Economists Play Us for Fools

http://www.newyorker.com/talk/financial/2008/05/26/080526ta_talk_surowiecki

What is it about economists?  Are they incapable of dealing with more than one variable in an equation?  Is that why they majored in economics in college instead of engineering?  Or is there something more sinister at work?  Do they only show us one variable in an equation because they’re paid to hide the rest of them? 

When it comes to the subject of trade, why do they focus only on exports and ignore imports?  “Trade has been a boon to our economy,” they say.  “Exports continue to climb steadily.”  True, but not as fast as imports have risen, the net result being a drag on GDP and on the economy.  Or, as in the case of this article by this brilliant economist, James Surowiecki, they focus on low prices and completely ignore the effect on wages. 

“… At times, the campaign has looked like a contest over who hates free trade more: Obama has argued that free-trade agreements like NAFTA are bought and paid for by special interests, while Clinton has emphasized the need to “stand up” to countries like China. Two weeks ago, both senators signed on as sponsors of a new bill that would effectively impose higher tariffs on China if it doesn’t revalue its currency. The candidates are trying to win the favor of unions and blue-collar voters in states like Ohio and West Virginia, of course, but their positions also reflect a widespread belief that free trade with developing countries, and with China in particular, is a kind of scam perpetrated by the wealthy, who reap the benefits while ordinary Americans bear the cost.”

Well, James, maybe so many people believe that because that’s exactly what it is, a scam designed to benefit global corporations and their top executives, to the detriment of the common good of the United States.  It’s in their best interest to pursue markets in grossly overpopulated nations and to protect their investments in foreign lands because their potential total sales volume is so much greater than it would be in just the American market.  They don’t give a damn that this policy isn’t in the best interest of the majority of Americans or that its bankrupting our country.  To help them delude Americans into believing that trade is in their benefit, they find “economists” too lazy to engage in independent, objective analysis who are all too willing to regurgitate the pap fed them by their corporate sponsors. 

These economists cynically trust that middle and lower income Americans will be intimidated by their lofty PhD credentials, ignore their gut feel that something is amiss in our nation’s trade policy, and shoulder the blame themselves.  “The experts say that all this free trade is a good deal – that it’s really helping my standard of living, or should be.  Maybe they’re right.  Maybe it’s me.  I guess I’m just not good enough.  Maybe I need to go back to night school and get some job re-training.” 

Bull.  Trust your gut feeling.  Our whole country is being played for fools by the global corporations and by nations like Japan, Germany, Korea, Mexico and China.  We’re being scammed – played for suckers.  Aren’t you sick of it?  Isn’t it time to get angry and demand some changes?  

“It’s an understandable view: how, after all, can it be a good thing for American workers to have to compete with people who get paid seventy cents an hour?” … But there’s a problem with this approach: the very people who suffer most from free trade are often, paradoxically, among its biggest beneficiaries.

Here Mr. Surowiecki perpetuates a myth about trade that doesn’t stand up to close examination.  Of our top 20 per capita trade deficits in manufactured goods (the deficit divided by the population of the nation in question), only 2 of the top 10 are with nations whose per capita GDP is less than $20,000 per year.  But 9 of those top 10 are with nations much more densely populated than the U.S.  They’d like for you to believe that it’s a matter of low pay because that offers hope that the trade deficit will shrink as their incomes rise.  They don’t want you to know about the population density effect because tariffs offer the only hope of eliminating a trade deficit in that situation.   

“… free trade with poorer countries has a huge positive impact on the buying power of middle- and lower-income consumers—a much bigger impact than it does on the buying power of wealthier consumers. The less you make, the bigger the percentage of your spending that goes to manufactured goods—clothes, shoes, and the like—whose prices are often directly affected by free trade. … In a recent paper on the effect of trade with China, the University of Chicago economists Christian Broda and John Romalis estimate that poor Americans devote around forty per cent more of their spending to “non-durable goods” than rich Americans do. That means that lower-income Americans get a much bigger benefit from the lower prices that trade with China has brought.

Unbelievable.  Here again is one of their “single variable” equations.  Low prices = better life.  They think you’re too dumb to ask “What happened to the income that I need to pay those prices?”  If the effect of trade is to drive down your income by 50%, what does it matter if all of the junk from China costs 10% less than you’d pay otherwise?  This is the carrot they use to lead you down the path of the downward spiral.  They lower your income faster than prices and try to salve the wound by high-lighting only the lower prices.  Still can’t afford them?  Well then, I guess we need more “free” trade to make the prices go down even more! 

In the meantime, the corporations make a killing and divert a small percentage to fund their lobbyists, to buy influence with our elected officials, and to sponsor “think tanks” that will think exactly what they’re paid to think – that our trade policy benefits all of us. 

Come on, America, trust your gut, not the bought-and-paid-for “economists.”

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