Economic Alchemy

This linked opinion piece, written by Burton G. Malkiel, a Princeton economist,  appeared in the Wall Street Journal last week as the “buy American” provision of the economic stimulus bill was being hotly debated.  I don’t disagree that plunking a “buy American” provision into the stimulus package is a poor way to enact trade policy.  It would be much better to address the overall trade problem with a simultaneous, but separate program to eliminate the trade deficit.  But the guy then lapses into the same lame defense of unfettered free trade employed by so many other of his like-minded shills of primitive, 18th century trade philosophy, and I just couldn’t let it pass without comment.

Here’s how he begins:

Suppose that we did not allow free trade between the 50 American states. Citizens like me in New Jersey would be far worse off if we could not buy pineapples from Hawaii, wine and vegetables from California, wheat from Kansas, and oil from Texas and Louisiana while we sell pharmaceuticals to the rest of the country. The specialization that trade makes possible allows all of us to live better.

Yes, people in New Jersey are much better off because of free trade with the other states.  New Jersey can’t produce pineapples, oil, wine or vegetables (at least in sufficient quantities to feed N.J.’s huge population).  But pharmaceuticals can be made anywhere.  How does the rest of the country benefit by trade with New Jersey?  They don’t.  Being the most densely populated state in the country – more densely populated than India – New Jersey has virtually nothing to offer the rest of the country except a badly bloated labor force. 

Then, like other economists, he takes the example of the U.S. and applies the twisted logic to the rest of the world:

The situation is the same with respect to world trade. Both we and the Chinese are better off if we can import inexpensive clothing from China and sell them large-scale computers and data storage equipment.

To be sure, such trade does not make everyone better off, and that is why free trade is often a tough sell, especially during times of hardship.

His comparison of clothing made in China to American made super-computers seems downright disingenuous.  If clothing was all we bought from China, he might be right, but he conveniently ignores the fact that virtually every consumer item we buy is made there – not just clothing but electronics, appliances, toys, auto parts, tools, household furnishings – everything!

Then, like the other barkers for free trade, he resorts to playing off American consumers against American workers, counting on the fact that we’ll forget that we’re actually one and the same:

If I am a textile worker whose job is lost because Chinese imports have caused my factory to close, I feel the pain far more acutely than consumers feel the benefits of cheap clothing. The pain tends to be localized while the benefits are spread broadly. No one person’s benefit can compare with the loss felt by the textile worker. But the total benefits do exceed the costs. And competitive markets have spurred the innovation revolution that has made the U.S. the economic powerhouse that it is.

He ignores the fact that those textile workers (and all of the millions of manufacturing workers that he has conveniently failed to mention), now without jobs, put downward pressure on everyone’s wages by contributing to an over-supply of labor.  Sure, everyone gets to buy their clothing at lower prices, but that benefit is more than offset by lower incomes. 

But never fear!  Economists always have an “out” to blunt your anger at losing your job.  They’ll retrain you because, until now, unlike the brilliant labor force in China, you’re too stupid and useless to function in the global economy.  But what will they retrain you to do?  Where is the huge demand for labor that is going unmet because Americans are too dumb to do the job?

The solution for the displaced worker is job retraining and adjustment assistance, and to improve the safety net available to displaced workers during the transition period. We also need to revamp our educational system so that it prepares workers for the jobs that are available today — and imparts the flexible skills that make our citizens ready for the future jobs that we cannot even imagine.

Of course!  Silly me!  I forgot about that enormous, magical source of jobs – the “future jobs that we cannot even imagine!”  And what, exactly, are “flexible skills?”  Folks, falling back on this kind of “logic” is nothing more than economic alchemy.  The other sciences abandoned this kind of thinking at the end of the middle ages.  If I were the parent of an economics student at Princeton, I’d be outraged at paying big bucks for my kid to be taught such hocus-pocus.

Malkiel and his free trade colleagues could benefit from some remedial math so that they might understand the basics of a balance sheet, the difference between a deficit and a surplus and the consequences of an imbalance in the supply and demand equation for labor.  In the meantime, here’s a suggestion:  let’s fix our trade policy and bring back those boring old, high-paying manufacturing jobs until those wonderful jobs of the future that we can’t even imagine actually materialize.


2 Responses to Economic Alchemy

  1. Clyde Bollinger says:

    My response to the above was “What the he** will the displaced worker be trained for? Jobs are going away, not waiting for capable workers. And just what is this “transition period”? Our economy is bleeding to death because of our idiotic trade policy which actually includes incentives to ship jobs offshore. Until we turn the ship around and eliminate the trade deficit things are likely to worsen.”

    So far I’ve gotten no response.

    • Pete Murphy says:

      I’m sure that, if pressed, this economist would respond that we need to retrain workers for the sectors of the economy that are still hiring – like health care and the government – ignoring the fact that, while these sectors may be hiring thousands of workers, the unemployed number in the millions.

      I’m not surprised that you didn’t get a response.

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