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Trump’s Economic Ignorance Costing the U.S. Jobs

The hallmark of a good economist is to see that which is not seen. This was the topic of Frederic Bastiat’s essay, “That Which is Seen, and That Which is Not Seen” first published in 1850.

In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects. Of these effects, the first only is immediate; it manifests itself simultaneously with its cause — it is seen. The others unfold in succession — they are not seen: it is well for us, if they are foreseen. Between a good and a bad economist this constitutes the whole difference — the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee. Now this difference is enormous, for it almost always happens that when the immediate consequence is favourable, the ultimate consequences are fatal, and the converse. Hence it follows that the bad economist pursues a small present good, which will be followed by a great evil to come, while the true economist pursues a great good to come, — at the risk of a small present evil.

The first example that Bastiat gives of this phenomenon is the broken window fallacy. Bastiat correctly points out that while it seems like the young lad breaking the window creates economic activity this is highly misleading in that the money that is spent on the window would have likely been spent on some other good. If the cobbler was going to spend the money on buying more materials for fixing/making shoes, now he cannot as he has spent the money on a broken window. Thus, there is no net gain in terms of economic activity.

The same can be said about President Trump. Trump has withdrawn from the Trans Pacific Partnership under the belief that it would have cost jobs. Lowering of trade barriers will change the patterns we observe in terms of business and exchange. However, also very likely that retaining those barriers will prevent new jobs from being created. Take for example, this story in the Dallas Morning News, It’ll be ‘Brexit times 100,’ disaster for Texas, if Trump makes good on trade promises. Down near the bottom we find this,

Richard Thorpe, president of the Texas and Southwestern Cattle Raisers Association, said that the group was “very, very, very supportive” of Obama’s TPP.

Nationally, he said, cattle ranchers export about 13 percent of their animals. And of that, more than $1.6 billion worth was in sales to Japan, where an appetite for beef makes the country a tantalizing market.

The agreement would have lowered tariffs — or taxes on American-raised cattle sold in Japan — from 38.5 percent to 9 percent, Thorpe said.

Reducing the tariffs to U.S. Beef would undoubtedly result in more U.S. beefing being exported to Japan and would help the U.S. balance of trade. This would mean more jobs in cattle ranching, meat packing, and the logistics to move the beef from Texas to Japan. Now, because the U.S. has withdrawn from TPP it is unlikely these jobs will materialize. But Trump and his administration will not notice because they appear to be incapable of reasoning in this way.

Yes, it is possible that TPP would also cost jobs. If another industry is more efficient in Japan or some other country participating in TPP, then with the reduction in trade barriers production would shift to the most efficient country. But even that is not simply a cost like Trump and his administration claim.

With those trade barriers in place the U.S. is producing certain goods at a higher cost and thus selling them to U.S. consumers at a higher price. That is, the trade barriers are acting as a subsidy for the inefficient industry and it is being paid for by the American consumers. And this in turn hampers the creation of other jobs. Suppose that the trade barriers were removed. U.S. consumers would see lower prices. This is not unlike U.S. consumers getting an increase in income….which they could spend on other products they were previously unable to purchase due to the trade barriers essentially lowering their purchasing power.

Yes, this is not a nice and neat process. Some people in the adversely affected industries will adapt and move on. Others will be less capable of adapting. But setting policy to protect the jobs of those who cannot adapt places the burden on pretty much everyone else. And trying to “Make America Great Again” by propping up inefficient industries via indirect subsidies is not going to work. It will make American poorer over time, not better off. And this process of job creation and destruction is not limited to just trade between countries. Technological advancement destroys quite a few more jobs than trade. Mechanization of farming has probably destroyed millions of jobs, if not tens of millions of jobs. Around 1900, about 40% of the working population worked in agriculture. Now it is about 2%. Did all those jobs go to China or Japan or some other country? Hardly, the U.S. still produces massive amounts of food. All those jobs moved to a country called Productivity Gains.

So why should jobs lost to trade be treated any differently than jobs lost to productivity gains or changes in consumer preferences. After all, it used to be fashionable for men to wear hats when going out. But sometime after WWII that fashion changed. Now some men wear hats, usually baseball style caps, but the days of the fedora are gone….and with it all of the jobs in that industry. Why are those workers any less deserving of help than the guy whose job has gone over to China or Indonesia or Mexico?

The point is the economy is really more of a process. A process that is not unlike evolution. That as new technology comes along, changes in preferences, and other innovations, firms come and go, industries rise and fall and things change. And it is hard to determine how things will change ex ante. What will be the next cost saving innovation for say, bulk retailers? Don’t worry, that is a rhetorical question. There are lots of potential answers, but picking the winner ahead of time is not easy. If it were easy, we’d all know what the answer is. Trying to stop this evolutionary process in the economy is foolhardy. Trying to set up institutions and ways to help people deal with these changes is likely a better strategy than trying to stop the process dead in its tracks. And that is what Trump is trying to do and we’ll end up being poorer for it.

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About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research.

Comments

  1. Skookum says:

    Obama’s administration never could explain the ACA or TPP in terms that non-experts could understand. Many great accomplishments, but we need an Explainer-in-Chief to help us deal with the complexities of the modern world. Trump is like the generals who fight the next war like the last war, rather than envisioning how to succeed in the future.

    Like or Dislike: Thumb up 2 Thumb down 0

  2. al-Ameda says:

    @Skookum:

    Obama’s administration never could explain the ACA or TPP in terms that non-experts could understand.

    I agree with you.
    Plus, Americans don’t do complexity very well, especially these days. Trump simplified TPP for Americans, no complexity whatsoever: ‘Bad Deal!’ ‘Job Losses!’

    It’s hard to compete with that, especially among people who have no interest in facts that free trade generally increases employment and economic growth. An unemployed auto-parts manufacturing worker believes that ‘free trade’ took his job and moved it to Mexico. Multiply that by a few hundred thousand American workers and you have a big ‘messaging’ problem if you’re Obama.

    Like or Dislike: Thumb up 8 Thumb down 0

  3. michael reynolds says:

    Steve:

    Very well-written piece. Even I managed to understand it, and with not nearly enough caffeine in my system.

    Like or Dislike: Thumb up 6 Thumb down 0

  4. Ben Wolf says:

    Economies are not processes. They are political constructs embedded within society and shaped by societies laws. Nor does history agree with the Verdonite neo-liberal wing’s trade ideology. The U.S. experienced its fastest rates of per capita income growth and technical innovation during its period as the most protectionist country in the world.

    The argument trade must always be a net benefit rests on a series of dubious assumptions:

    1) That trade agreements aren’t written by specific groups to benefit their specific interests. Hence in Verdonia a wealthy rancher who can influence negotiations benefitting his profits is an “adaptor” while the mother of three losing her job because she can’t hire an expensive lobbying firm is “non-adaptive.”

    2) The losers will somehow be compensated by the winners. That doesn’t happen in America.

    3) The capital machines of firms and skills of workers losing out can immediately be switched to other productive roles without loss. This is unrealistic as machines are rarely useful across industries and worker skills are usually not transferrable. A period of capital reformation and worker retraining (which we do not do well in America) would be necessary and the delay creates unemployment. Rather thsn being efficiently recycled the worker more likely ends up in a lower paying and lower skilled job.

    4) The best estimates of the TPP suggested a GDP improvement of .5% or less because trade barriers have already been mostly eliminated. In fact only on chapter out of 20+ (depending on the draft) of the TPP was about trade. The rest were about expanding copyright and patents, forcing other countries to charge their citizens higher drug prices and grossly expanding capacity of corporations to sue governments into compliance when some inconvenient law stopping them from killing people interfered with profit expectations.

    5) The TPP once again exempts white-collar professionals from the same market competitions to which blue-collar workers are exposed. Standards for substituting factory labor in Bangalore for labor in North Carolina are negotiated yet standards for substitution of doctors and lawyers are not. In America the wealthier classes are given socialism while others receive rugged individualism.

    Makes sense why right-libertarians were in love with TPP. Less so why Democrats were snuggling with it.

    Like or Dislike: Thumb up 11 Thumb down 0

  5. michael reynolds says:

    @Ben Wolf:

    The U.S. experienced its fastest rates of per capita income growth and technical innovation during its period as the most protectionist country in the world.

    1 + 1 = 2, a 100% increase. 2 + 2 = 4, also a 100% increase. But pretty soon to achieve 100% growth you’re adding numbers greater than the GDP of planet earth, no? Isn’t that the famous story of the grains of rice? So, does it make sense to extrapolate from a very early time of a very undeveloped economy to the present day? Japan also grew with a protectionist system, a system which is still protectionist but has not resulted in continuing growth. We regularly outperform Japan in growth, despite being less protectionist than they are.

    The losers will somehow be compensated by the winners. That doesn’t happen in America.

    Really? We don’t have medicare, medicaid, welfare in all its various forms? We don’t have unemployment insurance? Subsidized education? Social security benefits for working poor that are greater than what they’ve put in, but less than what the wealthy have contributed? One can fairly argue there should be more, but it’s just not true that we don’t compensate the losers. The social safety net is that compensation.

    In fact only on chapter out of 20+ (depending on the draft) of the TPP was about trade. The rest were about expanding copyright and patents

    I’m confused. How is that not about trade? I sell IP into various countries – they get a product, I get money. That is trade, right? If I were to write an app rather than a manuscript, or make a movie and sell it into Germany, how is that not trade? And really, isn’t doing a paragraph/page count kind of a superficial way to judge? “Thou shalt not kill,” is the shortest of the commandments, but I don’t think rational people would suggest that it is the least important part.

    Like or Dislike: Thumb up 8 Thumb down 1

  6. Ben Wolf says:

    @michael reynolds:

    1 + 1 = 2, a 100% increase. 2 + 2 = 4, also a 100% increase. But pretty soon to achieve 100% growth you’re adding numbers greater than the GDP of planet earth, no? Isn’t that the famous story of the grains of rice? So, does it make sense to extrapolate from a very early time of a very undeveloped economy to the present day? Japan also grew with a protectionist system, a system which is still protectionist but has not resulted in continuing growth. We regularly outperform Japan in growth, despite being less protectionist than they are.

    Japan today is much less protectionist than it was thirty years ago and is growing much less rapidly now than it was during its protectionist phase following WWII. Globally, growth has fallen in the neoliberal free-trade period, the exact opposite of what its propagandists and prophets assured us would happen. If trade agreements don’t meet their promises then what are they for?

    Really? We don’t have medicare, medicaid, welfare in all its various forms? We don’t have unemployment insurance? Subsidized education? Social security benefits for working poor that are greater than what they’ve put in, but less than what the wealthy have contributed? One can fairly argue there should be more, but it’s just not true that we don’t compensate the losers. The social safety net is that compensation.

    Medicaid, Medicare and other social insurance programs have not nearly kept pace with the losses in incomes experienced by the working classes. Stringing them along at near-starvation levels of income isn’t compensating them for the losses, it’s concentrating the gains among the presumed “winners.”

    I’m confused. How is that not about trade? I sell IP into various countries – they get a product, I get money. That is trade, right? If I were to write an app rather than a manuscript, or make a movie and sell it into Germany, how is that not trade? And really, isn’t doing a paragraph/page count kind of a superficial way to judge? “Thou shalt not kill,” is the shortest of the commandments, but I don’t think rational people would suggest that it is the least important part.

    Trade is my commodity for your commodity. My asset for your asset. Freer trade means reducing barriers like tariffs, quotas and licensing requirements. IP is about who controls resources and who controls the profits. Giving you more control over your content in Germany for longer periods of time doesn’t generate any additional social gain, which is what trade is supposed to do. You may gain personally but the Germans don’t get any more pages in the books from the deal.

    It’s the same with a landlord demanding you pay higher rent. You aren’t getting any more apartment out of the deal.

    Like or Dislike: Thumb up 3 Thumb down 0

  7. Dave Schuler says:

    It’s even more complicated than that, Steve. The best calculations available of the net benefit realized by the U. S. as a consequence of NAFTA are that the U. S. economy realized an additional .08%. Yes, that’s an increment but it’s a derned small increment: 8 parts per 10,000. My post on this subject is here but I was largely just citing a post by economist Dani Rodrik. Mexico had a slightly larger net gain while Canada actually suffered a net loss.

    And the increment the U. S. realized was not evenly shared by all Americans. A few realized great benefits; most didn’t see any benefits; some were greatly injured.

    I’m not a foe of free trade—I support it. But the agreements we’ve been entering into don’t effectuate free trade. They’re very carefully constructed to pick winners and losers. I think that if we’re picking winners and losers there should be a lot more winners and a lot fewer losers. So, for example, as part of the empowering legislation behind these trade agreements there should be some Pigouvian taxes that tax the winners, distributing the proceeds to all Americans rather than just the lucky few. Said another way, rent-seeking is not the mark of an efficient industry but it may well be the mark of those who benefit by trade pacts that pick winners and losers.

    Like or Dislike: Thumb up 9 Thumb down 0

  8. Ben Wolf says:

    @Dave Schuler:

    It’s even more complicated than that, Steve. The best calculations available of the net benefit realized by the U. S. as a consequence of NAFTA are that the U. S. economy realized an additional .08%.

    Correct. Trade between the U.S., Canada and Mexico was already liberalized in the preceding decade. NAFTA was much more about liberalizing capital flows in favor of Wall Street than it was about free movement of goods and services.

    Like or Dislike: Thumb up 3 Thumb down 0

  9. michael reynolds says:

    @Ben Wolf:

    Japan today is much less protectionist than it was thirty years ago and is growing much less rapidly now than it was during its protectionist phase following WWII.

    Oh, come on, that’s weak. You think minimally decreased protectionism is the reason Japan doesn’t keep doubling its economy compared to the post-war period? You’re extrapolating from very unusual times to reach conclusions. China’s economy doubled in about a decade. Do you think it can go on doubling every ten years? That’s a mathematical impossibility. Dramatic growth spurts inevitably level off.

    Giving you more control over your content in Germany for longer periods of time doesn’t generate any additional social gain,

    It does, actually. If I sell book 1 into Germany and it does well, I may sell them book 2. If I have no ownership of my IP the sale never takes place to begin with because I have no motive to create the product to begin with. Some of my income from IP I use to pay others to create more IP directly (for example if I hire a ghostwriter), or my business partners (publishers) may use their profit to support the creation of more IP.

    These attacks on copyright are over-the-top. I make 100% of my income from copyright, and of that income 50% goes to taxes which in turn buy medical care or welfare for others. No copyright = no income = no taxes = no safety net. Now, can we talk about extent and duration of copyright? Absolutely. But without copyright IP has no value and if it has no value it doesn’t get made.

    But what’s the right duration for copyright? If I start writing a continuing series in the year 1 and I’m still adding new books in year 10, should I have lost copyright protection at year 2? If so, the value of books produced in years 3 through 10 drops dramatically, which steps all over my motivation, because part of writing that 10th book is to sell books 1-9 as well. So those books don’t get produced. Indeed book 1 may not be produced because looking ahead I cannot hope to see as much income.

    Like or Dislike: Thumb up 3 Thumb down 0

  10. michael reynolds says:

    @Ben Wolf:

    It’s the same with a landlord demanding you pay higher rent. You aren’t getting any more apartment out of the deal.

    If rents in Marin County have gone up (and sweet Jesus have they ever) it’s because there are willing renters able to pay. The market establishes the price of a property. If the place I rent for $1 in the year 2000 is worth $2 in 2010 by what logic am I entitled to go on paying $1? It’s the same house but unless you believe in a static state it’s a house of different value.

    If I’m a landlord and I know that whatever happens to property values I can never raise the rent, why the hell would I get into that business?

    Like or Dislike: Thumb up 1 Thumb down 0

  11. Dave Schuler says:

    @michael reynolds:

    There are other reasons that rents in Marin could go up. For example, zoning laws or other ordinances could prevent additional building. I don’t know whether it’s the demand side, the supply side, or both that boosts rents there.

    Like or Dislike: Thumb up 2 Thumb down 0

  12. Not the IT Dept. says:

    Off-topic but: Michael Reynolds, you’re one of my fave commenters but I can’t help noticing that you seem really cranky the past couple of days. Is everything all right?

    Like or Dislike: Thumb up 6 Thumb down 0

  13. Moosebreath says:

    Somewhat off topic, but this was a good article in this morning’s paper on regulations, which are also likely to be a cost incurred from Trump’s economic ignorance:

    “If much of the housing bubble’s costs had been prevented, we couldn’t point to the huge costs of under-regulation to prove the benefits of regulatory restraints. It’s hard to argue what would have happened if it didn’t happen.

    We under-regulated the mortgage market, and the result was an economic disaster. The alternative would have been to “over-regulate” the industry, restrain the housing market and economic growth, and prevent the bubble from getting so large. But to this day, individuals, businesspeople, and politicians would still be moaning about too much regulation. Looking back, which would you have preferred?”

    Like or Dislike: Thumb up 4 Thumb down 0

  14. michael reynolds says:

    @Not the IT Dept.:
    Hmmm, thank you and I may well be a bit cranky, but I’m in about as good a mood as I ever am when on book tour. (London, Glasgow, Edinburgh, Newcastle, then Cyprus for, ahem, research.) Sad as it is to admit, book tour is the hardest part of my job. Yes, flying business, sitting in four star hotels, drinking on the company tab and speaking to hundreds of admiring kids is the hard part, largely because I’m not working and I’m away from my wife. I’m not being cute when I describe myself as a workaholic.

    But thus gently chided I will endeavor to return to my usual good humor. Some goddamned sunlight would be helpful in that regard.

    Like or Dislike: Thumb up 11 Thumb down 0

  15. Pch101 says:

    @Ben Wolf:

    IP is about who controls resources and who controls the profits.

    IP gives people an incentive to create.

    If people can’t get paid for their work, then they’ll do less work.

    That’s why places such as Cuba and the old Soviet Union have been economic basketcases — most people do the bare minimum when there is no payoff for making an effort.

    One of the wisest thing that the US founders did was to include patent protection in the Constitution. Ideas can be powerful, but people with ideas need to be able to monetize their work.

    Japan’s neo-mercantilism topped out when Japan lost its ability to arbitrage wages and rapidly expand its markets. A high-tariff regime can work when its economy is growing, but it doesn’t work for a mature economy that would benefit from lower cost imports. Trump is trying to turn the United States into the Japan of North America, and nobody should want that.

    Like or Dislike: Thumb up 2 Thumb down 0

  16. Dave Schuler says:

    @Pch101:

    IP gives people an incentive to create.

    The issue is quantitative not qualitative. When the copyright terms were extended in 1998, you’d expect the number of copyright filed to increase. They didn’t. They decreased.

    Like or Dislike: Thumb up 2 Thumb down 0

  17. steve says:

    On principle I think trade is almost always good, but I think we keep ignoring problems that it creates. The gains may be limited to very few people, as Dave and others have noted, and it is not always a given that those displaced will go on to gainful work. Yes, many farmers were displaced with the changes in agriculture. However, back then they could go on to a factory job with no extra training. What happens when you lose your job now? The low skilled jobs are gone or given to illegals who work cheaper. You need to retrain for the higher skilled ones if you can’t find one in your own area that has not gone away yet. If this happens in your 50s, you likely never get another decent job in your life unless you are lucky.

    To make things worse we just don’t have a good solution for those in their 50s. The conservatives believe they should pull themselves up by their bootstraps. Libertarians believe that markets are magic and something wonderful will happen, when clearly it hasn’t. Liberals create programs to help soften the blow, but really, these 54 y/o guys mostly want the dignity of having a job again.

    Steve

    Like or Dislike: Thumb up 3 Thumb down 0

  18. Pch101 says:

    @Dave Schuler:

    When the copyright terms were extended in 1998, you’d expect the number of copyright filed to increase

    Not necessarily. It’s unlikely that creative people will become more creative simply because of the term of copyright.

    On the other hand, when a writer can’t make a living from writing or a composer can’t earn an income from composing because there is no IP protection at all, then we will end up with less creative output because most of those people will end up doing something else and/or they will create less because it is only a labor of love. Those people need to at least have some chance to monetize their work.

    Like or Dislike: Thumb up 0 Thumb down 2

  19. Dave Schuler says:

    @Pch101:

    Could you reconcile these two statements for me?

    IP gives people an incentive to create.

    and

    It’s unlikely that creative people will become more creative simply because of the term of copyright.

    Given the empirical facts it seems to me that either copyrights are an ineffective way of incentivizing creativity or they’re an inefficient way of incentivizing creativity.

    I don’t think the issue is whether we have no copyright protection at all. For nearly a century the trend has been towards extending copyrights ever farther. IMO the preponderance of the evidence suggests that extremely long copyright terms of the sort we have now does not provide incentives to creators that would not be provided by shorter terms but do provide a subsidy to corporate copyright owners.

    Like or Dislike: Thumb up 2 Thumb down 0

  20. Pch101 says:

    @Dave Schuler:

    Given the empirical facts it seems to me that either copyrights are an ineffective way of incentivizing creativity or they’re an inefficient way of incentivizing creativity.

    The vast quantities of creative work that are available today contradict that point.

    Like or Dislike: Thumb up 0 Thumb down 2

  21. michael reynolds says:

    @Dave Schuler: @Pch101:

    I’ll tell you what would be helpful for IP creators is a more rational system for negotiating IP rights. I’ve been stopped dead in my tracks from pursuing a project because of the sheer idiocy of trying to get permissions to quote song lyrics. It seems silly but there is no easy way to do it, and no logic to the system. I was talking to a writer the other day who wanted to quote a snippet of Bob Dylan lyrics and after endless b.s. he gets permission – if he pays 50,000 GBP. I’ve had similar experiences. Paul Simon gave permission – two years after I’d given up and gone to print.

    The network of laws varies wildly by country and even by individual corporate interpretations. My publisher won’t let me use anything without permission, a buddy’s publisher has a wider interpretation of fair use so he can quote small snippets which then have to be redacted for the UK. This is nuts. I’m happy to pay a few bucks, but I’m not happy to waste hundreds of hours looking for permissions. I’m not uncritical of the copyright laws, but someone needs to negotiate reasonable terms across major markets.

    Of course the people driving the laws and treaties aren’t individual creatives but big corps like Disney and Fox.

    Like or Dislike: Thumb up 2 Thumb down 0

  22. MBunge says:

    Just so we are all clear on this IP argument.

    If an assembly line worker’s ability to profit from his own labor is threatened by technology…SCREW THAT GUY!!! He should just hurry up and die if he can’t adapt himself to the new order.

    If a writer’s ability to profit from his own labor is threatened by technology…THAT IS AN OUTRAGE!!! How dare anyone alter that economic status quo.

    As for Mr. Verdon’s fanatical blather, there’s only one appropriate response. Free traders like him have been running the U.S. economy for a couple of generations now. NAFTA, in particular, was established at the start of 1994. Which means that even giving it a few years to get really going, we should now have almost 20 years of indisputable economic numbers and facts on NAFTA’s performance. Where were those numbers in Mr. Verdon’s post?

    Surely the most effective and persuasive argument in favor of free trade is to simply list its many obvious and self-evident benefits. Past performance may not guarantee future results but it has to be a lot better than empty theory.

    Yet even after generations of real world results, free traders still overwhelmingly deal in empty theory. They tell us what free trade might do while studiously ignoring what is has done. Partly that’s because they are intellectually dishonest and those actual results are more mixed at best than they want to admit. Partly, though, it’s because they don’t care about the results of their policies any more than the Communists did.

    I would think the fact that someone like Donald Trump could get elected President, at least in part, by explicitly attacking the free trade ideology would be clear and incontrovertible evidence that something has gone drastically wrong with that ideology. Repeating empty theories does not seem like an appropriate or effective response.

    Mike

    Like or Dislike: Thumb up 3 Thumb down 6

  23. michael reynolds says:

    @MBunge:

    Which straw man said “screw that guy?”

    Like or Dislike: Thumb up 4 Thumb down 1

  24. Gustopher says:

    Free Trade agreements may be net positive for the economy, measured in GDP, but that’s really the wrong metric to be considering — we need to be looking at jobs gained vs. jobs lost, and factoring in the retraining costs, and the cost of the negative disruption in people’s lives.

    Losing one’s job is one of the big stressors in life, and if whole industries are being affected, this means the job losses are the most stressful possible — requiring higher disruption like retraining, moving, taking a lower paying job, etc.

    Measuring jobs gained divided by jobs affected, or setting the break even point at 2 jobs gained for each one lost (for different values of 2 — 1.4 might be the right number, or 3, but something greater than one) would be better. We need to capture the costs of disruption.

    The government should be managing the economy for the benefit of the people, rather than for the benefit of the economy itself.

    Like or Dislike: Thumb up 3 Thumb down 0

  25. Gustopher says:

    @michael reynolds: Before we had strong copyright laws, folk music was flourishing, with different performers borrowing parts of other performers work, and verses and refrains would wander from song to song. New sets of lyrics would appear for existing tunes (Woody Gurthrie was a big fan of this — but now we would ask whether setting a song about Jesus being a communist to the tune of Jesse James transformative, satire, fair use, or just a lawsuit waiting to happen).

    Like sampling, but more so.

    Copyright changed the art form, and made it a lot less rich, vibrant and interesting. And something that was part of the common culture was privatized and taken away from the culture. Bob Dylan’s “Love and Theft” is an amazing album pulling from countless sources to create something new, but the vast majority of those sources are from before the first appearance of Mickey Mouse. He couldn’t do something like that with 1980’s New Wave if he wanted to.

    On the other hand, we don’t have to hear “Why does the tall pine cry?” or about some god damned mockingbird in every third song.

    Copyright and licensing affects things beyond the artists income. Lifetime of the author plus 75 years is probably too long, and it probably should depend on the type of artwork, whether it remains available commericially and whether it is still in use — a novel being more protected than a performance of a song, and a performance longer than the words or the tune, and Superman and Mickey Mouse being perpetually maintained corporate icons.

    Like or Dislike: Thumb up 2 Thumb down 0

  26. Steve Verdon says:

    @Ben Wolf:

    1. Nope, never wrote anything indicating that.
    2. Nope, never wrote anything indicating that either.
    3. Nope, never wrote anything indicating that either.
    4. We do need considerable reform on IP laws, they are likely hindering growth now.
    5. White collar jobs are coming under pressure all the time. What happened to computers, not the thing sitting on your desk silly, the people who would compute. They were replaced by technology.

    Oh, and Ben, you really should watch out for the post hoc ergo propter hoc reasoning. Yes Japan is having slow growth? Is it because they became less protectionist…or because they had a financial crisis and responded rather badly to it?

    Like or Dislike: Thumb up 2 Thumb down 1

  27. Steve Verdon says:

    @Dave Schuler:

    I find Rodrik’s post very frustrating. He too seems to have fallen for post hoc ergo propter hoc like dear Ben.

    The U.S. entered NAFTA, there has been productivity stagnation…and that is about it leaving it to the reader to try and figure out if there is some sort of connection, which there probably isn’t. See my previous comment about IP law in the U.S.

    Oh and that 0.08% was NOT GDP. but welfare gains…based on the utility function they assumed to be true.

    Also, in their model labor is labor is labor….not very good assumption if you ask me. Ironically they let intermediate goods vary from market to market, but not labor…go figure.

    You can read the article Rodrik is talking about here. It is an awesome article if you love mathematical models, but I’m far from enthralled with those models.

    Color me far from convinced.

    Like or Dislike: Thumb up 1 Thumb down 1

  28. Steve Verdon says:

    @Ben Wolf:

    Actually the increases in the volume of trade indicated in the paper you are indirectly referencing say, “No.”

    That 0.08% gain for the U.S. was a gain in “welfare”–i.e. it is the improvement in a welfare function that cannot be easily re-written here due to all the mathematical symbols used.

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  29. Steve Verdon says:

    Why might the U.S. see a 0.08% increase in welfare due to NAFTA? How about the amount of goods consumed by Americans produced in Mexico are, as an overall share of the economy, small? Consider a good that has N inputs. The overall good costs, $1,000. Suppose the price of an input goes from $5 to $10 a 100% increase. What might we expect the price of the final good to move to? $1,005? Wow, that 100% increase in one input resulted in 0.5% increase in the price.

    And again, welfare? Those two guys know my utility function? Amazing! I don’t even know what my utility function is.

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  30. Steve Verdon says:

    And one last comment, over at Cafe Hayek I have been watching Don Boudreaux post several articles looking at the effects of trade on various parts of the economy. It started with an article by Autor, et. al. and there were at least 2 other articles. Each coming up with different conclusions.

    The point here is that when it comes to empirical work…it is rarely if ever definitive. Further, given the replication issue in peer reviewed research…take those articles with a can of Morton’s Salt.

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  31. grumpy realist says:

    @michael reynolds: If you’re in England, good luck…plus you’re so far north the damn daylight doesn’t exist for that long. And we thought New England winters were bad….

    I was in London for a year and a half and kept taking vacations in Belgium (!) to see the sun….

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  32. grumpy realist says:

    P.S. I’d write an unbelievably long rant about IP if I had the time, but just pretend you saw it. Copyright, patent trolls, idiocy at the USPTO, injunctions against trademarks, etc. etc. and so forth.

    Let’s just put it this way: the system is why people like me exist.

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  33. Joe says:

    @michael reynolds: The licensing problem IMHO lies someplace between your publishers in particular and lawyers in general. As a copyright licensing lawyer (which is part of my practice), I can advise a lot of authors that your quiote or allusion should not draw liability – whether for fair use of some other reason – but I cannot guarantee that it won’t draw a claim because I can’t control what other authors/lawyers will attempt to protect.

    Publishing companies are averse even to drawing claims and therefore tend to stay five steps behind the line. Asking for permissions you don’t necessarily need is a prudent insurance policy (and deferring to paying other artists feels like a good idea), but it ends up giving artists and their lawyers an inflated/expanded view of their own rights.

    @Gustopher: refers to earlier eras when borrowing was more accepted. I don’t think it was just because copyright laws were weaker, but also because expectations to make claims were much lower – and therefore claims made were many fewer. Woody Guthrie’s Ballad of Tom Joad, written after watching the movie, Grapes of Wrath, was a clear infringement on both the movie copyright and the underlying book, but I am not aware that any rights holder pursued Guthrie on it. Perhaps they just weren’t fans and never heard the song, but I think that it was simply culturally less likely that book authors and movie studios were going to bother to chase down itinerant folk song author/singers.

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  34. Joe says:

    Mbunge’s little erruption notwithstanding, I wish there were more strings like this one and fewer that devolved into name calling.

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  35. nickthap says:

    This has been a very good thread. My $.02 is that free-trade agreements had become necessary given the changing landscape of the world economy. The post-WWII economic dictated by the US started to fall apart post-Breton Woods. The recession and slump in the 70s here pretty much paved the way for free-trade, or, really, the inevitability of the US having to accept the upsides AND downsides of international trade. Pre-1970s, the US got all the upside and none of the downside. But after having to BY NECESSITY abandon Bretton Woods, we had to start making deals–because we had no other choice. We still don’t have any other choice, because other countries aren’t reliant on our finances as much as they were pre-1970.

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  36. grumpy realist says:

    @Joe: Heck, half of the fun of listening to Baroque composers is the stuff they cribbed off from each other and how each put his own unique twist on it.. And some absolutely beautiful arias wouldn’t have survived down to the modern day had a more famous composer (like Gluck) not filched them from more obscure composers. (The song Orpheus sings before setting off to Hades in Orpheo et Euridice is a prime example.)

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  37. gVOR08 says:

    There seems to be a fair amount of talking past each other here. A few random comments:
    – Free trade =/= trade agreement
    – Developing economies (e.g. the U. S. in the American System era) may legitimately want protection, developed economies do not want them to have it.
    – Inadequate compensation for the inevitable losers, mostly via the general purpose safety net, is indeed compensation, and is inadequate.
    – It’s easy to relocate to new jobs when there are new jobs. When there are not, the Joads have few options.
    – I have read that Obama pushed TPP less for economics than diplomacy, to maintain U. S. hegemony on the Pacific Rim. China is now pushing their own trade deals. The American Century died Jan 20.
    – One should distinguish whether one is arguing a thing is economically desirable or politically desirable.
    – Read Piketty on why we may have “secular stagnation”.
    – We have false dichotomies between, say, no IP protection and excessive IP protection.
    – Which straw man said “screw that guy”? Verdon, when he said, “So why should jobs lost to trade be treated any differently than jobs lost to productivity gains or changes in consumer preferences.”, although he later softened that.
    – And free trade =/= trade agreement.

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