I understand the economic and development argument for free trade. What I have not heard from free traders is the political and social argument necessary to sell free trade generally but particularly to the Democratic base--what do you tell the laid off worker in an auto parts plant when it closes, moves to China, and the parts reimported in the US for use in the same cars he used to make parts for. Do you tell him that he should have had the foresight to become a doctor so his job could not be shipped off shore to a country with labor costs a fraction of the US? Do you tell him he should have been born an Indian software engineer so he would now find abundant employment both here and in his home country? Do you tell him he is simply out of luck and pray that he can survive as a 7-11 clerk until his pension, Social Security, and Medicare kick in, assuming they are still around when he retires? What, precisely, do you tell a 50 year old production line worker in a closed down auto parts factory whose job was lost to free trade?

Oh well, I guess a few people are starting to get what I’ve been saying for a long time: the Bill Clinton who won in 1992 is far too conservative to win the Democrat nomination in 2004! Even President Bush lacked the guts to stand firm on free trade. His Democrat opponents are far worse on the issue. And yes, Daniel Drezner is right to be depressed. The country needs two major viable competing political parties. Unfortunately, that is not the case today. The so-called New Democrats are now enduring a cruel dark night of the soul.

Dan,
I know you're at the U of C where the God of Free Trade reigns supreme and unchallenged. But there are places out here that have been decimated by the current round of globalization, and DMH is right--you guys offer residents there nothing, nada.

Take my home town of Syracuse. Last month Carrier announces it's leaving next year--1200 good jobs go poof. What's there to take its place (not just in terms of good paying factory jobs, but in terms of community giving, up to and including the "Dome" at SU)? I'll tell you what's on offer--a mega mall that will be heavily subsidized (should it go through) by the taxpayers of New York State--to the tune of half a billion dollars over 10 years. Is that good economics? I don't think so, but the politics of letting entire cities/regions/states go belly up is even worse.

Your free trade at any cost policy runs the risk of foisting bad social/economic/political policy on places like Upstate NY because the private sector has abandoned them.

I wish it were as simple as "Gephardt protectionist, Gephardt bad" but it's not. He's less of a protectionist than he's often smeared as and the alternative is to let things get so bad out there that we get someone a LOT more isolationist than Dick. Brooks is right here, as he is so often. That's why the Bush people are looking more worried as Gephardt's numbers go up.

As far as I'm concerned, if RG is the nominee he gets my vote; if it's Dean, W gets it. It'll take more than a few economists questioning his commitment to free trade to convince me otherwise.

“What, precisely, do you tell a 50 year old production line worker in a closed down auto parts factory whose job was lost to free trade?”

The 50 year old production line worker needs to tell their children not to make the same mistake in their own lives. They screwed up royally by refusing to seek further informal and formal education. This is essentially their problem and nobody else's. The gods of creative destruction are heartless and unforgiving. Every single economic advancement hurts someone’s current way of earning a living! This is an iron clad dogma which allows absolutely no exceptions. Furthermore, every job you choose to protect hurts the poor. They are forced to pay more for their goods and services. For instance, do we really want those living in poverty to pay more for their clothing? By the way, the better educated technology workers also need to get a grip. The world doesn't owe them anything either.

“Do you tell him he is simply out of luck and pray that he can survive as a 7-11 clerk until his pension, Social Security, and Medicare kick in, assuming they are still around when he retires?”

Yup, that’s exactly what you tell him (or her)!

“Your free trade at any cost policy runs the risk of foisting bad social/economic/political policy on places like Upstate NY because the private sector has abandoned them.”

Many of my relatives live in upper state New York. Just a few years ago, I visited the basket case named Watertown. The private sector did not abandon these communities. On the contrary, the business community got fed up with being constantly abused by liberal high taxes. I laughed when Hillary Clinton promised to turn around that area’s economy. Heck, God Himself would be severely challenged! The Democrats and liberal Republicans are responsible for this mess.

California, Massachusetts, and New York, are perhaps the most expensive states for an entrepreneur to try and be successful. Please note that their voting majority opted to reject conservative economic policies. Thus, we have both the moral and intellectual right to tell them to suck on a raw egg and go to hell. You did it to yourselves and therefore you have no right to blame others for your own self inflicted problems.

And having told them that, would you expect them to vote for you?

Boy, you're an optimist :-)

Have you considered that a large number of people might actually support the inefficient, not-so-high productivity option? (I suspect not enough to win an election, but don't count out the Democrats yet.) It's all too easy to see the average wage rise and the median salary decline.

What, and Bush is a big-time free trader?

I also wouldn't worry too much; remember how close Clinton was to the strategic traders back in 1993? They'll come around.

They screwed up royally by refusing to seek further informal and formal education. This is essentially their problem and nobody else's.

You mean like education in a fast-growing field, like, say, computer programming? Yeah, that'll save 'em. And he's 50, what the heck, he has lots of spare time and money for that.

It's not "their problem and nobody else's" - it's everyone's problem. Less workers/lower-paid workers means less tax revenue for those things we all benefit from, like defense. It means less economic activity for the rest of us to make money off of.

Most importantly, telling folks like that to just kiss off, "don't tell us your problems, it's all your own fault" is, in the long term, a recipe for political disaster. It is exactly the sort of thing that led to the fervent widespread hope for most of the last century that Communism would succeed. It is exactly the sort of thing that leads mommy-state candidates to get elected.

It doesn't follow from that that mommy-state is the correct answer. But flipping these folks, your fellow citizens, off, and telling them to go suck a rock isn't the correct answer either, imo.

The problem with Communism isn't that it attempted to solve real problems that people wanted solved. The problem is that it didn't (and couldn't) work. But the problems remain.

The problem is that the free traders don't seem to want to make any compromises. Ecologically or towards worker's rights and standards.

It would be one thing if there was some compromises on this front, but there are none. Every one of these areas loses more ground with each round of talks.

I think the back lash you're seeing is pretty much the fault of those pushing free trade. They want all the monetary benefits while completely ignoring all the other things that are really important to people.

And not compromising at all only hardens and radicalizes these positions.

It's interesting to think what even a little compromise in these areas would do for the cause of free trade. But compromise doesn't seem to be part of the Ideology.

And as someone who is for free trade, I find this incredibly self defeating.

You do realize that H1-Bs from Indian are preferable to American tech workers, don't you? Even if this hypothetical auto worker had computer skills, he would be competing against someone that is required by law to take less money than Americans. Also, companies love H1-B because that Indian/Chinese/foreigner can't take a different job without losing his H1-B.

Basically, we're getting rid of blue collar jobs and white collar jobs for American citizens.

It does allow executives to raise their bonuses though. Maybe I can get a job for one of them cleaning out their pool. Nah, those jobs are going to Mexicans. :D

David,

Repeat after me: Upstate, Upstate, Upstate. It's a simple thing, but means so much.

One way or another, the pain and the benefits of free trade must be shared more equitably, or there will be no free trade.

Dan,

You can see already, I think, large numbers of your loyal readers remain unconvinced. How much moreso the masses who remain out of reach? A serious problem for your side, methinks:\

“It's not "their problem and nobody else's" - it's everyone's problem.”

I concede your point. The problem is primarily--and existentially their own, but indeed the general society (and even the political sector) should offer a helping hand. Also, I am very well aware that politicians have to think twice before being as blunt as myself. But I’m not running for office! Moreover, we need to unambiguously tell our fellow citizens not to immaturely rely on a nanny state.

I also seem to notice that a few people fail to comprehend basic economics. Vital economic growth can only occur when the ruthless gods of creative destruction are free to perform their tasks. Inhibiting them only leads to economic stagnation, if not outright poverty.

Creative destruction is great, but what if all the "creative" goes to imported Indian software engineers?

The system is rigged against blue collar workers and white collar workers. That's why the number of jobs has dropped by 3 million in the past 3 years.

The only growth industry is for government jobs, and conservatives are against those in principal also.

““David,

Repeat after me: Upstate, Upstate, Upstate. It's a simple thing, but means so much.”

Ah shucks, I think you’re going to have to engage in hand to hand combat with Jane Galt. Only recently, her site pointed out that New York City has not created a single private sector job (on the plus side) in the last forty years!:

“Long-term, the damage to the city's economy could be profound. Over the last four decades, New York City has become the most heavily taxed city in America. And as a result, Gotham has not added a single net new private-sector job over that period of time, while local government jobs have grown by more than 20% -- 90,000 positions.”

http://www.janegalt.net/blog/archives/004161.html

“Creative destruction is great, but what if all the "creative" goes to imported Indian software engineers?”

You fail to distinguish between micro and macroeconomics. The typical american consumer is a big time winner when prices drop due to the efforts of the imported Indian software engineers. Needless to add, microeconomically speaking, this does not immediately help those Americans who cannot compete with these Indian technology experts.

By law, they _can't_ compete with these imported workers. The H1-B law requires them to always take less than an American engineer. So, say you were willing to work for $20/hr. The company hires the Indian at $15/hr.

You then tell them you will take $15/hr. To keep the H1-B, the Indian must now take $10/hr. The law states that they must take less than any American is willing to.

If this policy were expanded to all American jobs, we'd ALL be replaced by Indians.

Secondly, how does this help macroeconomically? These American engineers have gone to American schools, and are now wasting their education by not getting work in their field. This is a waste of society's resources.

Anyway, to return to the main point, free trade isn't going to be popular when it's just another name for screwing people over.

Let me give another example from the steel industry. There is always an overcapacity in steel in the world, since most companies are prevented from failing by their governments. Should efficient US producers of steel get driven out of business by foreign subsidized steel? For example, Western industrialized countries have nationalized health insurance. This means that "old" industries like steel in Germany aren't paying their full cost for health insurance like an American company would.

Is it really efficient in a macroeconomic sense to ship subsidized steel from Germany? If you looked at all the costs rationally, an American steel producer next to an American manufacturing plant should be cheaper every time. Yet government distortions like health care subsidies make it an impossible market for American producers.

Americans aren't bad at manufacturing. It's that foreigners are gaming the system.

Perhaps if New York State could refrain from doing idiotic things like hand developers half a billion taxpayer dollars to build a mega-mall, companies like Carrier might be more willing to stick around.

"Americans aren't bad at manufacturing. It's that foreigners are gaming the system."

Could not agree with you more!

But we also have to add in the perfidy of American CEOs and upper management (not, by any means, across the board, but in a fair-sized segment) who negotiate in bad faith with workers and community leaders, and will often make up whatever numbers they need to justify relocating production lines overseas.

Let's go back to my hometown again (where I have not lived since high school, by the way). For years, the rumor mill hinted that Carrier would pull its badly needed plants. Company spokesmen denied all such plans. Workers and politicos knew better. They begged management to tell them what they needed to stay (that includes: the US rep.(Rep.), both NY State Senators (Dem.), and the Gov. (Dem. acting Rep.). Nonsense, came the reply. We don't need to negotiate because we're happy as clams here. Then this.

Now, workers facing pink slips are offering millions in wage/bene. givebacks, and the state is offering millions in tax rebates. Still nothing from UTC. Why? Because they don't give a shit about their workers or the communities that depend on them. And Washington is so late to the party, they don't have any incentives OR punishments for corporate citizens who act like weasels! Rep. Walsh has proposed a bill that would require U.S. corporations seeking lucrative govt. contracts to employ 50% of their workers in this country. It has a snowball's chance in the House without massive lobbying from the White House (?!) If Gephardt were there, he'd probably support such a bill. And I ask you, is that "protectionism"? Well, if so, I'm all for it.

Paul and David,

By the way, I do not disagree with you on the wrong path New York State has taken in the past and looks quite likely to go on taking in the future. All I'm saying is, these people are depressed, they don't deserve to be screwed nearly this badly, and there will be hell to pay election day if nothing is done.

“Secondly, how does this help microeconomically? These American engineers have gone to American schools, and are now wasting their education by not getting work in their field. This is a waste of society's resources. “

In some respects, the same could be true of the horse and buggy industry. Let’s try it this way:

“Secondly, how does this help microeconomically? These American horse and buggy engineers have gone to American schools, and are now wasting their education by not getting work in their field. This is a waste of society's resources. Damn it , we must quickly outlaw the automobile!“

The answer is always to retrain the worker. There simply is no other viable choice. Once again, you cannot cheat the downright nasty gods of creative destruction. Unless, of course, you prefer a poorer society.

Governments often do “game the system.” But this impoverishes everybody. We must encourage all of them to cease acting in such a self destructive manner. Tit for tat, in the long run may even lead to physical combat. Protectionist governments are also more inclined to start wars.

“All I'm saying is, these people are depressed, they don't deserve to be screwed nearly this badly, and there will be hell to pay election day if nothing is done.”

Who’s screwing them? They are often the same ones who voted for liberal politicians. Are you tacitly saying that these so-called victims have a right to indulge in childishly immature behavior? Isn’t it about time they acted like adults?

The 50 year old production line worker needs to tell their children not to make the same mistake in their own lives. They screwed up royally by refusing to seek further informal and formal education. This is essentially their problem and nobody else's.

Oh man...

I support free trade. But somebody get this nut to shut up. These are not the views of mainstream free traders.

I too have been deeply distressed at the Democrats support for "fair" (read--heavily managed and manipulated) trade. I am hardly thrilled with Bush, who is responsible for the stupid and counterproductive steel and ag tariffs, but the failure of the Cancun round is a terrible event, one which is likely to exacerbate developing country poverty for generations if the breach is not healed.

There will always be displaced workers in any economy, and the society should cushion the blow through creation and maintenance of a safety net, but it is ostrich-like in the extreme to think such jobs can be "saved" through economic policymaking. Textile jobs, for example, have been moving for centuries, from London to the North of England to New England (Falls River, MA) to the American South to Mexico, and now to China and Vietnam.

International macroeconomics may be a dull subject (for most people, anyway) but it has a very substantial impact on the quality of life not only for Americans, but for people across the world. The principle of comparative advantage is very poorly understood, and many of the people clamoring for "Fair" trade (again, a terrible misnomer) are economically illiterate. Many, if not most people, seem to think that exports are good for an economy and imports are bad, but this is not the case. This is called the mercantilist fallacy, and was discredited over 100 years ago. Virtually all economists, regardless of their political leanings, will tell you that international trade is mutually beneficial.

For instance, snore's comments that foreigners are "gaming the system" is nonsensical. The reason you can buy a decent DVD player for $80 at the local Sam's Club is because of international trade. The lower price is a direct benefit to millions of consumers, and in addition the existence of so many DVD players means there is a far larger domestic and international market for one of the U.S.'s biggest exports (film and entertainment) If DVD players cost $1000 apeice, the DVD reseale marekt simply would not exist, and the thousands of people employed in jobs from Blockbuster to studio executive would be out of work.

The society as a whole has no obligation to protect Silicon Valley programmers' jobs from competition with the Chinese and Indians. The programmers were not complaining when they gained huge salary increases in the 1990's due to a critical shortage of their skills, nor should they complain when they must compete globally with engineering talent. Other industries, from autos to clothing to retailing, have long been required to compete globally and have retained many jobs and decent market share despite this. Silicon Valley has 100,000 high-paying jobs at start-ups even now after the downturn--30% of those companies were started by an Indian or Chinese engineer. Tell me how this hurts Americans as well? Should we have an ethnic litmus test to see who can start a company?

Should brilliant Indian engineers who graduate from the Indian Insititute of Technology, one of the best universities in the world, not be able to stay in their own countries and compete in the global marketplace after 20 years of backbreaking schoolwork? Or do only Americans deserve such a chance?

I do not think that workers losing their jobs are at fault, or only have themselves to blame, or anything like that. They are not to blame, but it is naive to think that "the government" has the ability to preserve their jobs in aspic. Should we rpeserver the jobs of elevator operators? Typographers? Telegraph operators? Industries rise and industries fall, and there is little that government policy can do about this. "Saving" a handful of manufacturing jobs in upstate New York requires huge subsidies, up to $200K per job in the steel tarriff case, taking critical resources away from more productive uses.

The U.S. has benefitted enormously from a free trade regime since WWII, giving us unprecendented prosperity and far more viable economic and career choices than our grandparents had. As a nation, were are very privileged economically, and it's important to remember that despite a relatively poor economy currently we are hardly in terrible shape. Economic pain, just like economic opportunity, is not equitably distributed across the entire population, and never will be. But thanks largely to free trade, we have an economic system that distributes wealth to the nations' large number of middle-class people fairly and equitably. Messing with the current (relatively) global free trade system puts that prosperity at peril.

Kelli:

The management of Carrier does not have a legal obligation to keep their manufacturing center in upstate New York. Their primary obligation is to the owners of the corporation, and they are legally bound to act in the best financial interests of those shareholders--fiduciary responsibility.

Your comments seem to posit that if the managers of Carrier were simply "nice guys" and "cared about the workers" that they could have decided to stay put with no negative consequences. This is simply untrue. There are countries in which manufacturers live in a highly protectionist environment dictated by the government, where wages are "high" and benefits are good. Think Japan and Germany. They also have extremely high taxes, terrible rates of economic growth, and terrible troubles with pensions--their economies are increasingly uncompetitive, and they are still hemorraghing jobs -- to China and Korea in the case of Japan, and to Eastern Europe in the case of Germany. Do you want to trade 5% economic growth and 6% unemployemtn for 1% economic grwoth and 11% unemployment? That's what you will do it you don't permit managers to make decisions based on the economics of their own businesses, which they know far better than you do, I do, or the government does.

Snore,

1) As long as you're going to talk about H1Bs "by law," why not point out that "by law," companies are only allowed to employ H1Bs when there aren't Americans available to take the jobs at all?

2) I think you have it backwards vis-a-vis German steel producers. Not only are they paying the full cost for health insurance, but they're paying MORE THAN the full cost, because they also have to subsidize health care for all the unemployed Germans. The German government isn't manufacturing the health insurance out of thin air; it's taxing Germans heavily to pay for it.

3) If we're getting subsidized steel, that's bad for American steel producers -- but good for American steel _users._ Needless to say, there are more of the latter than the former.

As to the question several people raised -- "What do you tell the unemployed auto worker who lost his job to free trade?" -- what did you tell him in the 1970s when he lost his job to robots? Or to people from Kentucky or Alabama or South Carolina? Or to people choosing to drive less because of high gas prices? It's a personal disaster when you lose your job, but public policy can't be built on retaining jobs for relatively unproductive workers. You can provide a safety net to help cushion the blow, but you can't magically make them productive.

Gephardt has staked a very clever position. He has bridged two seemingly exclusive constituencies, the anti-globalization/burn down the barber shop crowd, and the anti-free trade union crowd. Now pragmatically, his position kills free trade and starves a bunch of third worlders, but idealogically, it champions nativism and workers rights. The question that someone needs to ask Gephardt is very simple, is it better for a million third worlders to make .50 cents an hour, or for zero to make 5$ an hour with a great dental plan? Because that is the choice.

->>As long as you're going to talk about H1Bs "by law," why not point out that "by law," companies are only allowed to employ H1Bs when there aren't Americans available to take the jobs at all?

Then you understand the letter of the law and not the effect. The law is that if an American is not willing to work at the price set by a company, then they can give the job to an H1-B visa holder. This means that the Indian only has to be willing to work for less than an American in order to take the job.

If this were just immigrants, why not give these Indians and Chinese green cards instead? It's because a green card holder can change jobs and competes on a level playing field with Americans. The H1-B can't change jobs, and _must_ make less than an American. It's a win-win for companies.

Note, this isn't "creative destruction". It's called indentured servitude.

On the health care point, American steel producers would trade their eyeteeth for German nationalized health care. It's a lower cost system for manufacturers since their slightly higher taxes are greatly outweighed by their immensely reduced health care costs. The entire society pays for the pensioners health care, not just the last company to employ them. Look it up. :D

Daniel,

Well said. The only problem with your position is that is takes for granted the utter rationality and disinterested profit-seeking of Carrier's (actually, UTC's) leadership. Profit-seeking, that is, on behalf of the shareholder, not themselves.

But let's suppose that Carrier's compressor production line is a highly efficient one already, that the company's manufacturing plants in Asia are not nearly as productive as the one in Syracuse (that, for instance, skilled technicians are scarce, error rates high, logistical problems much worse than in NY). Does it make sense for the company to shift complicated manufacturing processes to a place that seems ill equipped to handle them? If not, let's ask ourselves why savvy businesspeople might do something like this? Could it be that Wall Street analysts think a widget is a widget, so who cares where it's made? Could the stock options held by corporate executives have anything to do with the large-scale movement of manufacturing overseas? If so, how can we be sure they have the long-term interests of the company and its shareholders uppermost in their minds?

Short answer: we can't.

And as for your point about corporate execs needing to disregard all things BUT the bottom line for shareholders, I guess I have a slight problem there too. Business leaders used to be grounded in their communities; I guess that's a dying sentiment. But if your company's owner packed up the plant and moved it south, you usually had the option of moving with it. Hence the very high outmigration rate from the rustbelt to the sunbelt these past 40 years. Remove the jobs overseas, and your options are slim to none. This is a break with the past and not, as you suggest, a continuation of it.

This may be "off-topic", but on the the Dreznierian puzzle of Gephardt positioning America as a global leader, more grist for the mill comes from the fact that, as Dems go, Gephardt has been a staunch supporter of Bush's Iraq adventure. So, on that criteria, he may have "strong on national security" appeal for folks who are worried that the other Dems are problematic.

“The 50 year old production line worker needs to tell their children not to make the same mistake in their own lives. They screwed up royally by refusing to seek further informal and formal education. This is essentially their problem and nobody else's.

‘Oh man...

I support free trade. But somebody get this nut to shut up. These are not the views of mainstream free traders.’”

They are not? Please specifically point out what you find troublesome with my comments? That they make you feel uncomfortable is not my problem. We should not encourage any worker, blue collar or white collar, to feel sorry for themselves. The world literally does not owe them a thing. It is their responsibility to get it together. Creating a new class of “victims” is highly destructive to everyone--especially to those confronted with the actual challenge of seeking new employment. Lastly, the blue collar worker who overly depended upon the union to protect them should definitely warn their children not to repeat the same mistake.

America's leadership role under a Gephardt administration would consist of providing the leaders of other developed nations with a palatable excuse for caving to the protectionist interests in their own countries. It would be leadership of the destructive, Chirac variety, but no less leadership for that.

Contradiction-seekers might do better to focus on the implied policy that no change will be allowed from now on unless it's Pareto-optimal. This certainly isn't the sort of thing Democrats ordinarily believe when it's a question of, e.g., raising the taxes of well-off IT professionals; why does it come into play all of a sudden when we talk about letting foreigners compete with them?

I have two problems with Brooks' column. First, it paints all the Democratic candidates with the same brush. Lieberman has specificly stated that he wants to return to the economic policies of Clinton, including free trade.

Second, Brooks ignores the role of the Republicans. My impression is that most Democrats who support free trade aren't passionate about it. When Bush imposes protectionist tariffs on steel, Democrats many understand that this doesn't make economic sense, but they are inclined to sympathize with the steel workers who would lose their jobs in the absence of the tariff. So Democrats are not eager to fight Bush on this issue, even if they don't think his policies are optimal.

It's a fallacy to insist on all or nothing arguments in a world of many cultures, many dimensions, many laws, etc.

When free trading liberals suggest they would like free trade but with regulations that protect children, free traders that hate paying workers a market wage respond that this is protectionism.

It is not.

Protectionism is a willy nilly tariff to support an industry that the targeted country cannot get lifted.

Restrictions and regulations to promote the environment, protect children, protect the 60 hour work week, protect worker safety until a country, company or product meets a given standard are merely restrictions and regulations. No money needs to be involved. No tariffs need to be involved. Most importantly, meet the standard and get the restriction lifted.

Since Dan, free trader, hates artificial barriers and switching costs, I urge Dan to on principle, refuse tenure.

The world literally does not owe them a thing. It is their responsibility to get it together.

Then explain to me why they owe the world anything?

Why should they pay taxes? Because the alternative is the threat of a gun? is that the ONLY reason? Is that how we justify our society, if you don't play, we'll kill you?

Why should they offer their children up to die in wars?

Why should they offer any loyalty, or consideration, or anything else, to their society if all their society has to say to them is "piss off"?

Oh, yeah, that's right. So the piles of crap at Wal-Mart get ever cheaper. That ought to be enough for anyone.

Think how much cheaper our car would be if we didn't demand safety systems like brakes! Think how much we are retarding the growth and progress of China by demanding safety systems like brakes! My feet work just fine! If we stop demanding regulation on cars, then quickly we'll be able to buy fine inexpensive cars from North Korea, China, and Afghanistan that will allow me to keep more of my money!

If you don't support putting just any car on the road then you're not a free trader! All regulations are bad!

Why is it okay for us to demand that China sign and obey and enforce IP laws, but not okay for us to demand that China and other countries protect their children?

Quicks! I gots to know!

I am wondering when was the point in time at which the cause of free trade reached its high water mark. My current guess is around the time NAFTA was ratified, almost ten years ago now.

There are a couple of points here. First, Republican administrations in the modern era have always been inclined toward free trade, and Reagan's administration was hard-core on the subject. Second, notwithstanding powerful protectionist forces in Democratic politics, strong support for free trade has been characteristic of many influential Democrats at least since Cordell Hull's time. You can still read traditional Democratic pro-free trade arguments any time the Washington Post or New York Times editorial page chooses to address the subject.

That's about the only place you will read them anymore. Al Gore went on national television to debate Ross Perot over NAFTA; I'm not sure many of the current Democratic Presidential candidates would even vote for it now, had they the choice to make again. As for George Bush, he made clear that his support for free trade takes a back seat to considerations of electoral politics with the steel tariffs and his endorsement of the overtly anti-trade farm bill last year.

You can talk about the economic case for free trade till the cows come home, but none of the arguments for it are likely to be articulated by politicians on a national level. This has already produced consequences, not so far a lunge toward straightforward protectionism as stagnation. I expect this to continue no matter who is elected President next year.

OOOHHH Come on! Let's see, Bush & Cheney were (not actually) "elected" in Nov. 2000. In February 2001, Halliburton "won" a no-bid 10-year contract from the Army (headed by former Enron VP, White) to be the front-line supplier for deployment build-outs and various other high-margin business. Net: 1.7 billion in 1 year! And then comes Iraq.

Yeah, gee, that is how government is supposed to run. Yeah, I'm sure that had nothing to do with Cheney. Yeah, it's was just dead clear that (a) the Army suddenly needed to have such a vendor and (b) without needing bids or a formal proposal process one could determine that Halliburton (which had relatively little experience in that domain) was THE company for the job. Give me a break.

Are YOU on the take?

jb

Mr. Flintstone: stick to breaking rocks in a quarry, because you're not really qualified to do much else. You think brakes in cars are the result of _regulation_? If you were offered a car without brakes, would you buy it?

If you were offered a car without brakes, would you buy it?

Your joking, right? Tell me that you were deliberately avoiding the rather obvious analogy (governments demand safety restrictions above what many consumers would willingly pay for, if the option was available) rather than that you didn't see it.

Billy:

In answer to your question about why it's okay for the U.S. to demand that China enforce Intellectual property laws but not "protect their children," it's okay because the former is part of an international trade arrangement and safety laws are the purview of national governments.

It's called soverignty. Given your expansive view, why shouldn't we tell every country in the world to adopt all the precepts of American law hook line and sinker?

While I agree that safety standards in China re poor as compared with the U.S., Chinese love their children as much as anyone else, and it's insulting to say that they need American "guidance" to see the light. By demanding that all developing countries adhere to U.S. or E.U. safety standards, you're condemning another generation of poor people to continuing poverty.

We should all be happy that China is getting richer and that India's economy is heating up as well. Getting 2 billion people from poor to middle income status is a huge net benefit to the global economy, and a great benefit indeed to the 3/5's of the global population that lives in Asia. China does have a large trade surplus with the U.S., but the idea that it is highly protectionist (as Japan in the 1980's arguably was) is nonsense--overall, China's imports have surged hugely, and they barely run an international trade surplus. Indeed, the bubbling Chinese economy is helping to sustain the economies of all of Southeast Asia at the moment, and keeping prices down in the U.S.

I once met the trade minister of Mexico, and we had an interesting discussion re pollution in Mexico City and U.S. attempts to dictate clean-air regulations to Mexico. He told me he was deeply insulted by the insinuation that he didn't give a damn about air quality in Mexico City, because he and his children live there and breathe the air every day. He went on to say that he didn't appreciate all the "help" from those in the U.S. insisting that the air be cleaned before any trade agreement (NAFTA in this case be entered into. "Let us get rich, and we'll be able to afford to clean up our own air."

This is a perfectly valid point, and is already beginning to happen in Chinese cities, for instance, where air quality is terrible. Any number of economic studies have shown that as per-capita income in a country reaches a threshold of about $5000, investment in anti-pollution technologies and environmental conservation increases dramatically. Asking poor countries to save their environment is asking them to do the impossible--take resources away from their needy people in order to satisfy comfortable Sierra Club members in San Luis Obispo. It is quite irritating listening to such people bemoan the terrible conditions in the Third World while their suggested policies would deny those people the chance to better their own condition. THe U.S. is already so affluent that we tend to forget the many things that become possible because we are so affluent.

While such people as Mr. San Luis Obispo may be well-intentioned, good intentions do not necessarily translate into logical and workable policies. This is one reason why virutally every developing country government, good and bad, is fiercely resistant to such environmental riders -- it's just protectionism stuffed into a fancy dress, given a new hairdo, and some bright red lipstick.

When I hear the Democrats prattle on about "fair" trade, I reach for my gun (or at least my thesaurus, because their definition of "fair" is hardly fair)

Kelli:

I think your analysis is good and you make a number of valid points, especially about the stock-price driven short-term results mentality due to Wall Street considerations. I also think that the best companies should and do take thier workers' welfare into consideration somewhat when they make their decisions. Companies good at attracting and retaining talented workers tend to outperform their peers. I also understand the concern regarding foreign outsourcing. But I still come back to the fact that imperfect as managements are, it is their task and responsibility to make financial decisions for their own companies, and that they are far better placed, and understand their own businesses better, than George Pataki or Carolyn Maloney ever will. Who can make these decisions beter that the managers? The politicians? Many politicians are shamefully ignorant of even basic economic principals and have a decided tendency to pander for votes. While this may save a few jobs for a short period of time (at a very high cost in resources that could have been better used to retrain laid-off worker or even pay them directly), it is a losing battle in the longer term.

So Daniel tell me, how did those IP laws become international issues again?

"why shouldn't we tell every country in the world to adopt all the precepts of American law hook line and sinker" -- I used to think we shouldn't, but everything changed after 9/11.

You say you're for free trade, but my country's comparative advantage IS in producing opium!

Daniel,

It sounds like you're for restraints on free trade as long as the restraints are put their by international agreements. Why should any dissenting country view a restraint on free trade as anything but protectionism? Aren't all restraints on free trade going to alter the economic rewards away from the optimal? If so, what does that do to the market as price signal?

a) how is it that that is not a violation of dissenting country's sovereignty?

b) so you'd be okay with Kyoto?

c) and you'd be okay with child labor standards placed into international trade agreements?

d) I take it you will support a carbon tax placed in international trade agreements?

BT, you have it backwards. The default position of most national governments on trade issues is protectionism, not liberalism. Trade restrictions in international trade agreements do show up from time to time, but the alternative to them is hardly ever freer trade; it is instead higher trade barriers imposed by national governments unilaterally, or sometimes (as in Europe now and perhaps in South American and SE Asia in the near future) regionally.

Zathras, I understand that.

Daniel was telling me that we go after China for IP violations because there are international agreements to do so. It seems the logical conclusions are that Daniel doesn't believe that international agreements might violate sovereignty and that if labor and pollution controls were expressed as international agreements that Daniel would support them.

I think his argument is weak in that international issues became agreements because one or more countries backed them.

I think his defense of my pushing the Chinese on IP and not on child labor avoids the issue. Somehow we are all much more okay with regulations that do not touch on labor conditions or pay and it is hard from some of us to understand why.

What was all that yesterday about lochner and freedom to contract? Some folks are still very okay with abusive child labor.

Some folks are not.

BT:

I don't understand your counterargument to my points. IP protection is part of what China voluntarily agreed to when signing up to join the WTO. The U.S. may have pressured the Chinese during negotiation to include such protections, but that is perfectly acceptable in negotiations.

In principle, if two or more nations voluntarily and mutually agreed to abide by certain labor and environmental laws, then I wouldn't have a problem with it. My problem is that if the U.S. tries to impose such conditions unilaterally in the WTO setting it will almost certainly result in no agreement whatsoever, higher not lower trade barriers, and continuing poverty in the developing economies. As someone who believe economic development and international integration of devloping economies are good for those economies and for our own, and as a strong free trader, I don't want the Doha round to fail.

I don't think my argument is weak--I think taking the advice of fair traders to push for First-World labor and environmental standards in Third-World contexts is farcical and unfair, and will result in no agreement whatsoever, to the detriment of both the U.S. and poorer countries. I think I make this point pretty straightforwardly above.

BT:

I'm hardly a great supporter of child labor, but believe that the best way to avoid such abuses is to allow a country to become wealthy enough to have the resources to educate its own children instead of putting them to work. China is an excellent example--it's clear that even the poorest Chinese parents, given a choice, would choose to have their children in school and not working in a factory. Chinese place a very high value on education, as witnessed by the college graduation rate of 78% for first-generation American-born Chinese. By insisting on American-style child labor restrictions for China or elsewhere, there will be no agreement, the developing country will be poorer, and thus child labor will only be perpetuated and intensified. Where is child labor worst? In the least developed and most autarchic economies, such as NK, Burma, etc. We're differing about means, not ends. I'd perfer that no children work, and think the way to move toward that goals is to make those societies more prosperous.

NAFTA, WTO, GATT, none of these are contracts between two and only two participants. All of these are compromises and relationships between many participants.

In everyday life, people seek to change relationships and even contracts based on changing environments, new information, etc. There is nothing wrong with that. There is nothing wrong with Americans asking their representatives to change agreements that aren't working. None of this hampers free trade as you just defined.

Your last argument is either the weakest or your main point. Apparently you don't want the labor and environmental standards because such will result in no agreement whatsoever. Fine. But please don't threaten to shoot people based on their contrary opinion.

By your last paragraph, you've defined yourelf: neither a free trader nor a fair trader. You're a practical trader.

BT:

I'd argue that current WTO arrangements are working quite well for the U.S., but that we can and should do better by lowering ag tarriffs in particular. Poor economies, too, would greatly benefit from lowering thier own trade barriers, since most trade is between nations of roughly equivalent economic development (U.S.-Mexico, U.S.--China, and China-Japan being obvious exceptions)

You may legitimately want to raise the idea of labor and environmental standards in upcoming trade talks, but I think this is a recipe for no agreement at all, and in addition it is deeply prejudicial to developing economies for the reasons I've outlined above. Finally, I am quite skeptical, as I also said, that those with highly protectionist agendas, including labor unions, et al., will simply use the child labor/environmental standards ploy as a fig leaf for pushing thier own protectionist agendas, which I oppose.

If a proposed negotiating plank has the practical effect of making an agreement impossible or raising barriers rather than lowering them, then I'm opposed to it. To me (perhaps not to you), since developing countries have considerable clout in WTO negotiations and are uniformly opposed to the imposition of such labor and environmental standards, again citing them as a rich-copuntry ploy to look concerned and remain protectionist by other means, having the U.S. push hard for them when the WTO mechanism is almost borken would surely result in a complete rupture. I don't know if you want this, but I certainly do not.

Daniel,

My point has been, and it seems now as though you agree with it, that one man's reasonable free trade principle is another man's protectionist free trade barrier and vice-versa. It's a spectrum; and while it is perfectly reasonable to ask what the outcomes and ramifications of any proposal is, it makes no sense to just refuse to hear proposals and label them with derogatory connotations.

Dear all,

It's clear that globalization, or to give its proper name: neo-colonial industrialism, is long term unsustainable. You can avoid higher standards of living an increasing labor costs by continuing to move production to more and more primitive developing countries. Logic indicates since the supply of undeveloped countries is finite, increasing profits from decreased labor and infrastructure costs (pollution, transport, etc.) cannot be sustained indefinitely.

We have moved jobs from the USA to Japan, from Japan to Mexico, from Mexio to China, perhaps one day from China to Indonesia. It can't go on forever however.

However the one thing that could politically sustain the system domestically until time runs out is the one dreaded thing that most of the same ideologues who support free trade dread: social redistribution.

As long as the benefits of neo-colonial industrialism go an increasingly narrow executive management, and investor classes at the cost of the white-collar middle-management, technocrats, production labor, and high quality-added service classes then the general population will see the trend increasingly as the dreaded term "class warfare".

Walmart as the purveyor of low-education low-skill low-pay and low quality-added jobs is not going to cut it. Also inflation is understated and worker wage gains are overstated. Part of the reason why is that major sectors of expense costs: education, health care, housing, retirement, and insurance are skyrocketing even while ordinary mass-produced goods are decreasing.

In the real world, real wages insofar as maintaining absolute standard of living have substantially decreased as well as the Cost-benefit ratio of education in producing higher incomes because re-education is needed constantly while the wages aren't rising fast enough to compensate for the continued investment.

This could be "solved" by the dreaded term: redistribution. Domestic political constiuencies would accept the viability of free-trade - a code word for neo-colonial industrialism - if a greater share of the profits were reinvested in helping to create more creative or "information" or design or artistic or conceptual type jobs. These are required to give a place for high value-added quality service, entertainment, information, technocratic, or management style jobs.

These people would accept. It's very simple. The office used to be above the factory floor. Now it's oceans away. However, the people who used to work in the office or as go-betweens or the floor don't want to get shut outside in the cold. Creating new jobs in the office would increase productivity.

In addition it would increase the absolute wealth of the capitalist executive management and investor classes. Yes they would pay more in "taxes" or redistribution, but their absolute historical wealth would be greater. Sometimes you gotta give a little to get more. Being short-sighted never did anyone too much good long-term.

Yet because of the clash of ideologies, this is the very solution that will escape the febrile minds of those who think that they can persuade others to go against their self-interest. If this was an oligarchy like in Russia, that would work. It's not. So shut up Thomson and wake up to that reality.

BT: No, we still don't agree. I don't think impostion of First-World labor and environmental standards on developing countries is a legitimate free trade principle--it's protectionism in another guise. And I think it is reasonable to label a proposal with derogatory remarks if I think it's ill-advised and will derail the talks just be having it broached at all, which I think is the case in this instance. I'm not attacking you; I'm disagreeing with you, that's all.

Oldman, your analysis doesn't make any sense. It's not "clear" at all that globalization is unsustainable--there will always be a low-cost producer regardless of whether economies like China become wealthy or not. Comparative advantage--emphasis on "comparative." Your analysis doens't make any macroeconomic sense. In addition, the most redistributive economies are also the wealthiest (Europe, U.S., Japan)--rich countries have the best social safety nets and the best pension benefits for obvious reasons--they can afford them. How do you square that with your theory?

Successful politics is largely about finding some highly visible benefit that you can deliver to some voting bloc in exchange for their support.

The highly visible benefit will obviously have to come at some cost. A savvy politician will back a set of policies that deliver the payoff in exchange for one or more of the following:
1) A mostly invisible cost that is so disperse that nobody is motivated to oppose it.
2) A cost borne by a smaller voting bloc that is preferable already not in your political camp.
3) A cost that is deferred until the politician is out of office.

Gephart's solution combines all three. Free trade's benefits are mostly invisible, and dispersed so widely that they are hard for the uninformed to detect. And the wealth creation effects are long-term rather than immediate. In addition, committed free-traders are largely outside of his voting bloc.

Protectionism's benefits for the voting bloc are immediate and obvious. Smart move by Gephart.

Yes, it's depressing. But it's the fundamental mechanism of politics.

I know we disagree on whether labor and environmental standards is a legit free trade principle. But you've acknowledged that if this was an international standard you would grudgingly support it. I think this makes my point. Free trade issues are not objective, black and white, all or nothing stances. You're not a free trader.

It's okay.

Mr. Calto,

First of all your assertion that there must always be a low cost producer runs into a problem. This is the problem of absolute versus relative pricing. Prices can still rise if the lowest cost producer's costs rise in absolute terms. It is well known that industrialism leads to a process that generally raises the standard of living and also the cost of labor.

The main benefit of globalism is not material costs - China afterall is a materials importer - but lower absolute labor costs. If those costs rise, as eventually they will, then eventually you will have to find a less developed country to switch production to where standards of living and correspondingly labor costs are also lower.

The main touted benefit of free trade and globalization is lower consumer goods. Those goods are cheaper in absolute terms (deflation) because of lower labor costs (and infrastructure related costs like less tight pollution controls).

Eventually, you will run out of undeveloped countries and the least cost producer will have its labor costs rise in absolute terms. At that point absolute prices will rise.

Therefore your first objection is scotched.

Your second objection is that you're putting the cart before the horse. There is a trade off, like in most of life between "redistribution" and "economic-market efficiency". A certain amount of social investment increases the potential productivity of a nation. Healthier more secure and well educated persons and a well-oiled infrastructure along with a less corrupt society is more economically productive than a highly conflicted or broken-down one.

However too high a "redistributive" rate and you will create disincentives or actual regulatory blocks to productivity. There is a theoretical point of diminishing returns or optimization curve.

Globalism attempts to square the circle. It attempts to reserve the high-value jobs to one society and country while contracting out the low-value grunt production jobs to a society with a lower cost of production from a lower standard of living. However there has never been a situation where this is sustainable, because the less developed culture becomes more developed because of technology transfer and foreign investment and native capitalism. This increased development increases the standard of living which increases the cost of production.

In order to sustain the savings, one has to transfer the production once again to a less developed nation. Only there is a finite supply. Hence, long term it cannot be sustained indefinitely though it be may be the end of your lifetime before we run out of third world countries to shift production to. It will probabaly end before that because of other reasons, such as inefficient political regulation of the system will lead to widespread disastisfaction. The answer to keeping up the regime being increased redistribution and that being the answer that the same people pushing it don't want to hear.

Oldman:

You say that globalism "Globalization"?)"attempts to reserve high-value jobs to one society and country while contracting out low-value grunt production jobs...(to developing countries)."

It is actually protectionist measures, not globalism (whatever that is) that attempts to reserve high-value jobs to one country. YOu seem to seem globalism as a kind of consipracy of the rich and powerful; I see it as a great benefit to both developed and less developed countries, but to emerging economies in particular.

Globalization dictates that goods and services be produced worldwide based on various economic factors (low costs, including low labor costs, high quality, or differing combinations of such factors--including such things as delivery time, reliability, transportation costs etc.)

Software jobs are moving to India and China because there are high-quality engineers there who can deliver good products for less cost.

Of course factors of production, including labor costs, get more expensive as a country gets richer. As long as productivity is increasing, that's a good thing, certainly for the people in those countries, and also for developed economies, which can sell high-value-added goods and services (like consulting and high-grade steel) to these emerging economies. Indeed, that is the mechanism by which developing economies expand. Note also that China is a producer of choice not only because it has very low labor costs (which it certainly does) but because it has been able to enhance the quality of such output substantially over the past few years. Like India, China has a well-educated group of engineers and workers who can meet world quality standards of manufacture.

Much of what you say I agree with, but you seem to see the international economic pie as a fixed entity. However, this is simply not the case. If China gets richer, opportunities to sell things to the Chinese will grow substantially (this is already happening in commodities markets, for example), and give a boost to global economic growth.

If we "run out" of undeveloped countries (which certainly is not likely to happen anytime soon) that would be a good thing, wouldn't it? A prosperous world where people don't have to starve to death? Where there are more resources available to educate children?

"Also inflation is understated and worker wage gains are overstated. Part of the reason why is that major sectors of expense costs: education, health care, housing, retirement, and insurance are skyrocketing even while ordinary mass-produced goods are decreasing."

Let's see. Education, health care, housing, and health insurance are either provided by the government or heavily regulated by the government.

Ordinary mass produced goods are produced by the private sector and not as heavily regulated; their price and quality continues to improve year after year.

If we move education, health care, housing, and health insurance to the second category, we'll see lots of improvement.

"In the real world, real wages insofar as maintaining absolute standard of living have substantially decreased as well as the Cost-benefit ratio of education in producing higher incomes because re-education is needed constantly while the wages aren't rising fast enough to compensate for the continued investment.

This could be "solved" by the dreaded term: redistribution"

Only if by "solved" you mean "pretend to solve with lots of speeches, money, and hand-waving while things get worse".

If you want to actually solve these problems, the answer is another simple dreaded term: privatization.

Two bits:

First, there's an Op-Ed piece about Africa and the WTO by Yoweri Musevein in today's WSJ ("We Weant Trade, Not Aid") which is very apropos to the discussion above. He writes in clear terms what rich-country agricultural subsidies mean to African countries in particular.

Second, as a free-trade Democrat, I propose a new meme to counterbalance the "South park Republicans" one making the rounds currently. Given that Robert Rubin is about to publish a book stressing the critical nature of deficit control and U.S. leadership in free trade, I've decided to call myself a "Robert Rubin Democrat" for the time being. Here's hoping Rubin's book can stiffen the spines of those Dems caving in to the "fair trade" siren song.

Ken,

You're dreaming. First of all housing has been a smoking market. There may be problems from time to time with regulation, but the market is the problem too. It's a problem because it's interested in building profitable mid to upper income homes.

It is not interested in building low-income housing or low-profit starter homes which are the most in demand.

Second of all, health and insurance to the last of my reckoning were areas that had a chance to be free of regulation for quite a while. Or have you failed to remember the HMO debacle and the current fight of pharmaceuticals to prevent cheap drugs from being imported from Canada where medicine is nationalized?

Blaming everything on regulation is a stupid stupid thing, since as I said it is regulation that creates markets and not the other way around. They are inseparable. It is only a question of what kinds of regulation and what kinds of markets that regulation produces.

As far as education goes, I'm all for charter schools and the *judicious* phased in application of school vouchers. However, there will always be many places and schools which the government will have to run since it ain't profitable for companies to run them. Ain't nobody I ever heard of clamoring to take over small rural schools for instance. Your philosophy is naive and immature.

"You're dreaming. First of all housing has been a smoking market."

Yeah, that's the problem.

"There may be problems from time to time with regulation, but the market is the problem too. It's a problem because it's interested in building profitable mid to upper income homes.
It is not interested in building low-income housing or low-profit starter homes which are the most in demand."

Because local governments, planning commissions, and so on impose costs that have to be paid in order to build each home, no matter what that home costs; thus, developers will exhibit increased preference to build fewer, more expensive homes over more, less expensive homes.

Also, land-use regulations, "smart growth", and so on, has a higher proportional impact on lower-priced homes than higher-priced homes.

"Second of all, health and insurance to the last of my reckoning were areas that had a chance to be free of regulation for quite a while. "

Nope. It's not completely nationalized, but it's a far cry from being "free of regulation". First, there's a big tax break for getting your insurance from the company store, so lots of us do, which means that insurance companies compete to please employers rather than policyholders, cross-subsidies appear between coworkers, one's expected healthcare costs get factored into hiring decisions, and lots of other unpleasant consequences follow.

Second, laws exist that forbid you to get a health insurance policy unless it includes a list of required coverages that you may or may not need.

Third, the medical industry itself is under heavy regulation. The supply of doctors is tightly controlled. Medicines cannot be sold until the FDA has sat on their application for years. You can't buy medicine without a permission slip. And so on and so on.

It's only unregulated compared to socialized systems. Compared to industries whose products are improving rapidly in cost and quality, it's heavily regulated.

"Blaming everything on regulation is a stupid stupid thing, since as I said it is regulation that creates markets and not the other way around. They are inseparable. It is only a question of what kinds of regulation and what kinds of markets that regulation produces."

What creates markets is the desire on the part of consumers. The regulatory environment determines whether it is easy or hard to serve that desire, and whether it is easy or hard to steal customers away from current vendors by serving them better.

As for the proper "kinds of regulation", I'll go for that which has been governing the IT industry for the past decade or so.