as forgotten and ignored as the thing in the Declaration of Independence about "all men created equal"!

Unless the measure of "good" wrt distribution is the hoard of the richest.

RC AKA Darryl, Ron -> reason... April 01, 2016 at 05:24 AM

"He came close but he missed the major point. SECURITY..."

[Too bad. As I was reading this I was liking it so much that it had already elevated my former opinion of David Glasner, technically elegant, all the way up to topically relevant and possibly even socially astute, but from what you say then I must put a hold on that socially astute. I guess I had better read the entire article before I begin to comment further.]

RC AKA Darryl, Ron -> reason... April 01, 2016 at 06:10 AM

You are correct. Glasner missed the point on security, so he also missed the point that if income is maintained then that would cover the lion's share of well being. Glasner is correct that money is not everything, just as consumption is not everything, but that really does come down to just how much money that we are talking about. I worked a long time contributing into a traditional pension plan. I took great pride in my work, but I have not missed my job or felt inadequate because of the lack of that purpose for a minute since I was laid off on 6/16/2015. That's because between my social security and pension incomes then I can still make my mortgage payments and all my other bills and due to my reduced expenses on payroll taxes, clothes, and gas have more money left over for landscaping and other home projects than I did when I was working. If I was eating cat food or living under a bridge then I would be feeling much worse about having been laid off.

Benedict@Large -> reason... April 01, 2016 at 06:18 AM

There is no such thing as free trade. At best, there are treaties which successively approximate free trade. The problem comes in with who negotiates these agreements, the agreements largely addressing the concerns of those selected to do so, while ignoring the concerns of those not selected to do so. Which is the entire problem. Capital is selected; labor is not. (Neither much is environmental.)

So who ends up liking these things? Capital. Who ends up not liking them? Labor and environment. Duh? Is this really that hard to figure out?

RC AKA Darryl, Ron -> Benedict@Large ... April 01, 2016 at 06:47 AM

"There is no such thing as free trade...."

[Sure there is. Anne complains about this as well. But a large part of maintaining plutocracy within the framework of a democratically electoral republic is the copious use of misleading euphemisms. We all know what they really mean, or at least all of us here reading and commenting at EV know what they mean. My guess is that unemployed workers in the rustbelt know what they mean as well.

Republicans talk about being free all of the time, but what they really are is just cheap. There is nothing free in life. Most people know this intuitively. There are choices and consequences. One consequence of the overuse of "free trade" is the emergence of fair trade. As far as I can tell the rebranding will hardly put a dent in the arbitrage profits. ]

PPaine -> reason... April 01, 2016 at 07:14 AM

Might I submit this word

A decent measure of Control over ones fate

The job markets must always offer everyone ....everyone an opportunity to prosper

Ours is a job based culture as the blog post asserts so clearly

To control ones fate and ones love ones fate
Job opportunities and options
must. always be out there cajoling you to " join us "

jonny bakho April 01, 2016 at 04:09 AM

The United States benefits and historically has benefitted by being one large trading block. Increases in wealth are linked to improvements in transportation even today.

One stumbling block in international trade is the restriction on movement of labor. This is a huge problem for the EU. Another problem is distribution of the profits from trade. How much should be captured by private interests and how much should go to the public good. Should some profits from trade be returned from one country to another? This is often done through severance taxes or export fees.

"Free trade" (whatever that is) is not necessarily fair trade. Free trade is a slogan special interest use to protect their capture of trade profits. Fair trade would be the attempt to manage trade such that the maximum number of winners is produced.

RueTheDay April 01, 2016 at 06:11 AM

It seems to me that a couple of obvious points are being missed.

1) The "gains from free trade" argument is simply that under conditions of trade, more "stuff" will be produced than under conditions of autarky, so theoretically there will be more available for everyone. That says nothing about how those gains are distributed, i.e., there will be individual winners and losers. In practice, those gains never seem to actually get redistributed so it's impossible to say everyone is made better off.

2) What is the root cause of comparative advantage? The textbooks tell us - differences in initial factor endowments, technology, and tastes. What does that mean in a world where a company in a developed company can pick up its capital (and implicitly, technology) and move it to a lesser developed country with cheaper labor, because capital is far more mobile than labor, in order to produce goods to supply its home market (where tastes differ)?

RC AKA Darryl, Ron -> RueTheDay ... April 01, 2016 at 06:22 AM

Glasner did not really miss your point # 1, but he muddled the message a bit over the benefits of redistribution. Almost everyone, but especially those trained in economics, seems to miss your point #2. The most basic premise of comparative advantage has long been broken by technology, but the fiction of that old saw serves the price arbitrage motives of capital so well that it has been preserved in amber like the fossilized bug it is.

Fred C. Dobbs April 01, 2016 at 06:35 AM

The Democrats "Free Trade" Divide
https://shar.es/1Y8WAd
Mark Engler - April 23, 2008

"Free trade" has produced some of the most contentious political debates of our times. In a famous April 2000 article in the New Republic (*), economist Joseph Stiglitz argued, "Economic policy is today perhaps the most important part of America's interaction with the rest of the world. And yet the culture of international economic policy in the world's most powerful democracy is not democratic." During the Bush years, economic policy received far less attention in political discussion than before; the use of military force took center stage. However, the trade and development debate went on, and it continues to affect fundamental questions of global poverty, inequality, and opportunity. Under a new Democratic administration-or under a Republican administration that demotes the neocons in favor of the more traditional, realist foreign policy establishment-it is likely that economic policy will again become the most important part of America's interaction with the world. And it is likely that it will remain profoundly undemocratic.

The injustices of neoliberal trade policy and the hypocrisy of U.S. stances in international negotiations have produced an upheaval in multilateral institutions like the WTO, and this has helped to transform the debate about the global economy. But trade is also an important domestic issue. Today, trade policy plays an important role in the battle for the soul of the Democratic Party.

One of the major accomplishments of the Clinton administration was to move to the fore of the Party a faction led by the centrist, corporate-friendly Democratic Leadership Council. Working with pro-"free trade" Republicans, Clinton and the DLC made passing the North American Free Trade agreement (NAFTA) in 1993 and approving U.S. entry into the World Trade Organization (WTO) in 1994 into bipartisan crusades. The coalition in favor of corporate globalization was always tenuous, however. In recent years, especially as the Bush administration implemented an increasing belligerent foreign policy, the "free trade" coalition has frayed. ...

*- http://www.mindfully.org/WTO/Joseph-Stiglitz-IMF17apr00.htm

anne -> Fred C. Dobbs... April 01, 2016 at 07:12 AM

Really important:

https://www.globalpolicy.org/global-taxes/42760-what-i-learned-at-the-world-economic-crisis.html

April 17, 2010

What I Learned at the World Economic Crisis
By Joseph Stiglitz

Next week's meeting of the International Monetary Fund will bring to Washington, D.C., many of the same demonstrators who trashed the World Trade Organization in Seattle last fall. They'll say the IMF is arrogant. They'll say the IMF doesn't really listen to the developing countries it is supposed to help. They'll say the IMF is secretive and insulated from democratic accountability. They'll say the IMF's economic "remedies" often make things worse--turning slowdowns into recessions and recessions into depressions.

And they'll have a point. I was chief economist at the World Bank from 1996 until last November, during the gravest global economic crisis in a half-century. I saw how the IMF, in tandem with the U.S. Treasury Department, responded. And I was appalled.

The global economic crisis began in Thailand, on July 2, 1997. The countries of East Asia were coming off a miraculous three decades: incomes had soared, health had improved, poverty had fallen dramatically. Not only was literacy now universal, but, on international science and math tests, many of these countries outperformed the United States. Some had not suffered a single year of recession in 30 years.

But the seeds of calamity had already been planted. In the early '90s, East Asian countries had liberalized their financial and capital markets--not because they needed to attract more funds (savings rates were already 30 percent or more) but because of international pressure, including some from the U.S. Treasury Department. These changes provoked a flood of short-term capital--that is, the kind of capital that looks for the highest return in the next day, week, or month, as opposed to long-term investment in things like factories. In Thailand, this short-term capital helped fuel an unsustainable real estate boom. And, as people around the world (including Americans) have painfully learned, every real estate bubble eventually bursts, often with disastrous consequences. Just as suddenly as capital flowed in, it flowed out. And, when everybody tries to pull their money out at the same time, it causes an economic problem. A big economic problem.

The last set of financial crises had occurred in Latin America in the 1980s, when bloated public deficits and loose monetary policies led to runaway inflation. There, the IMF had correctly imposed fiscal austerity (balanced budgets) and tighter monetary policies, demanding that governments pursue those policies as a precondition for receiving aid. So, in 1997 the IMF imposed the same demands on Thailand. Austerity, the fund's leaders said, would restore confidence in the Thai economy. As the crisis spread to other East Asian nations--and even as evidence of the policy's failure mounted--the IMF barely blinked, delivering the same medicine to each ailing nation that showed up on its doorstep.

I thought this was a mistake....

William

Getting fired from your job is one of the most stressful events one can experience in life.

Two psychiatrists once conducted a study to attempt to discover how stressful various events were. They did a massive survey of 5000 people.

Losing your job was calculated to be a 47/100. To compare, having your home foreclosed on was a 30 and the death of a close friend was a 37. The only things more stressful than losing your job were things regarding beginning or ending a marriage, and going to prison.

It's understandable why most people are very, very risk averse when it comes to job loss.

See: Holmes TH, Rahe RH (1967). "The Social Readjustment Rating Scale". J Psychosom Res 11 (2): 213–8.

[Jun 28, 2017] Shibboleth of contemporary economics, free trade is just one of the mechanisms by which empires extract rents

Notable quotes:
"... Pick up an introductory textbook of economics and your chances of finding an objective assessment of a system of this kind are very low indeed. Instead, what you'll find between the covers is a ringing endorsement of free trade, usually in the most propagandistic sort of language. Most likely it will rehash the arguments originally made by British economist David Ricardo, in the early 19th century, to prove that free trade inevitably encourages every nation to develop whatever industries are best suited to its circumstances, and so produces more prosperity for everybody. Those arguments will usually be spiced up with whatever more recent additions appeal to the theoretical tastes of the textbook's author or authors, and will plop the whole discussion into a historical narrative that insists that once upon a time, there were silly people who didn't like free trade, but now we all know better. ..."
"... There's a rich irony here, because not much more than a century ago, a healthy skepticism toward the claims of free trade ideology used to be standard in the United States. At that time, Britain filled the role in the world system that the United States fills today, complete with the global empire, the gargantuan military with annual budget to match, and the endless drumbeat of brushfire wars across what would one day be called the Third World, and British economists were accordingly the world's loudest proponents of free trade, while the United States filled the role of rising industrial power that China fills today, complete with sky-high trade barriers that protected its growing industries, not to mention a distinctly cavalier attitude toward intellectual property laws. ..."
"... Free trade is simply one of the mechanisms of empire in the age of industrialism, one part of the wealth pump that concentrated the wealth of the globe in Britain during the years of its imperial dominion and does the same thing for the benefit of the United States today. Choose any other mechanism of empire, from the web of military treaties that lock allies and subject nations into a condition of dependence on the imperial center, through the immense benefits that accrue to whatever nation issues the currency in which international trade is carried out, to the way that the charitable organizations of the imperial center-missionary churches in Victoria's time, for example, or humanitarian NGOs in ours-further the agenda of empire with such weary predictability: in every case, you'll find a haze of doubletalk surrounding a straightforward exercise of imperial domination. It requires a keen eye to look past the rhetoric and pay attention to the direction the benefits flow. ..."
"... Follow the flow of wealth and you understand empire. That's true in a general and a more specific sense, and both of these have their uses. In the general sense, paying attention to shifts in wealth between the imperial core and the nations subject to it is an essential antidote to the popular sort of nonsense-popular among tame intellectuals such as Thomas Friedman ..."
"... Free trade is only fair if all nations in the agreement start from the same point. If you choose not to invest in development, that's your own lookout, but don't complain if you end up under the de facto control of the one who did. ..."
Mar 24, 2017 | marknesop.wordpress.com

robert , February 26, 2014 at 11:44 am

Regarding Kirill's post about that shibboleth of contemporary economics, free trade.

Pick up an introductory textbook of economics and your chances of finding an objective assessment of a system of this kind are very low indeed. Instead, what you'll find between the covers is a ringing endorsement of free trade, usually in the most propagandistic sort of language. Most likely it will rehash the arguments originally made by British economist David Ricardo, in the early 19th century, to prove that free trade inevitably encourages every nation to develop whatever industries are best suited to its circumstances, and so produces more prosperity for everybody. Those arguments will usually be spiced up with whatever more recent additions appeal to the theoretical tastes of the textbook's author or authors, and will plop the whole discussion into a historical narrative that insists that once upon a time, there were silly people who didn't like free trade, but now we all know better.

What inevitably gets omitted from the textbook is any discussion, based in actual historical examples, of the way that free trade works out in practice That would be awkward, because in the real world, throughout history, free trade pretty consistently hasn't done what Ricardo's rhetoric and today's economics textbooks claim it will do. Instead, it amplifies the advantages of wealthy nations and the disadvantages of poorer ones, concentrating capital and income in the hands of those who already have plenty of both while squeezing out potential rivals and forcing down wages across the board. This is why every nation in history that's ever developed a significant industrial sector to its economy has done so by rejecting the ideology of free trade, and building its industries behind a protective wall of tariffs, trade barriers, and capital controls, while those nations that have listened to the advice of the tame economists of the British and American empires have one and all remained mired in poverty and dependence as long as they did so.

There's a rich irony here, because not much more than a century ago, a healthy skepticism toward the claims of free trade ideology used to be standard in the United States. At that time, Britain filled the role in the world system that the United States fills today, complete with the global empire, the gargantuan military with annual budget to match, and the endless drumbeat of brushfire wars across what would one day be called the Third World, and British economists were accordingly the world's loudest proponents of free trade, while the United States filled the role of rising industrial power that China fills today, complete with sky-high trade barriers that protected its growing industries, not to mention a distinctly cavalier attitude toward intellectual property laws.

One result of that latter detail is that pirate editions of the Encyclopedia Britannica were produced and sold by a number of American firms all through the 19th century. Most of these editions differed from their British originals in an interesting way, though. The entry for "Free Trade" in the original editions repeated standard British free-trade economic theory, repeating Ricardo's arguments and dismissing criticisms of free trade out of hand; the American editors by and large took the trouble to replace these with entries critiquing free trade ideology in much the same terms I've used in this post. The replacement of pro- with anti-free trade arguments in these pirate editions, interestingly enough, attracted far more denunciation in the British press than the piracy itself got, which shows that the real issues were tolerably well understood at the time.

When it comes to free trade and its alternatives, that level of understanding is nowhere near so common these days, at least in Britain -I've long suspected that businessmen and officials in Beijing have a very precise understanding of what free trade actually means, though it would hardly be to their advantage just now to talk about that with any degree of candor. In the West even those who speak most enthusiastically about relocalization and the end of corporate globalism apparently haven't noticed how effectively tariffs, trade barriers, and capital controls foster domestic industries and rebuild national economies-or perhaps it's just that too many of them aren't willing to consider paying the kind of prices for their iPods and Xboxes that would follow the enactment of a reasonable tariff, much less the prices that would be required if we had the kind of trade barriers that built the American economy and could build it again, and bluecollar First World workers were paid First World wages to make them.

Free trade is simply one of the mechanisms of empire in the age of industrialism, one part of the wealth pump that concentrated the wealth of the globe in Britain during the years of its imperial dominion and does the same thing for the benefit of the United States today. Choose any other mechanism of empire, from the web of military treaties that lock allies and subject nations into a condition of dependence on the imperial center, through the immense benefits that accrue to whatever nation issues the currency in which international trade is carried out, to the way that the charitable organizations of the imperial center-missionary churches in Victoria's time, for example, or humanitarian NGOs in ours-further the agenda of empire with such weary predictability: in every case, you'll find a haze of doubletalk surrounding a straightforward exercise of imperial domination. It requires a keen eye to look past the rhetoric and pay attention to the direction the benefits flow.

Follow the flow of wealth and you understand empire. That's true in a general and a more specific sense, and both of these have their uses. In the general sense, paying attention to shifts in wealth between the imperial core and the nations subject to it is an essential antidote to the popular sort of nonsense-popular among tame intellectuals such as Thomas Friedman, at least, and their audiences in the imperial core-that imagines empire as a sort of social welfare program for conquered nations. Whether it's some old pukka sahib talking about how the British Empire brought railroads and good government to India, or his neoconservative equivalent talking about how the United States ought to export the blessings of democracy and the free market to the Middle East or the former Soviet Union it's codswallop, and the easiest way to see that it's codswallop is to notice that the price paid for whatever exports are under discussion normally amounts to the systematic impoverishment of the subject nation.

marknesop , February 26, 2014 at 5:44 pm

Free trade is only fair if all nations in the agreement start from the same point. If you choose not to invest in development, that's your own lookout, but don't complain if you end up under the de facto control of the one who did. But when a highly-developed nation espouses a free trade agreement with a nation that is just starting, it should be fairly easy to forecast who will come out ahead on the deal.

Did you uhhh write that yourself? Because it's pretty awesome.

astabada , February 27, 2014 at 12:46 am

I agree with Mark, your comment is great. Especially when you mention that these matters were much more clear to the general public a century ago, than they are now.

This is what List wrote (National System):

It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. In this lies the secret of the cosmopolitical doctrine of Adam Smith, and of the cosmopolitical tendencies of his great contemporary William Pitt, and of all his successors in the British Government administrations. Any nation which by means of protective duties and restrictions on navigation has raised her manufacturing power and her navigation to such a degree of development that no other nation can sustain free competition with her, can do nothing wiser than to throw away these ladders of her greatness, to preach to other nations the benefits of free trade, and to declare in penitent tones that she has hitherto wandered in the paths of error, and has now for the first time succeeded in discovering the truth.

[Jun 26, 2017] US Pursues Selective Protectionism Not Free Trade

Notable quotes:
"... As a result of this protectionism, average pay for doctors is over $250,000 a year and more than $200,000 a year for dentists, putting the vast majority of both groups in the top 2.0 percent of wage earners. Their pay is roughly twice the average received by their counterparts in other wealthy countries, adding close to $100 billion a year ($700 per family per year) to our medical bill. ..."
"... We also have actively been pushing for longer and stronger patent and copyright protections. While these protections, like all forms of protectionism, serve a purpose, they are 180 degrees at odds with free trade. And, they are very costly. Patent protection in prescription drugs will lead to us pay more than $440 billion this year for drugs that would likely sell for less than $80 billion in a free market. The difference of $360 billion comes to almost $3,000 a year for every family in the country. ..."
"... It is also worth noting patent protection results in exactly the sort of corruption that would be expected from a huge government imposed tariff. (When patents raise the price of a drug by a factor of 100 or more, as is often the case , it is equivalent to a tariff of 10,000 percent.) The result is that pharmaceutical companies often make payoffs to doctors to promote their drugs or conceal evidence that their drugs are less effective than claimed or even harmful. ..."
"... Stop using the term "free trade" at all...when wall street bankers and hedge fund managers and the corporate media use the term "free trade", what they are really talking about is labor arbitrage. Shifting factories to nations with the lowest worker living standards, health, safety and environmental standards. It usually means a nation without a democracy, run by either oligarchs or despots. ..."
"... Bbbbut patents are essential to allow top executives to extract half the annual expenditures of unprofitable corporations in compensation while still leaving a few pennies for "research". ..."
"... Fake news...about a reliable as a Democrat's promise that he's for the working folks. ..."
"... The "law" of supply and demand just does not apply in this field. That "law" also does not work in certain other areas where important conclusions are drawn from it - applying it is not a substitute for empirical evidence. ..."
Apr 12, 2017 | cepr.net

The Washington Post and other major news outlets are strong supporters of the trade policy pursued by administrations of both political parties. They routinely allow their position on this issue to spill over into their news reporting, touting the policy as "free trade." We got yet another example of this in the Washington Post today.

Of course the policy is very far from free trade. We have largely left in place the protectionist barriers that keep doctors and dentists from other countries from competing with our own doctors. (Doctors have to complete a U.S. residency program before they can practice in the United States and dentists must graduate from a U.S. dental school. The lone exception is for Canadian doctors and dentists, although even here we have left unnecessary barriers in place.)

As a result of this protectionism, average pay for doctors is over $250,000 a year and more than $200,000 a year for dentists, putting the vast majority of both groups in the top 2.0 percent of wage earners. Their pay is roughly twice the average received by their counterparts in other wealthy countries, adding close to $100 billion a year ($700 per family per year) to our medical bill.

While trade negotiators may feel this protectionism is justified, since these professionals lack the skills to compete in the global economy, it is nonetheless protectionism, not free trade.

We also have actively been pushing for longer and stronger patent and copyright protections. While these protections, like all forms of protectionism, serve a purpose, they are 180 degrees at odds with free trade. And, they are very costly. Patent protection in prescription drugs will lead to us pay more than $440 billion this year for drugs that would likely sell for less than $80 billion in a free market. The difference of $360 billion comes to almost $3,000 a year for every family in the country.

It is also worth noting patent protection results in exactly the sort of corruption that would be expected from a huge government imposed tariff. (When patents raise the price of a drug by a factor of 100 or more, as is often the case , it is equivalent to a tariff of 10,000 percent.) The result is that pharmaceutical companies often make payoffs to doctors to promote their drugs or conceal evidence that their drugs are less effective than claimed or even harmful.

Raye 2 days ago

I was pleased to see that PBS looked into the matter of physician supply a few years ago.. They noted: "There are fewer physicians per person than in most other OECD countries. In 2010, for instance, the US had 2.4 practicing physicians per 1000 people--well below the OECD average of 3.1." They also noted that "US physicians get higher incomes than in other countries." They didn't go so far as to note a cause-and-effect relationship here, a deliberate restriction of supply going on, for purposes of raising MD incomes. But at least they were presenting the facts.

They even mentioned the $750 billion wasted each year by our health care system.. I expect it's up to at least $3000 per person by now. And they suggested some good uses that so much money could be put to (VA health care, state college education for all the 17- and 18-year-olds in the country). I would like to add another use. If we were wasting less on overpriced health, more people might be able to afford a little more leisure and recreation time. And this (especially the recreation time) might lead to a lowering of our very high rates of obesity, diabetes and prediabetes.

Harlan Raye , 2 days ago

Physician density (as reported by CIA dot gov with dates) shows Canada with smaller ratio than the U.S. but they still retain lower costs, and U.K. though higher by 10 or 15% has considerably lower costs, and the U.S. has more specialists but they get higher incomes, and states with more doctors have higher incomes.

We may need more doctors, especially general practitioners, and more medical schools since 8% of U.S. citizens are forced to train abroad already, but increased supply won't lower costs. It is the medical system and not the supply of doctors that determines fees being charged, which only amount to 10% of total costs. Cut their fees 30% and you still have a $1 trillion 1/3 cost higher than other developed nations. Doctors are not the main cause of the dysfunctional system. Look at what other countries do.

Harlan , 3 days ago

This bolsters my case, there is a high skills job shortage. Take 100,000 proposed increase in doctors and give the jobs exclusively to foreign graduates, and you've robbed Americans of needed jobs. College graduates only have a 2.5 percent unemployment rate because they take jobs away from those without college. So lack of enough high skills jobs really hurts the working class lower income groups with less formal education.

New argument, pay attention. No one would deny that a gap of 1 million jobs, or nearly 1% of increased unemployment (really only .8% since there are 120 jobs), is enough to suppress wages, induce slack in the economy, suppress growth, and possibly even create contraction or self sustaining stagnation. Well a 100,000 new doctor jobs is only 1/10 of that amount. How important is that? I would argue it's very important. 10 percent cause of any such serious effect as a 1 percent rise in unemployment is nutty to dismiss. That's why we cheer when the unemployment drops even .1 percent. You don't get the benefits of full employment until reach full employment, whether 1 percent away or .1 percent away. Really.

EPI

Even the Most Educated Workers Have Declining Wages
Feb 2015

Harlan ->Harlan , 3 days ago

Was trying to highlight this report, but buried the lead:

EPI
Even the Most Educated Workers Have Declining Wages
Feb 2015

Also in my comment where I wrote "since there are 120 jobs," obviously meant "120 million jobs".

And finally, left out a "you" in closing:

You don't get the benefits of full employment until you reach full employment, whether 1 percent away or .1 percent away.

David Havelka , 3 days ago

Isn't 10 years and 1 million dollars too much for the average family practice physican to pay to become a doctor. Reducing the cost of educating a doctor would be a better solution. Increasing the use of midwives and nurse practicioners is another unexplored solution.

Stop using the term "free trade" at all...when wall street bankers and hedge fund managers and the corporate media use the term "free trade", what they are really talking about is labor arbitrage. Shifting factories to nations with the lowest worker living standards, health, safety and environmental standards. It usually means a nation without a democracy, run by either oligarchs or despots.

As best I can see, neither NAFTA or any other "free trade" agreement mentions anything about wages, or for that matter worker health and safety, or environmental standards. The only purpose of NAFTA and TPP was to force trade partners to accept US patent and copyright protections as the price of access to the lucrative US market.

Dean's argumen that just because we import cheap foreign labor to displace American workers in the contruction and lawn-mowing and housekeeping labor markets, it's fair and justified to import highly educated professionals seems wrong-headed to me. Are you talking about extending H1B Visa categories to include doctors.

In my opinion the people behind the high cost of highly educated professions is the AMA, and the universities and education trade associations---who set the standards for doctors and lawyers, and are the ones demanding foreigners complete American educational standards to be permitted to work in the USA

Harlan-> David Havelka , 3 days ago

The truth is the exact opposite of what you report. The medical educational establishment favors increased admissions. The AMA is another story, perhaps. In any event you need more medical schools for more doctors, not lower standards or importing more than the already high 12% foreign medical school graduates we recruit each year.

Our high standards are fine. But already 8% of US citizens train abroad for lack of medical schools. Even if you don't favor more doctors, that in itself screams for more U.S. medical schools.

From the Association of American Medical Colleges
Tuesday, March 14, 2017
New Research Reaffirms Physician Shortage
Shortages Likely to Have Significant Impact on Patient Care

More corrections: H1B can already include doctors, though 60 percent are in tech. Trade agreements were not about patents and copyright, they were about making it easier to do what they were already doing. No surprise is you lower barriers to trade, your domestic industry suffers in competition with cheaper goods. Unions opposed them to protect their jobs. Do you think the union officials were geniuses and the economists were stupid? Or was it common sense exactly what would happen and that it was just too convenient for economists not to favor trade, deregulation of banks, lower taxes, derivative markets, hedge funds.

David Havelka -> Harlan , 2 days ago

Sound like "fake news"---the educational establishment supports increasing admissions but if the price of admission is 10 years and 1 million dollars, well....so the cost of entry they charge is usually a barrier to entry.. Aside from that, there is the standards for admission are set by the educational establishment...so between the two, what have you got? A contrived limit on doctors. Oh, but apologists for the educational establishment like you keep repeating the PR/BS line that universities and trade unions want to increase admissions to medical schools.

Next another one of your "facts" that sounds seriously contradictory...that trade agreements make things "easier" to do what they were doing. HUH? What does that mean? Look none of the trade agreements have anything to do with anything except patent and copyright protection. If a trading partner accepts patent and copyright protection for their economy, they get access to the Us market without trade barriers. Except for productts that receive public subsidies, like franken-food and growth hormone treated meat. So a trading partner is forced to remove the barriers to entry on things like the growth hormone raised beef to Japan, and genetically modified and subsidized crazycorn to Mexico. Is that what you mean by "making things easier"....Sure it makes things "easier"---but is that the point? Or do citizens from Japan have the right to prohibit meat raised with growth hormones? Or do Mexican citizens have the right to prohibit genetically raised corn?

Look, "free trade" is a utopian fantasy, invented by a bunch of liars to sell something to the US consumer that isn't good for him.

Harlan -> David Havelka , 2 days ago

Why don't you try reading what people wrote before posting under their comment? I'm against trade agreements and increased trade that undercuts American workers.

Maybe you should read even the most elementary news report on the effect of NAFTA and China's entry into the WTO. Patent and copyright protections were neither the main motivation nor an important effect. China pays little heed to any IP law anyway and their state efforts to coerce and steal American technology are barely concealed.

Japan doesn't buy American due to cultural norms, American incompetence, and laziness, and Japanese protectionist laws and regulations.

Most free traders have been Republicans, and most objections to free trade have come from the Democrats and the left. Except for Trump Clinton reversal, Liberals (and unions) can claim the high ground over conservatives when it comes to trade issues. This blog and Dean Baker consistently decries the effects of international trade and trade agreements effects on the working class.

There is a shortage of medical schools, there is no shortage of qualified students, admissions standards do not prevent medical student enrollment from increasing. Your comment is virtually fact free.
You obviously hate education and unions and real news.

AlanInAZ , 3 days ago

Expanding doctor supply without major changes to the insurance system is as likely to increase overall healthcare costs as reduce them. In the world of healthcare, demand increases to meet supply.

The country with the insurance and healthcare system closest to the US is probably Switzerland with the exception that costs are controlled with a national fee for service scale (TARMED).

The Swiss estimate that each new private medical practice adds $536,000 per doctor to the nation's overall healthcare spending. This is one of the main reasons the Swiss limit the number of new medical practices and control doctor immigration to balance demand. The Swiss are concerned about rising costs and the government is now proposing to reduce the allowable charges by specialists.

Those that are attracted to Baker's immigration proposal should ask what is the long term consequence of relying on immigration to fill the doctor shortfall and/or control cost. In the short run there may be some average income reduction for physicians with little or no change in total healthcare costs (remember total cost equals average income times the larger number of doctors). Longer term, it restricts domestic investment in expansion of healthcare training and that is a restriction of opportunity for all Americans.

Mitch Beales , 3 days ago

Bbbbut patents are essential to allow top executives to extract half the annual expenditures of unprofitable corporations in compensation while still leaving a few pennies for "research".

pieceofcake , 3 days ago

'U.S. Pursues Selective Protectionism: Not Free Trade'

Oh absolutely - and I'm also really worried about these doctors... and the meat - the meat - as if we can't export all of our meat to China - we for sure will need more doctors to operate on all these oversized boobs which will grow if we have to eat all of our hormone meat by ourselves - and you know how painful it is to carry these big boobs around?

And I happen to know this Plastic Surgeon who told me we need lots and lot more Plastic Surgeons -(as Americans get older and older) - and perhaps - if your plan finally comes through - also facelifts will get cheaper - as who wants to have her or his face done in a undeveloped country -(even if it comes with a nice and long vacation)

So more power to y'a and you finally have completely convinced me and let's do it together!

Get them doctors!!

Harlan , 3 days ago

There is no protectionism when it comes to doctors as they are well represented by immigrants who make up 12% of doctors, including new doctors, comparing favorably to the near record 13.5% U.S. immigrant population.

U.S. doctors don't make twice the salary of other developed countries, with their incomes running about 40% to 60% for GPs and specialists respectively.

More doctors should be supplied by relieving the shortage of medical schools, even an extra 100,000 would help the working class stop getting bumped into unemployment by an overskilled work force. Too many college graduates and not enough jobs, so they bump off those without. They get 2.5% unemployment, those without north of 5 or 7%.

This paper cited below clearly shows we do not pay our doctors twice the salary of other developed countries. The figure is actually around 40% for those in general practice, 60% for specialists, and largely because U.S. salaries overall are higher (in every occupation). When you look at the comparative advantage a doctors salary in any country enjoys over the average salary in that country, even that advantage largely disappears. See figure 2 on page 16 for general practitioners and and figure 6 on page 21 for specialists.
"THE REMUNERATION OF GENERAL PRACTITIONERS AND SPECIALISTS IN 14 OECD COUNTRIES: WHAT ARE THE FACTORS INFLUENCING VARIATIONS ACROSS COUNTRIES?"

Unlike Dean Baker's anti-labor, anti-working class stance that we should end any protection against importing cheaper foreign labor to undercut wages, we should of course afford the same protections to all occupations.

David Havelka ->Harlan , 3 days ago

It is the Democrat Party politics that is behind the high cost of doctors and lawyers. Why because the Educational establishment---the trade associattions and the universities themselves are the ones limiting the admissions, and the ones demanding that all medical professioanls get their education and qualifications through themselves...And we all know that is the universities, the education trade unions and their lobbiest that are one of the most powerful constituencies for the Democrat Party.

Mitch Beales ->David Havelka , 2 days ago

It is the republic party that is behind the high cost of everything as well as the pollution of the internet with ridiculous comments like yours.

Harlan ->David Havelka , 3 days ago

The truth is the exact opposite of what you report. The medical educational establishment favors increased admissions.

From the Association of American Medical Colleges
Tuesday, March 14, 2017
New Research Reaffirms Physician Shortage
Shortages Likely to Have Significant Impact on Patient Care

David Havelka ->Harlan , 2 days ago

Sound like a "fake newa"...so the educational establishment's official public relations read BULL-TOSS position is to support increased admissions to medical school. Yet the same establishment imposed the "barrier to entry" cost of obtaining a doctor ticket, 10 years and 1 million dollars. And who the heck sets the admission standards for their precious schools that results in the high rejection rate of applicants.

Fake news...about a reliable as a Democrat's promise that he's for the working folks.

skeptonomist ->Harlan , 3 days ago

The OECD article should be read by anyone interested in this. Figure 11 shows that the number of physicians in the US is close to the OECD average - in fact the number of specialists is actually less, but the US level of pay is higher. Of course there is also no correlation of pay with the fraction of foreign doctors.

And despite the supposed shortage of GP's in the US their pay is still much less. The "law" of supply and demand just does not apply in this field. That "law" also does not work in certain other areas where important conclusions are drawn from it - applying it is not a substitute for empirical evidence.

The comparison of physician pay would be better if done with the overall median rather than average. Greater inequality in the US means that the average pay is greater than in the other countries.

[May 27, 2017] Macro policy is sort of trade policy. So instead of neoliberal ideal of a free market in international trade without trade policy or government interference, we really need governments to manage trade, or at least manage their macro policy with trade policy in mind

Notable quotes:
"... "The fact that Germany is selling so much more than it is buying redirects demand from its neighbors (as well as from other countries around the world), reducing output and employment outside Germany at a time at which monetary policy in many countries is reaching its limits." ..."
"... Trade deficits have also contributed to asset bubbles. They must be financed with borrowed capital, and such flows from surplus countries were clearly associated with our housing bubble in the 2000s, as well as the longer-term "secular stagnation" economist Larry Summers talks about (weak demand, even in mature recoveries). ..."
"... Moreover, team Trump is consistently misguided with their unilateral approach to this problem of trade imbalances. As long as foreign capital continues to flow freely into the US from surplus countries, absorbing less from Germany simply implies absorbing more excess savings from somewhere else. ..."
"... Trade deficits have also contributed to asset bubbles. They must be financed with borrowed capital, and such flows from surplus countries were clearly associated with our housing bubble in the 2000s, as well as the longer-term "secular stagnation" economist Larry Summers talks about (weak demand, even in mature recoveries). ..."
"... At this point, the growing group of economists who recognize the importance of these international imbalances are pointing towards the capital flows themselves as the force behind persistent trade deficits. ..."
"... "King suggests that the best solution is for deficit countries to get together with surplus countries and, a la Bretton Woods, figure out a "mutually advantageous path to restore growth." That sounds a bit pie-in-the-sky until you consider the economic shampoo cycle ("bubble, bust, repeat") that's been so repeatedly damaging to countries across the globe." ..."
May 27, 2017 | economistsview.typepad.com
Christopher H., May 27, 2017 at 09:17 AM
http://jaredbernsteinblog.com/trump_trade_germany/

Trump, trade, and Germany
by Jared Bernstein

May 26th, 2017 at 1:58 pm

So, at a meeting in Brussels yesterday, President Trump appears to have told leaders of the European Union that "the Germans are bad, very bad." I'll let those with foreign diplomatic chops figure out how to clean that up-and good luck: When I plug the Spiegel Online headline-"Die Deutschen sind böse, sehr böse"-into Google translator, it spits back: "The Germans are evil, very evil."

I'll handle the economics, which actually are interesting. When Trump talks about trade, he sometimes gets a piece of it right, and it's often a piece about which establishment politicians and the economists that support them are in denial: Germany's trade surplus of over 8 percent of GDP really is a problem for the other countries with whom they trade.

That's not just my view. Both Ben Bernanke and more recently, Lord Mervyn King, former governor of the Central Bank of England, have expressed serious concerns about the impact of Germany's large trade surplus on other countries.

But here are two things that I'm sure Trump misunderstands. First, Germany is not manipulating its currency to build its surplus. Instead, it's the single currency of the Eurozone that's the culprit. Germany is the economic powerhouse of the region, with stronger growth and production practices than its Eurozone partners. Thus, if it's currency could float, it would surely appreciate, but it can't, so its goods are underpriced in export markets relative to those countries' exports.

Second, as I'll get to in a moment, it's not clear what Germany should do about it.

In many posts, I've explained that, contrary to conventional wisdom, including the pushback I've already heard from German EU ministers, trade imbalances are not always benign, nor do they represent efficient markets at work. King stresses the damage of currency misalignments, as well as the fundamental arithmetic of global trade. Since trade must balance on a global scale, one country's trade surplus must show up as other countries' deficits. When a country like Germany produces so much more than it consumes (runs a trade surplus), other countries must consume more than they produce (run trade deficits). And when the magnitudes get this large as a share of GDP-Germany's surplus hit a record 8.6 percent of GDP last year-the damage to other nations can be severe.

Bernanke in 2015:

"The fact that Germany is selling so much more than it is buying redirects demand from its neighbors (as well as from other countries around the world), reducing output and employment outside Germany at a time at which monetary policy in many countries is reaching its limits."

Bernanke's last point is key. When economies are percolating along at full employment, trade deficits can, in fact, be benign. But unemployment in the Eurozone is still 9.5 percent, which combines Germany's 3.9 percent with Spain's 18.2 percent, Greece's 23.5 percent, Italy's 11.7 percent, and so on. Germany's massive surplus has cribbed labor demand from those high unemployment countries, but neither the fiscal nor monetary authorities in these nations have undertaken adequate counter-cyclical policies ("why not?" is a good question having to do with constraints of the monetary union and austerity economics).

To be clear, even at full employment, large, persistent trade deficits-which again, are the flipside of large, persistent surpluses-can be problematic. Here in the US, they've hurt our manufacturers and their communities, a fact that Trump exploited in the election. And one can, of course, see similar political dynamics in the weaker parts of European economies.

Trade deficits have also contributed to asset bubbles. They must be financed with borrowed capital, and such flows from surplus countries were clearly associated with our housing bubble in the 2000s, as well as the longer-term "secular stagnation" economist Larry Summers talks about (weak demand, even in mature recoveries).

At this point, the growing group of economists who recognize the importance of these international imbalances are pointing towards the capital flows themselves as the force behind persistent trade deficits. This is an important insight because it belies the simple solution we tend to hear from the mainstream: if only you'd save more, your trade deficit would shrink. But if other countries persist in exporting their savings to us, short of capital controls to block those flows, our trade deficit will also persist.

What could/should Germany do to be more of team player, spreading demand to others instead of hoarding it? The usual recommendation, made by Bernanke, is to take their excess savings and invest them at home, say through more public infrastructure or some other sort of fiscal stimulus. But King makes the good point that since Germany is already pretty much at full employment-recall their 3.9 percent unemployment rate–they may be disinclined to take this advice.

King suggests that they should instead do something to raise the value of their exchange rate (appreciate their currency), but here again, it's not obvious how, as a member of the currency union, they're supposed to go about that.

Surely, the solution Trump intimated-a big tariff on German exports into the US-wouldn't work. For one, such actions invite retaliation, and not only do many of us want to tap the consumer benefits of our robust global supply chains, but Germany has factories here that employ a lot of people making cars and other equipment. That's welcome investment.

Moreover, team Trump is consistently misguided with their unilateral approach to this problem of trade imbalances. As long as foreign capital continues to flow freely into the US from surplus countries, absorbing less from Germany simply implies absorbing more excess savings from somewhere else.

King suggests that the best solution is for deficit countries to get together with surplus countries and, a la Bretton Woods, figure out a "mutually advantageous path to restore growth." That sounds a bit pie-in-the-sky until you consider the economic shampoo cycle ("bubble, bust, repeat") that's been so repeatedly damaging to countries across the globe. Perhaps that would be a motivator for our trading-partner countries, though the longer Trump's out there on the road, the harder it's getting to imagine such forward-looking international coordination.

I too have suggested that President Trump should convene such a commission, but sadly, I'm not the Jared he listens to. In the meantime, he should check out Google Translator before he mouths off.

Christopher H. said... May 27, 2017 at 09:25 AM

Krugman:

"This has only minor spillovers to the United States - maybe Germany's unhelpful role has contributed a bit to our trade deficit, but this is basically an intra-Europe issue."

Bernstein:

"To be clear, even at full employment, large, persistent trade deficits-which again, are the flipside of large, persistent surpluses-can be problematic. Here in the US, they've hurt our manufacturers and their communities, a fact that Trump exploited in the election. And one can, of course, see similar political dynamics in the weaker parts of European economies.

Trade deficits have also contributed to asset bubbles. They must be financed with borrowed capital, and such flows from surplus countries were clearly associated with our housing bubble in the 2000s, as well as the longer-term "secular stagnation" economist Larry Summers talks about (weak demand, even in mature recoveries).

At this point, the growing group of economists who recognize the importance of these international imbalances are pointing towards the capital flows themselves as the force behind persistent trade deficits.

This is an important insight because it belies the simple solution we tend to hear from the mainstream: if only you'd save more, your trade deficit would shrink. But if other countries persist in exporting their savings to us, short of capital controls to block those flows, our trade deficit will also persist."

Paine -> Christopher H.... May 27, 2017 at 02:10 PM

Nonsense. We can force Germany to build more cars here. In fact we can tell the German MNCs to build all their north American cars here. Including parts and accessories. German MNCs have no patriotic urge we couldn't subvert with market threats. Or Japanese MNCs for that matter. Push back ?

Sorry we are the global market of choice we shut you out and you decline to secondary status. Violate the code of MNCs liberty to jump borders at will ?

Now that is a horse of a darker shading

Christopher H. said... May 27, 2017 at 09:22 AM

Krugman:

"Yet Germany's huge trade surpluses are a problem * - which has nothing to do with trade policy."

Macro policy is sort of trade policy as Bernstein points out above. Instead of this neoliberal ideal of a free market in international trade without trade policy or government interference, we really need governments to manage trade, or at least manage their macro with trade policy in mind.

As Bernstein suggest:

"King suggests that the best solution is for deficit countries to get together with surplus countries and, a la Bretton Woods, figure out a "mutually advantageous path to restore growth." That sounds a bit pie-in-the-sky until you consider the economic shampoo cycle ("bubble, bust, repeat") that's been so repeatedly damaging to countries across the globe."

In the 1980s, the dollar was getting too strong until governments managed trade and currency policy via the Plaza Accords which brought the dollar down. It was trade policy.

It wasn't policy to change savings rates or something that the mainstream economists focus on.

Christopher H. -> to pgl... May 27, 2017 at 10:41 AM

"The exchange rate value of the dollar versus the yen declined by 51% from 1985 to 1987. Most of this devaluation was due to the $10 billion spent by the participating central banks.[citation needed] Currency speculation caused the dollar to continue its fall after the end of coordinated interventions. Unlike some similar financial crises, such as the Mexican and the Argentine financial crises of 1994 and 2001 respectively, this devaluation was planned, done in an orderly, pre-announced manner and did not lead to financial panic in the world markets. The Plaza Accord was successful in reducing the U.S. trade deficit with Western European nations but largely failed to fulfill its primary objective of alleviating the trade deficit with Japan."

Since the coordinated actions of central banks led to the devaluation of the dollar and reduction of the trade deficit, I'd say it was currency and trade policy as well.

"The justification for the dollar's devaluation was twofold: to reduce the U.S. current account deficit, which had reached 3.5% of the GDP, and to help the U.S. economy to emerge from a serious recession that began in the early 1980s."

[May 26, 2017] Fair Trade instead of Free Trade

May 26, 2017 | economistsview.typepad.com
im1dc , May 26, 2017 at 05:06 AM
"Blinder: Why, After 200 Years, Can't Economists Sell Free Trade?" From yesterday.

B/C so-called 'Free Trade' favor one group over another. Fair Trade should be the basis for 'Free Trade.'

American Economists are not smart enough to comprehend the "basis" and instead focus on numbers which are clearly skewed to favor trade and which ignore the effects on those that DO NOT gain in such deals.

im1dc - , May 26, 2017 at 05:12 AM
Maybe it would help if Economists thought in metaphors.

Try thinking about music. There are all sorts of genres. Within each some are great and some are horrible, i.e., a vast variety of degrees of what is great and what is not.

RC AKA Darryl, Ron - , May 26, 2017 at 06:57 AM
"Maybe it would help if Economists thought in metaphors..."

[Essentially that is what economists already do, although the term most often used is a different form of abstraction than a metaphor or colloquial meme. Economists think in terms of stylized facts.]

https://en.wikipedia.org/wiki/Stylized_fact

In social sciences, especially economics, a stylized fact is a simplified presentation of an empirical finding.[1] A stylized fact is often a broad generalization that summarizes some complicated statistical calculations, which although essentially true may have inaccuracies in the detail...

*

[When it comes to sorting out the beneficiaries from the losers, then the common measurement of all things economic is money. Money aggregates is what economists look at in all those stylized facts. So, the people with the most money naturally matter more in economics.

However, the devil is in the details. Just like Bluefin tuna do not benefit from a higher price for Bluefin tuna in the short run (nor long run either unless caused by a drastic fall in quota and catch rather than stock depletion) and fisherman of Bluefin tuna do not benefit from a higher price of Bluefin tuna in the long run (as they still won't make enough to save and invest adequately to protect against fishery collapse) and sushi bars don't benefit and sushi eaters do not benefit then maybe lose-lose is more likely than win-win in economics. But if you were an economists and said that then you would be out of a job.

Environmental economics makes a lot more sense than monetized economics if we are worried about the future and quality of life for everyone, but economist do not worry about the future because "In the end we are all dead" before it becomes time to pay the environmental piper. Besides environmental economics places much more focus on distribution than wealth and GDP, whereas monetized economics is just the opposite. So, financialize and securitize to your heart's content because we are on the path to global destruction.]

RC AKA Darryl, Ron , May 26, 2017 at 05:35 AM
RE: Growth, import dependence, and war in the context of international trade

Roberto Bonfatti, Kevin O'Rourke 26 May 2017

Classical models suggest that shifts in the balance of power can lead to conflict, where the established power has the incentive to trigger war to deter the threat to its dominance. This column argues that this changes if international trade is taken into account. Industrialisation requires the import of natural resources, potentially leading a smaller nation to trigger war either against a resource-rich country or the incumbent nation. The model can help explain the US-Japanese conflict of 1941 and Hitler's invasion of Poland, and has implications for US-Chinese relations today...

http://voxeu.org/article/growth-import-dependence-and-war

[I am not buying into ANY of THESE narratives regarding the risks of geopolitical instability attributable to increased levels of global economic integration, but I do really like how the authors pose these narratives which all fly in the face of the old saw about global economic integration ushering in a sustained period of world peace.

Indeed globalization has never stopped warring before. It did not prevent WW-I. Yes, there was lots of world trade before container ships and the free movement of capital. Container ships and the free movement of capital just lowered the cost of extended supply chains such that international wage arbitrage made greater global integration profitable for owners of capital well after most other comparative advantages of international competition had become moot.

Global economic integration via the international settlement of accounts regime under the gold standard was a principle cause of the Great Depression which in turn greatly exacerbated "The Economic Consequences of the Peace." The Versailles Treaty was a "Carthaginian peace" Keynes convincingly argued and it did indeed lead to WW-II with Germany in the grips of the Great Depression fitfully reasserting its self determination.

I do not even believe that war poses the greatest risk to geopolitical instability in the current century. The H-bomb has done a lot to limit the severity of international hostility even if it has done nothing to reduce the frequency since the end of the Cold War.

The role of the greatest risks to geopolitical instability in the current century I expect to be filled by various supply side and demand side shocks delivered by the unnatural events of Nature under its present climate change regime. Floods, draughts, typhoons, and even earthquakes (yep - both rising ocean and melting glaciers are unsteadying the steady pressure of Earthly masses on its tectonic plates - recipe for earthquakes second only to asteroids) all continue to be both more frequent and more severe. In an integrated global economy any catastrophe of economic significance in one country (or more) is not only propagated in its economic effects to all of its trading partners around the world, but those effects become magnified as the integration between those trading partners reverberate the effects. This is globalization's economic shock multiplier effect. Falling tides wreck all boats. This century is still young, but fortunately enough for me that I am not.]

RC AKA Darryl, Ron - , May 26, 2017 at 07:32 AM
It is drying up outside now after two days of rain and no one has slapped me with the other side of this story yet. So, I will have to slap myself while I am still conveniently at hand to answer the challenge.

If not for globalization then worldwide poverty would likely be the greatest risk to geopolitical instability in the current century instead of climate change, which would also make climate change even more deadly and difficult to deal with. However, globalization in its present degree and form was the chosen rather than only possible means of turning the tide against global poverty. First off, the major emerging economies were each capable of doing quite a lot on their own and a lot more with just a little help in the form of capital and technology. It was the choice of the west to engage in private trade rather than foreign aid to achieve these ends. That choice came about because corporations have a greater control of western governments than western governments have control of corporations. Corporations seeded that choice both through their own generosity to the campaigns of politicians and via a public relations campaign against giving foreign aid to those people. Corporations preferred to just give those people our jobs and skip the middle man, the taxpayer.

[May 26, 2017] Blinder Why, After 200 Years, Cant Economists Sell Free Trade (Video)

Notable quotes:
"... Neoliberal economics denies that for real economic agents networks are of primary important. ..."
"... I'm beginning to hate the word "free". It is so vague and so often misused that I'm beginning to think it should just be banned. It is a hindrance to communication. ..."
May 26, 2017 | economistsview.typepad.com
I.B , May 25, 2017 at 02:02 PM
Free trade works with he assumption that the winners share their profits with the losers, creating a win-win or at least win-no lose scenario. However, the same people who preach free trade tend to suggest to "reform" the welfare state, a.k.a. annihilating it, eliminating the very assumption that makes free trade supposedly a pareto improvement.

Plus economists only argue with money and commodities. Free trade moves jobs abroad, destroying lifes and communities. This non-monetary cost is not included in the models that prove the advantages of free trade.

New Deal democrat - , May 25, 2017 at 02:07 PM
Yes.

In terms Blinder might understand: "Alan, if you let me murder you, I will give each of your children and grandchildren $10,000. That's money they wouldn't otherwise receive. You're cool with that, right?"

Gibbon1 - , May 25, 2017 at 05:39 PM
[destroying lifes and communities]

Neoliberal economics denies that for real economic agents networks are of primary important.

mulp - , May 26, 2017 at 12:15 AM
"Free trade works with he assumption that the winners share their profits with the losers, creating a win-win or at least win-no lose scenario"

Nonsense. Free trade, local or international, is about trading labor for labor. There are no winners or losers. Economies must be zero sum. A free trade means neither you nor I do AAA nothing for the other that puts us at a disadvantage. Since Reagan made free lunch economics cool, most economists reject labor as the core of the economy.

Free lunch economics seeks to eliminate labor from the economy as a purely burdensome cost. Instead, free lunch economics worships money with no connection to labor. But money is, at its core, simply a proxy for labor. But with free lunch economists constantly rejecting labor as a burden to be cut and eliminated, trade increasingly becomes about monopoly power and rents, but that requires eliminating free trade.

The problems with trade in the US is free lunch economists have justified and given authority to trade US property, land, assets away in exchange for labor by Asians who needed assets to develop. Assets like fossil fuels, iron ore, etc.

Milton Friedman argued that we Americans become wealthier getting labor produced consumption goods in exchange for giving them our property in a frequently cite 1978 lecture. Ie, he advanced the idea that labor is not what trade is about.

Yet, you will never find an economist describing the advantage of free trade by saying nation one's capitalists make its workers unemployed in order to have nation two's workers do all the work.

That's the wonder of free lunch economics. Describe free trade in terms of trading labor. Then immediately argue that it's better to trade, not labor, but assets for labor, making workers in both nations better off....

The rhetoric is clever, and liberals grew lazy and failed to think about the flaws in free lunch economics of Friedman, et al, since.

JohnH , May 25, 2017 at 03:12 PM
After 200 years it has finally gotten to the point where free trade promoters are having trouble selling their snake oil. The biggest problem is that 'free' trade isn't free at all. It is a series of deals heavily negotiated on behalf of the industries that benefit from them...labor, indigenous groups, and environmentalists are nowhere to be found at the negotiating table...only multinational corporations hoping to get a free lunch...or as close to it as possible...in return for the gobs of money they invested in Democrats and Republicans.

Sad that it has taken 200 years to figure this out.

mulp , May 26, 2017 at 12:29 AM
Workers love to screw themselves because they believe they will keep getting high wages even if they pay every other worker low wages. Do you complain that food prices are too low resulting in food workers being paid too little?

If you are not calling for higher food prices, then you better believe food workers want your wages slashed so the price of what you produce for them can be afforded by someone making $15,000 a year.

No one forces any American worker to buy Chinese made goods, or any import. Instead, US workers kill their own jobs paying prices that are too low to be produced by US workers.

But not even Bernie calls for higher prices paid by all workers so US workers can produce everything at good 60s era union wage levels. Food was more expensive then. Clothing more expensive. Vacations like those many take today were very expensive, so vacations then were spartan: visiting relatives, or camping in government parks or staying at a cabin with an outhouse and no electricity.

dwb , May 25, 2017 at 04:11 PM
Maybe economists could sell free trade if they were not standing if front of what looks like a concrete prison wall fidgeting with their microphone.

I find it mildly amusing that economists who believe in rational expectations and rational consumers cannot understand why people are too stupid to get free trade. Experience cognitive dissonance much?

Only an economist who does not understand business would say that it does not pay to advertise a book before it's out.

Gibbon1 - , May 25, 2017 at 05:57 PM
I have an idea what's wrong with ration expectations theory that falls out of work I've done on self organizing radio networks.

One of the biggest problems when trying to reason about these networks if that the actual nodes have very limited information about the layout of the network. It's vital to take that into account when developing strategies for maintaining the network without having a central controller.

I find that people have a really really hard time letting go over an over-all mental model of what is happening and way. Turns out none of the information that the nodes have is totally unambiguous. It's always ambiguous and limited and poorly sampled.

That's the central problem with the rational expectations model right there. In real life the actors do not have anything close to sufficient, well sampled, unambiguous information to work off of. Even if they did, cognitive load is an issue.

Real life actors tend to punt and work on developing trusted economic associations with other economic actors. My experience is this takes years to develop. Yet neoliberals don't place any value on those trusted networks and work to destroy them because they see them as inefficient.

reason - , May 26, 2017 at 02:51 AM
It is worse than that. Economists don't have a model that works, but they assume that each and every actor in the market does. That is a crazy assumption.
kaleberg , May 25, 2017 at 05:25 PM
Places are created by import substitution. Free trade makes import substitution harder. That means places like cities, states and even nations, have found it increasingly difficult to be somewhere as opposed to some trading post or colony. People like to live somewhere as opposed to nowhere.
Shouldn't ignore 170 years of Western protectionism which led to wealth, followed by 30 years of total destruction under free trade , May 25, 2017 at 07:55 PM
Economists need to study history. They needed to be told about East Asia and should travel around the destroyed cities of the US. Economists should let the people of Detroit how wonderful things have gone since the US abandoned protectionism in the early 1970s.
Jerry Brown - , May 25, 2017 at 09:48 PM
There is a whole lot of truth in your comment. Economists (and policy makers) should look at East Asian countries and really take into account how export focused economies HAVE managed to improve the standard of living of their citizens so greatly. And they have managed that- and it is a very good thing overall. But it has had costs for many here in the US who were not in a position to bear those costs and there has not been any nearly adequate attempt to help them bear those costs.
Economists should sell free trade in Youngstown, Camden, Cleveland, East St. Louis - tell them the world was terrible in the 1950s when the US had high tariffs , May 25, 2017 at 08:18 PM
Economists should host the next AEA meeting in Youngstown. 

Toast yourselves! Celebrate your brilliant successes - what a marvel America has become sin ce it abandoned Lincoln's protectionism!

So modern! So rich! A true land of opportunity, unlike the bad old days under 19th century GOP protectionism!

Jesse , May 25, 2017 at 09:20 PM
Free trade, like free markets, are both tools of the neoliberal agenda moreso than sound principles applicable to the real world.

Markets with few or no rules and enforcement to prevent the strong and well connected from victimizing others resides the fundamental assumption that people are naturally rational and with the character of angels.

Anyone who has ever driven on a freeway knows that this assumption representative a fatal error.

libezkova - , May 26, 2017 at 08:36 AM
Jesse,

"Free trade, like free markets, are both tools of the neoliberal agenda moreso than sound principles applicable to the real world."

Exactly -- The key word here is "tools". They are used as a tools of achieving specific, pretty nefarious goals.

What is interesting is that neoliberals redefined the meaning of "free" as "unregulated" and pushed to use it in this "double" meaning, instead of the proper word "fair".

Neoliberals never use the term "fair trade". That's Anathema to them.

That redefinition is actually pretty subtle and pretty devious. Really Orwellian semantic trick.

Compare with "The Ministry of Truth, which concerned itself with news, entertainment, education, and the fine arts. The Ministry of Peace, which concerned itself with war. The Ministry of Love, which maintained..."

libezkova , May 25, 2017 at 10:15 PM
As Reason once commented in this blog: "I'm beginning to hate the word free".

There is no free trade - only negotiated and regulated trade and dominant nations always get better terms.

Foreign nations are very suspicious if, for example, the USA reps talk about "free trade" ;-)

Historically GB was the promoter. In this case, free trade was simply one of the mechanisms of empire in the age of industrialism, one part of the wealth pump that allows to concentrate the wealth of the globe in Britain during the years of its imperial dominion. Manufactured good carried huge premium in price. For example, they completely destroyed textile industry in India to eliminate competition. Opium wars is another good example here.

It's role is pretty similar for the United States today. In a very interesting way it is combined with "debt slavery" for the most of that nations on the globe.

Kind unique combination, typical for neoliberalism.

It also exists within the web of military treaties that lock allies and vassal nations into a condition of dependence on the imperial center, as well as enforce the dominant currency in which international trade is carried out.

It requires a keen eye to look at the history and pay attention to the direction in which the benefits of "free trade" flow.

But in reality the USA has very little to do with "free trade". The USA practices "selective protectionism" hypocritically disguised as "free trade".

http://cepr.net/blogs/beat-the-press/u-s-pursues-selective-protectionism-not-free-trade?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+beat_the_press+(Beat+the+Press)

"... We also have actively been pushing for longer and stronger patent and copyright protections. While these protections, like all forms of protectionism, serve a purpose, they are 180 degrees at odds with free trade. And, they are very costly.

Patent protection in prescription drugs will lead to us pay more than $440 billion this year for drugs that would likely sell for less than $80 billion in a free market. The difference of $360 billion comes to almost $3,000 a year for every family in the country. ..."

"... Stop using the term "free trade" at all...when wall street bankers and hedge fund managers and the corporate media use the term "free trade", what they are really talking about is labor arbitrage. Shifting factories to nations with the lowest worker living standards, health, safety and environmental standards. It usually means a nation without a democracy, run by either oligarchs or despots. ..."

reason, May 26, 2017 at 06:28 AM
I never said that - the word I hated was "freedom", because it has been badly abused (and it is often not clear what it is). Freedom is only ever relative (i.e. you can't increase one aspect of freedom without impingement of another in some way). That is not the same as the adjective "free" - which not an concept relating to a universal state - I know what free entry to a museum is.
libezkova -> reason ... , May 26, 2017 at 08:24 AM
Never say never ;-)

reason : Reply Thursday, March 23, 2017 at 02:20 AM , March 23, 2017 at 02:20 AM

Is the question "Are there Benefits from Free Trade" - different from the question "Are there Benefits from Trade"? What work is word "free" doing here - and what does it even mean?

I'm beginning to hate the word "free". It is so vague and so often misused that I'm beginning to think it should just be banned. It is a hindrance to communication.

http://economistsview.typepad.com/economistsview/2017/03/links-for-03-23-06.html#comment-6a00d83451b33869e201bb098696b7970d

[Apr 28, 2017] Will some honest economist, if there are any left, finally step up and analyze the distributional effects of free trade between capital and labor?

Apr 28, 2017 | economistsview.typepad.com
JohnH said in reply to pgl...

, April 28, 2017 at 06:49 AM
"Krugman thought that this was because economists, enamored by the "jewel in the crown of economics", theory of comparative advantage, tend to look at average effects, not at the heterogeneity of effects. He thought that this was changing now. "

Interesting that economists still seem to avoid a discussion of those supposedly 'diffuse' winners. Sure, consumers saw lower prices. But what about investors, at whose behest these 'fair' trade deals got negotiated in the first place?

Will some honest economist, if there are any left, finally step up and analyze the distributional effects of 'free' trade between capital and labor?

I expect that the most concentrated effects 'free' trade will be found not only among displaced workers but also in the profits...and earnings going to the 1%.

[Apr 28, 2017] Concentrated oligopolies know how to best leverage this situation to their advantage, shifting production and employment among various operations

Apr 28, 2017 | economistsview.typepad.com
JohnH said in reply to RC AKA Darryl, Ron... , April 28, 2017 at 07:51 AM
True enough.

Neil Irwin had an interesting piece in the NY Times a couple days ago. Basically, he was meditating on the future direction of the economic stagnation. He speculates that the rise in inflation was a non-recurring event, driven largely by rising oil prices. Those clamoring for more inflation are likely to be disappointed.

Irwin notes that underlying drivers of growth and inflation are absent: globally there is over capacity in manufacturing, ample supplies of commodities, and a glut of labor.

Concentrated oligopolies know how to best leverage this situation to their advantage, shifting production and employment among various operations.

I have long argued that this new reality will put a damper on US wage growth, because employers have escape valves in the global market. IMO Promoters of low interest rates ignore this new reality, claiming that pressurizing the economy will inevitably lead to higher wages.

We will see who is right. Ten years and counting...and wages have yet to rise.

RC AKA Darryl, Ron -> JohnH... , April 28, 2017 at 08:07 AM
Yep. However, there is always room for complexity in economics. The right and wrong of inflation will depend upon the basket of goods AND services. CPI includes the following.

• Food and beverages

• Housing

• Apparel

• Transportation

• Medical care

• Recreation

• Education and communication

• Other goods and services

There is more than ample room for cost push inflation that is not linked to wages in every bullet. That is not something to celebrate though.

RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , April 28, 2017 at 08:08 AM
What we want to see is demand pull inflation though, which is always a result of higher wages.
JohnH -> RC AKA Darryl, Ron... , April 28, 2017 at 08:41 AM
I agree that we want to see inflation resulting from higher wages...but economists rarely talk about wages in the same breath as inflation...which leads me to suspect that they are interested mostly in more inflation, which I believe has few benefits, rather than higher wages, which has a lot of benefits.

Most here strenuously disagree, believing that we must take it on faith that liberal economists are really promoting higher wages via accommodative monetary policy, even though wages almost never factor into any discussion of monetary policy or its benefits.

[Mar 23, 2017] Im beginning to hate the word free . There is no free trade - only negotiated and regulated trade.

Notable quotes:
"... Is the question: "Are there Benefits from Free Trade" - different from the question "Are there Benefits from Trade"? What work is word "free" doing here - and what does it even mean? ..."
"... I'm beginning to hate the word "free". It is so vague and so often misused that I'm beginning to think it should just be banned. It is a hindrance to communication. ..."
"... There is no "free" trade - only negotiated and regulated trade. And we seem to do a really lousy job of negotiating, unless you are in the small percentage who rigged the game. ..."
"... Silly boy, only large corporations and capital matter. Workers are a hindrance to rent extractions and can be sacrificed. ..."
Mar 23, 2017 | economistsview.typepad.com
reason : March 23, 2017 at 02:20 AM
Is the question: "Are there Benefits from Free Trade" - different from the question "Are there Benefits from Trade"? What work is word "free" doing here - and what does it even mean?

I'm beginning to hate the word "free". It is so vague and so often misused that I'm beginning to think it should just be banned. It is a hindrance to communication.

Tom aka Rusty said in reply to reason ... , March 23, 2017 at 04:45 AM
There is no "free" trade - only negotiated and regulated trade. And we seem to do a really lousy job of negotiating, unless you are in the small percentage who rigged the game.
reason -> Tom aka Rusty... , March 23, 2017 at 06:31 AM
Who are "we"? Most people in the rest of the world thinks the game was rigged by the U.S. (whose main interest seems to be in protecting its patent holders and agriculture).
Tom aka Rusty said in reply to reason ... , March 23, 2017 at 06:34 AM
I care more about US workers than workers in other countries. As should our politicians. And I think when the US is strong the rest of the world is better for it.
Smart $$$$ Long said in reply to Tom aka Rusty... , March 23, 2017 at 06:53 AM
Do you know where your citizens are?

As more expatriots travel and do business overseas, more foreign born sisters, brothers, and cousins come here for our slice of the global supply chain production. As the line blurs between our home girls and home boys vs others, the lines between many ethnicities also blurs as intermarriage moves forward.

Forget political favoritism and affirmative favoritism! Let the good times roll and thrill your soul! Got soul?

Get
it --

Tom aka Rusty said in reply to Smart $$$$ Long... , March 23, 2017 at 08:27 AM
I don;t care where they come from, once they are legal US workers they are my home boys and girls.
DrDick -> Tom aka Rusty... , -1
Silly boy, only large corporations and capital matter. Workers are a hindrance to rent extractions and can be sacrificed.