“Compassionate” Protectionism

There's nothing compasssionate about protectionism.

In my post on mercantilism Micaheal Robinson has one the most up voted comments,

Because Montana and California are subject to the same minimum federal environmental protection standards, health and safety standards, labor standards, housing standards, etc.
The jobs that are going abroad are not going because those performing the jobs are more specialized or more efficient. Nobody is complaining about American jobs that have been lost to Germany.
They are going abroad because the work is being done by underpaid people working in unsafe and unhealthy conditions for employers who are easily able to evade the unpriced externalities of their operations due to corrupt and ineffective regulatory structures.
When “comparative advantage” becomes a synonym for “race to the bottom”, yes, expect a backlash.

Is there a problem with this view. Lets, consider for a moment what would happen if somebody like Bernie Sanders were to become President and have his way on foreign trade. President Sanders would make trade deals where the workers were paid a wage less than what he deemed acceptable would be effectively cancelled unless the wages of the workers were raised. What would likely be the result of such a policy? That the factor is closed down and all the workers fired. How exactly would that help the workers in that country. How exactly would having a wage rate of $0/hour be better than $x/hour where $x is less than the minimum wage in the U.S., but greater than $0/hour?

I know everyone will think I’m being just some sort of money grubbing jerk (even though I do not own such a business, although to be fair I might own shares in such a business via my 401k…but I have no idea). But maybe you should listen to Paul Krugman before he became a polemicist.

You may say that the wretched of the earth should not be forced to serve as hewers of wood, drawers of water, and sewers of sneakers for the affluent. But what is the alternative? Should they be helped with foreign aid? Maybe–although the historical record of regions like southern Italy suggests that such aid has a tendency to promote perpetual dependence. Anyway, there isn’t the slightest prospect of significant aid materializing. Should their own governments provide more social justice? Of course–but they won’t, or at least not because we tell them to. And as long as you have no realistic alternative to industrialization based on low wages, to oppose it means that you are willing to deny desperately poor people the best chance they have of progress for the sake of what amounts to an aesthetic standard–that is, the fact that you don’t like the idea of workers being paid a pittance to supply rich Westerners with fashion items.

In short, my correspondents are not entitled to their self-righteousness. They have not thought the matter through. And when the hopes of hundreds of millions are at stake, thinking things through is not just good intellectual practice. It is a moral duty.

What Krugman is saying here is basically what I have said. Implementing trade policy based on the U.S. standard of living will almost sure result workers in these countries being laid off. And since $x/hour where x is some non-zero number is better than $0/hour, the compassionate protectionism is not really all that compassionate. Further, that as the economic conditions in these countries improve over time, workers and voters, where democracy prevails, will demand better working conditions and better regulations. This is what we have seen in the U.S. an in other countries. As the wealth of countries increases their demand for “luxury” goods like increased environmental, safety and other regulatory outcomes will also increase.

Further, for the American worker and the American firms so affected it is nothing more than a welfare program. You can keep your job because we are forcing other Americans to pay super-normal prices for the goods you produce. You are not keeping your job because you are doing good or better work, you are keeping your job due to political fiat and the conclusion that you should be able to benefit at the expense of others. And these firms can continue to exist…well because some politician does not want to face the political backlash of not providing corporate welfare.

So, I do not find the “compassionate” protectionism of Bernie Sanders at all compelling from the standpoint of improving the lot of the poor in other countries. Nor do I find it a good long term plan for those in industries that are losing their competitive edge with foreign competition. The intention is good, but that is not sufficient. Good intentions do not have to lead to good policy and this is a wonderful example. What is the solution? For countries with unskilled labor I’d say do nothing, let the increase in wages over time work at inducing people in those countries to making changes in working and regulatory conditions. For workers here in the U.S. look for ways to mitigate the effects of jobs moving offshore that do not result in bad incentives in terms of work and retraining. Also, realizing that some worker are not going to find retraining worthwhile and possibly providing some sort of transfer program for such people. After all we do not want people to be working simply for the sake of working–work in an of itself is not a good thing, nobody likes work, at least in general.

FILED UNDER: Economics and Business
Steve Verdon
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. He joined the staff at OTB in November 2004.

Comments

  1. JohnMcC says:

    Mr Verdon, I did not read the post above because you have shown yourself to be such worthless human trash that you would silenced, exiled, shunned and reviled in even the most decrepit of trailer parks in Appalachia (and I speak from first hand experience). May you burn in hell forever and all your loved ones below you.

  2. Michael Robinson says:

    Steve, I do hope you’ll do your next post on “entitlement reform”.

  3. michael reynolds says:

    “Solitary, poor, nasty, brutish, and short.”

    We have convinced ourselves, because we live in the luckiest nation in world history, and because most of our nastiness and brutishness is safely in the past, that life is no long S-P-N-B-&-S, or at least that it need not be. And by golly, we’re going to insist on all the people of the world being no longer poor or nasty or brutish. (Short is still okay.)

    Which sounds excellent, but it’s really no different than deciding that because we enjoy democracy, Egyptians or Pashtuns would like some of that same dish. It’s imposing our priorities and our values and our expectations on societies which are not currently in a position to enjoy them.

    I believe in democracy, and in human rights, in equality under a system of laws promulgated by fairly chosen representatives. All the good stuff. Love it unreservedly. But we ignore the fact that neither we nor any other society simply popped up one day filled with virtue. It is a long evolutionary process.

    If homo sapiens is give-or-take 150,000 years old. The earliest civilization is about 8500 years ago, and we know basically fwck-all about them. In fact, our detailed knowledge of human history goes back arguably to Greece, but that is some sketchy stuff and full of holes. History isn’t even marginally reliable beyond a few centuries. A blink of an eye in the existence of h. sapiens. And the first labor laws are what, 19th century? So, historically-speaking, yesterday. Yesterday here. To much of humanity, they are still in the future. Along with safe drinking water.

    Slavery existed in the world for infinitely longer than minimum wage laws. Millennia vs. a handful of years. The conditions of work that seem natural to us are actually quite recent, and even now, quite local. Life for much of humanity even today remains solitary, poor, nasty, brutish and short.

    Now, is that bad? Obviously it’s bad. Duh. But can we snap our magic American fingers and make it all better overnight? No. No, sadly, we cannot. We cannot grab illiterates and turn them into code monkeys at Google. We cannot take people whose entire loyalty is to extended family and make them citizens of the world. We can’t even get Dutch-speaking Belgians to get along with French-speaking Belgians, or convince many Americans that Adam and Eve did not ride around on a brachiosaurus.

    The idea that we can demand that ‘nations’ – that are only nations by virtue of some thug’s secret police network – raise the wages and working conditions of an illiterate labor force whose parents still believed the sun was a burning jackal or whatever, to the level of a Seattle hipster, is bizarre. You want to take some fragile, one-bullet-away-from-chaos state in the ass-end of nowhere and carve out a portion of their work-force and pay them princely American wages? Does no one think that might be a wee bit destabilizing?

    Hi, we’re from America, and we’re going to pour money into the local labor force! They’re called what? Hutus? Excellent, I’m sure they will raise the standards of all the people in their made-up country, including those other ones, the uh, what are they? Tutsis? Here, have an Apple watch. It buzzes to give you directions. Very helpful on the freeway when you don’t want to look at the SatNav.

    In a poor country a miserable job with terrible pay is the antidote to S-P-N-B-&-S. It is the only antidote. Other than, say, piracy or terrorism. Insisting that it’s either 12 bucks an hour, 40 hours a week, plus maternity leave or. . . nothing, is cruel. When I pass a beggar on the street, I give him a buck. It’s not much, it won’t transform his life, but it’ll buy him a candy bar or a beer, and when you are poor and have nothing, a candy bar or a beer is pretty damn great.

    And before I get the chorus of ‘you’re an insensitive rich guy’ responses, I’ve been the guy who was thrilled to find a quarter in a pay phone and a dime in a laundromat dryer. When I was younger and more desperate a quarter meant I could buy a day-old donut as Dunkin’ Donuts and it tasted amazing and beat the hell out of hunger.

    Don’t make the perfect the enemy of the good. And don’t use “compassion” to take from people the little they have.

  4. Gustopher says:

    Low wage jobs are better than no jobs, and in many parts of the world, a low wage job is better than average.

    But, at the same time, we have to be cognizant of the processes used to manufacture goods, not just the end product. Labor in China is relatively cheap — but that doesn’t mean that we should be destroying their environment at the same time as we are getting our sneakers made.

    There are minimum standards we should insist upon. Environmental protections roughly on par with our own. Child labor uses only children a bit older than the country’s average entry workers. A 50 hour work week or so.

    I would support tariffs to pay for inspectors to go to these plants and check their compliance.

  5. Michael Robinson says:

    @michael reynolds:

    The idea that we can demand that ‘nations’ – that are only nations by virtue of some thug’s secret police network – raise the wages and working conditions of an illiterate labor force whose parents still believed the sun was a burning jackal or whatever, to the level of a Seattle hipster, is bizarre.

    Contrariwise, if we happily and unconditionally open our large and lucrative marketplace to whatever the thug and his cronies can shove in a shipping container, we empower the thug and cronies at the expense of their workers, and then put our workers in the position of competing with that.

    Sometimes I wonder why news organizations even bother. Clearly nobody is consuming their output. For example, it was well covered by many prominent outlets that the TPP was in jeopardy over the issue of ACTUAL REAL WORLD RIGHT NOW TODAY SLAVERY in Malaysia.

    And it was also mentioned in the press that in order to increase the amount of trans-Pacific free trade, the Obama administration let Malaysia out of the “slavery time-out corner” (without any credible evidence that Malaysia had actually done anything to actually earn it).

    So, it previously was, at the very least, U.S. trade policy that people shouldn’t be selling stuff made by slave labor in the U.S. And the current policy appears to be that it’s now ok to sell stuff that’s not obviously made by slave labor.

    http://www.nytimes.com/2015/07/31/opinion/obama-administration-ignores-malaysias-trafficking-record.html?_r=0

    If it is neo-mercantalism to argue that our trade policies should not incentivize slavery, then call me a neo-mercantalist.

  6. Michael Robinson says:

    Forced labor is pervasive in the Malaysian electronics industry:

    https://www.verite.org/sites/default/files/images/VeriteForcedLaborMalaysianElectronics2014_ExecutiveSummary.pdf

    Report funded by your tax dollars. Indentured labor funded by your computer purchase.

  7. michael reynolds says:

    @Michael Robinson:

    I’m not arguing that we have to accept all trade under all circumstances. Certainly we should avoid slave labor. But there is a great, yawning gap between slave labor and poorly-paid labor. And we have a right to refuse to do business with governments we think are morally reprehensible – North Korea, say.

    Of course if we wanted to apply our moral standards consistently we’d also cut off trade from Saudi Arabia, one of the worst countries on earth. So I’m not sure how far we want to ride our moral high horse. China? Burma? Congo? Venezuela? Louisiana?

    I don’t even mind using trade as a weapon when it’s useful. I object to hypocritical nonsense about helping the poor and downtrodden of the world by raising the cost of their labor to the point where they have no work at all and end up running around with AK’s murdering each other. If we mean to impoverish the 3rd world to benefit ourselves, let’s admit that’s what we’re doing and not be self-righteous twats about it.

    I also have no problem using all the available means of pressure to stop countries using currency manipulation to get over on us. I’m not suggesting limp passivity, I’m suggesting we be honest with ourselves about our goals and the means we intend to employ to achieve them. And can we at least stop pretending we’re going to bring back textile factories and steel blast furnaces? If they came back at all they’d be jobs for robots, not displaced victims of the crash.

    The real issue is income inequality and distribution. We are still the world’s largest economy. Using World Bank figures our GDP is still as big as China, Japan and Germany combined. Our milkshake is not being drunk. Our lunch is not being eaten. The problem is that there are too few people at the top and too many at the bottom.

  8. Michael Robinson says:

    @michael reynolds:

    And can we at least stop pretending we’re going to bring back textile factories and steel blast furnaces?

    I’ve not seen any credible authority arguing, pretending, or even alluding that we’re going to bring back textile factories and steel blast furnaces, so as far I am aware, the answer to your question is “yes”.

    The present state of play of the free trade debate is whether free trade should encompass (actual literal) slavery, whether multinational corporations should be given the power to (actually, literally) overturn democratically-established environmental, health, safety and labor regulations of sovereign countries to increase their return on investment, whether the terms of free trade should be negotiated (actually, literally) behind closed doors by the corporate beneficiaries while elected representatives are (actually, literally) excluded from participation or oversight.

    It is worth noting that the official position of the current and next U.S. administration on these points is “yes, yes, yes, and yes”.

    It is also worth noting that many credible eventheRepublicans free-trade economic theorists argue that free trade will not approximate Pareto improvement without state intervention to shift some of the winnings from the winners to compensate and ease the transition of the losers. Given that such sound theoretical advice is routinely and thoroughly ignored by the donor-servicing political class, it should not come as a surprise that when the accumulation of uncompensated losers reaches a large enough proportion of the electorate, then consequences.

  9. Michael Robinson says:

    @michael reynolds:

    Of course if we wanted to apply our moral standards consistently we’d also cut off trade from Saudi Arabia, one of the worst countries on earth.

    For what it’s worth, I would wholeheartedly support a trade embargo on all the Gulf Arab countries, comparable to what was used to good effect with the Iranian government.

    Sometimes you just have to make a decision that civilization is worth paying the price. And, netting in the climate change impact, it’s hard to argue that more expensive petroleum is even any price to pay at all.

  10. Ben Wolf says:

    All trade is protectionist. As with the fantasy of free market fundamentalism, free trade does not and has never existed in recorded history; what changes is who and what is being protected. When the U.S. had an industrial base we had an industrial policy. Now we have a media and professional-class base, and so these things are shielded from negative consequences while low income workers are left to bear them.

    So standards are negotiated for computers which allows workers in China to migrate their labor to the U.S. while keeping their bodies in China. Yet standards are not negotiated for doctors and so their labor cannot be relocated to satisfy U.S. demand. Tariffs for steel are eliminated while tariffs for intellectual properties, pharmaceuticals, entertainment etc. are continuously strengthened. Tribunals staffed with corporate attorneys are established to protect corporate profits while environmental and labor standards go unenforced.

    It should also go without saying the American worker did not volunteer to become a martyr for for the poor in other countries (and yet it seems to mystify trade advocates that such people might not share their convictions.) Trade in the neoliberal period has been sold on false pretenses of faster growth and higher levels of employment than would otherwise be and it’s completely sensible that it be called into question.

  11. Pch101 says:

    After all we do not want people to be working simply for the sake of working

    You and Marie Antoinette would have been a terrific couple.

  12. Ben Wolf says:

    @JohnMcC: Dude, that’s way out of line. You shouldn’t wish suffering on anyone, particularly “loved ones” who have done you no harm.

  13. Guarneri says:

    “What Krugman is saying here is basically what I have said. Implementing trade policy based on the U.S. standard of living will almost sure result workers in these countries being laid off. And since $x/hour where x is some non-zero number is better than $0/hour, the compassionate protectionism is not really all that compassionate. ”

    Commenters here are arguing beggar thy neighbor.

  14. Michael Robinson says:

    Since Mr. Verdon is evidently of the opinion that it’s not worth an investment of time and money to understand economics (as opposed to mere credentialing), here is a very short and very free treatment of some political considerations which also underlie race-to-the-bottom laissez-faire free trade advocacy:

    http://economie.politique.free.fr/liens/Kalecki_1943.pdf

    And if that’s not short enough, an even shorter version: shifting employment from a more democratic economy to a less democratic economy increases the returns to capital and political power of capital in both economies.

    (at the expense of labor, obviously, but they’re barely-literate savages anyway, so it’s all good)

  15. michael reynolds says:

    @Michael Robinson:

    I’ve not seen any credible authority arguing, pretending, or even alluding that we’re going to bring back textile factories and steel blast furnaces, so as far I am aware, the answer to your question is “yes”.

    What do you think the political subtext is of protectionism? Obviously the pitch is that all the old jobs are coming back. It’s all fun for economists to debate, but this is a political not an academic issue, and voters must be motivated and they are thus motivated by nostalgic calls to ‘bring jobs back.’

    For what it’s worth, I would wholeheartedly support a trade embargo on all the Gulf Arab countries, comparable to what was used to good effect with the Iranian government.

    Sometimes you just have to make a decision that civilization is worth paying the price. And, netting in the climate change impact, it’s hard to argue that more expensive petroleum is even any price to pay at all.

    Have you thought through the political knock-on effects of embargoing the KSA and the Emirates and the rest? You don’t think that would mean the Chinese rushing into the region? You don’t think maybe China getting more involved would be a problem not just for us but for Israel, Europe and India? You don’t think maybe that would give Iran a massive hard-on? What about the other countries the KSA is propping up? Egypt? Have you thought about the shitstorm that follows if the Saudi royals go away and the entire Arab and Persian ME goes after Mecca? I despise the corrupt, terror-coddling a-holes, but realistically, I don’t exactly see Thomas Jefferson taking over in Riyadh.

    As for using our embargo of Iran as a reference point, we embargoed them to slow the development of nukes in hopes of slowing the descent of the whole region into arms races and devastation. What similar demand would we make of the Saudis? Open elections? A US-imposed Arab Spring Part 2?

    I’m sorry but all this compassionate protectionism strikes me as moral posturing that does nothing to help Americans, screws the 3rd world which is not doing us any harm, and probably sets off any number of wars across the middle east, wars that could cost hundreds of thousands of lives and spin off dozens of terrorist groups.

    How is forcing our will on other countries with economic means any different than meddling with troops? Have we not had enough of trying to fix countries that are a) not real countries, and b) nowhere close to being able to manage a free politics or free economy? Have you noticed what’s been happening for the last 15 years?

  16. michael reynolds says:

    @Michael Robinson:

    Dude. This is not about your favorite college professor’s pet theories. It’s not really about economics. It’s about politics. War. Death. You know, serious shit.

  17. Ben Wolf says:

    @michael reynolds: The political subtext is that everyone is protected or no one is. As only a few are currently protected it is reasonable to infer the purpose of current trade arrangements is to redustribute more wealth upward.

  18. Grumpy Realist says:

    I’m dubious of “free trade” because it isn’t. Those shipping lanes are protected from pirates by the military (which the free traders do not pay their fair share of), roads (paid by local and federal taxes) are used within the states, the law courts that the companies use are paid for by everyone’s taxes. So-called “free trade” is only carried out in the context of a system where all the externalities are hidden in the accounting and the costs of their actions on the people around them are waved off by comments about “move if you need to find a new job” and mumbles about “retraining” (with, of course, the retraining to be paid by someone else.)

    And I’ve noticed that for all his erudition, our economist has been conspicuously silent on answering the question I have already posed two times now: what do you do when everything is roboticized? You may have very low cost production, but what good is that to people who can’t find any employment, period? Are they supposed to turn themselves into prostitutes? Curl up and die? Live off welfare for the rest of their life? What?

  19. Ben Wolf says:

    @michael reynolds: China is already involved and its involvement will continue to grow regardless of trade agreements. The U.S. is influential but it does not and will not call the shots. Its moment of uni-polarity ended over a decade ago.

  20. Pch101 says:

    @michael reynolds:

    I’m sorry but all this compassionate protectionism strikes me as moral posturing that does nothing to help Americans, screws the 3rd world which is not doing us any harm, and probably sets off any number of wars across the middle east, wars that could cost hundreds of thousands of lives and spin off dozens of terrorist groups.

    The target of your angst essentially does not exist in the real world outside of speeches.

    In reality, the US has low tariffs, a continental free trade area, and a trade deficit that is, by far, the largest in the world. (The US trade deficit is larger than the combined trade deficits of every other nation that has one.)

    Aside from possibly derailing the next White House’s support for the TPP, people such as Bernie Sanders have had no impact of trade policy. Sanders gives speeches to college kids who use their Chinese-made smartphones and computers to update their Facebook pages about the great speech that they saw. They probably typed that message while wearing what are mostly imported clothes, perhaps while sitting on imported chairs and sofas that they bought at the big Swedish imported furniture warehouse and while snacking on imported food from Trader Joes. It’s just talk.

  21. michael reynolds says:

    @Grumpy Realist:

    what do you do when everything is roboticized?

    That is the question. We don’t have an answer, obviously. I think in effect we’re using 3rd worlders making a dollar a day to forestall the bots, but the cost of bots is going down, and at some point even the dollar an hour 3rd worlder will be too costly.

    I just happened to watch an interesting Top Gear rerun that involved a cross-country race over very rough terrain race between a Land Rover driven by Clarkson, and a robotic truck. Clarkson won by a hair, but I imagine he gets paid more than the bot does. And if you re-run the race in 5 years the machine will win.

    We are coming up on a genuine paradigm shift of staggering proportions. Damned if I know what will happen. But watch the military – they get the R&D dollars and there’s no mistaking the way that’s going: fewer and fewer GI’s, more and more bots. 20 years from now we may have a 10,000 man army, all sitting at consoles in Nevada.

  22. michael reynolds says:

    @Ben Wolf:

    China is investing heavily in the MENA and subsaharan Africa, but that does not come without dangers. India is not happy about it. Japan ditto. Korea ditto. And of course the US is leery. Not specifically because we’re worried they’ll dominate the ME (welcome to it, as far as I’m concerned) but because China has some very problematic geography to deal with. They need to develop a serious blue water navy, but that’s tricky for them so long as we’re sitting in Japan, Okinawa, SK and various other ports. They could get adventurous, like the Russians have done.

    Then again, this all presupposes China continues to rise. And that is far from certain.

  23. jimmy two-tones says:

    In the past, high-labor industries were replaced by other high-labor industries. Now high-labor industries are being replaced by miniscule-labor industries.

    Well-fed people like Verdon will discover the problem in a few more years when their college-educated kids can only find work at Wal-Mart.

  24. Michael Robinson says:

    @michael reynolds:

    What similar demand would we make of the Saudis?

    So, if I understand correctly, we can’t demand worker protections in “some fragile, one-bullet-away-from-chaos state in the ass-end of nowhere” because sociopolitical reasons, and we can’t demand worker protections in Saudi Arabia because sociopolitical reasons, and we can’t prevent the erosion of worker protections in the United States because sociopolitical reasons.

    Or, in summary, “sorry workers, too bad, so sad because sociopolitical reasons”.

    And democracy and human rights are great in theory, but in practice if workers try to use them for anything practical, then sociopolitical reasons.

    Did I get that right?

    (But to answer your specific question directly, ending slave labor seems like a reasonable enough starting point, given that we already have exactly that law on the books for exactly that purpose.)

  25. Michael Robinson says:

    @jimmy two-tones:

    Well-fed people like Verdon

    I don’t think it is necessarily a safe assumption that Verdon is reliably well-fed. His CV is entirely consistent with membership in the emerging precariat class.

    But, you know, we still don’t even know what’s the matter with Kansas, much less the OTB headliners.

  26. Grumpy Realist says:

    @michael reynolds: but you’ve already shown the fallacy of Free Trade. The sort of Free Trade our naive economist applauds does NOT EXIST in this world of nationalism and geo-politics. Free Trade only works in the world where I can say “assume a spherical cow.”

    As I said, he’d know more about reality if he read more history.

  27. jimmy two-tones says:

    His CV is entirely consistent with membership in the emerging precariat class.

    Yeah, but he hasn’t really noticed it yet. When it affects him personally, it’ll suddenly be a crisis and HOOCOODANODE! Like all Libertardian Conservatives.

  28. Keith says:

    @michael reynolds: I work at the Federal Railroad Administration–a small, backwater organization that inspects railroads to ensure they operate safely. We have a small research budget and one of the things we are spending it on is drone based inspection of track geometry. It’s a little bit over the horizon, but it won’t be too long until some of our rail inspectors are sitting in a trailer, much like military drone pilots, watching drones do all the work they used to accomplish.

    I raise this only as an example as how vast the potential for robots really is, and how it can make jobs that didn’t seem, at first glance, as outsource-able to robots, robot based. It is going to cause massive economic disruption.

  29. jimmy two-tones says:

    When our economic policies start making a group of our citizens die earlier, intelligent people get concerned with the problem, not issuing dimwit arguments for things that benefit the landed nobility.

  30. jimmy two-tones says:

    Patents are gifts granted by citizens. These gifts are transferring billions of dollars in wages to the wealthy investor class who fund startups.

    So I’d be in favor of a specific investment income tax with all the proceeds going into a USA sovereign wealth fund, distributed equally to all citizens, like the rugged GOP individualists in alaska.

  31. James Pearce says:

    Further, that as the economic conditions in these countries improve over time, workers and voters, where democracy prevails, will demand better working conditions and better regulations.

    A great example of this on a small scale would be the Sherpas who serve as porters on Everest. For a good generation or two, their labor was exploited by western expedition companies, who benefited from paying low wages for dangerous work.

    Cut to now, the Sherpas as a people are better educated, more world-wise, and less willing to put themselves in danger for western tour operators. Instead of being fated to working low-wage jobs for foreigners, the Sherpas are starting their own climbing companies.

  32. MBunge says:

    If you’ve ever looked back in history and wondered how people and nations pursue policies that, in retrospect, obviously led them to disaster, look no further for enlightenment than our current trade debate.

    Michael Reynolds is standing shoulder-to-shoulder with people who support slave labor. He can lie to himself about it, but that is the side of the argument he is on. And even that cannot shake his faith in “free trade.”

    Mike

  33. DrDaveT says:

    What Krugman is saying here used to say but now thinks is wrong is basically what I have said.

    FTFY.

    Krugman, being an actual intellectual, reconsiders his opinions when confronted with contrary evidence and convincing arguments. He now believes he was completely wrong when saying what you want to hear, and is happy to explain the arguments and evidence that convinced him. It takes reasonably brazen fritters to both use Krugman in your argument from authority and simultaneously dismiss him as a mere polemicist.

  34. MBunge says:

    @James Pearce: great example of this on a small scale would be the Sherpas who serve as porters on Everest.

    That’s like saying Mississippi could solve all of its economic problems if it was just more like Texas and discovered a bunch of oil reserves within its borders. How many other places on Earth provide the combination of unique resource, specialized skill and political/economic circumstances as the Sherpa enjoy?

    Mike

  35. Michael Robinson says:

    @michael reynolds:

    But there is a great, yawning gap between slave labor and poorly-paid labor.

    That “great, yawning gap” largely consists of whether or not the worker performing the labor is compensated by the beneficiary of the labor, and whether the worker is free to leave to seek other employment elsewhere.

    In the case of a surprisingly large number of our trading partners, both questions are often left to the discretion of the employer, with predictable (if not overtly sanctioned) results.

    And in a globalized free-trade economy, the race-to-the-bottom consequences spread beyond borders. Indentured (de-facto slave) labor in Malaysia, Thailand, Vietnam and Indonesia degrades local-market “legitimate” wages and working conditions, which in turn degrades wages and working conditions in China, which in turn degrades wages and working conditions in Korea and Mexico, which in turn results in Chattanooga not getting that Audi plant they were counting on.

    (Ironically, Chattanooga was counting on getting the Audi plant by way of degrading local wages and working conditions relative to that of Northern unionized states.)

    So, yes, it is not feasible for every worker in the world to obtain the working conditions of your straw-man “Seattle hipster”, but setting a minimum acceptable standard of worker protection and strictly enforcing it everywhere eventually benefits all workers anywhere.

    Laissez-faire free-trade extremists like Mr. Verdon (and U.S. trade negotiators) oppose universal minimum standards, and are disappointed that workers in countries with well-developed economies and democratic institutions do not oppose them as well.

  36. Tyrell says:

    Around this area we have experienced the decline of the textile and furniture industries. Huge plants now empty, and the end of a way of life. People having to take lesser jobs or retrain for something else. The NAFTA and other trade deals long ago opened the floodgates. A lot of the clothing now is ill fitting, and does not hold up to what we used to get. Now I am not knocking the people overseas. They are hard working, vastly underpaid, and under harsh conditions. With their pay scale, I cannot understand how a sweatshirt can cost $40 or more ! Somebody is making a lot of money !
    I believe that with the technology this country has, there could be textile and furniture factories that can compete with the foreign companies.
    “Buy American”
    “USA 1”

  37. James Pearce says:

    @MBunge:

    That’s like saying Mississippi could solve all of its economic problems if it was just more like Texas and discovered a bunch of oil reserves within its borders.

    No, it leaves the “solution to all economic problems” issue unaddressed and is instead making a much smaller point: that in a “free trade” scenario, foreign capitalists exploiting local workers and resources in a very unequal way is usually end-dated. The workers’ station gradually improves (usually over a generation or two) and it becomes more difficult to exploit them in such a drastic way.

    In the case of the Sherpas, there was a time when if you wanted to be an Ice Fall Doctor, a Sherpa had no choice but to work for a foreign company.

    Now he can start his own. Twenty years ago, that notion probably wouldn’t have even occurred to him.

  38. Pch101 says:

    @Michael Robinson:

    …which in turn results in Chattanooga not getting that Audi plant they were counting on

    In the case of Chattanooga, that probably isn’t the case.

    For one, Mexico has an FTA with the EU. The Volkswagens produced in Tennessee are built for the North American market, whereas many of the Audis are intended for export to Europe. The EU tariff on US-built cars is 10%, while the tariff on cars built in Mexico is 0%.

    http://www.autonews.com/article/20130513/OEM01/305139983/tariff-played-a-role-in-mexico-winning-audi-plant

    For another, vehicle plants provide a lot of political power to auto companies. This may be a matter of VW AG adding to its leverage in a place where it wants it.

    There may also be some internal politics involved. Audi is a division of VW, but its management seeks to maintain some sort of unique identity that is distinct from the VW brand. Audi’s management may have preferred to literally keep its distance from VW.

  39. Gustopher says:

    @michael reynolds:

    How is forcing our will on other countries with economic means any different than meddling with troops? Have we not had enough of trying to fix countries that are a) not real countries, and b) nowhere close to being able to manage a free politics or free economy? Have you noticed what’s been happening for the last 15 years?

    We have three choices:
    – trade with standards, where we are “meddling” by pushing our standards on other countries
    – trade with no standards, where we incentivize the race to the bottom with a crapload of money
    – no trade at all

    We are a massive marketplace, and the world’s military and economic superpower. Our actions have consequences, and we have to be very aware of those consequences.

    TPP creates trade-with-standards that empowers corporations over countries. That seems like a terrible idea. It’s the wrong standards.

  40. Gustopher says:

    @Pch101:

    Aside from possibly derailing the next White House’s support for the TPP, people such as Bernie Sanders have had no impact of trade policy. Sanders gives speeches to college kids who use their Chinese-made smartphones and computers to update their Facebook pages about the great speech that they saw. They probably typed that message while wearing what are mostly imported clothes, perhaps while sitting on imported chairs and sofas that they bought at the big Swedish imported furniture warehouse and while snacking on imported food from Trader Joes. It’s just talk.

    Please list the alternative brands and products that these hypocritical Bernie supporters should have been using.

    It is really, really hard to buy American made products when America doesn’t make those products anymore. I am sitting on a custom made couch as I type this into my iPad — I had options with the couch (6’6″, I wanted a couch long enough to lie down on), but there really aren’t options for electronics. And that couch? Materials came from china. And more expensive than a lot of people can afford.

    Short of living in a cave, your actions will support trade if you live in the US. That you simultaneously want to make things better for the people who create the stuff you will buy in the future, while using things created under worse conditions, is not hypocritical.

  41. Pch101 says:

    @Gustopher:

    That you simultaneously want to make things better for the people who create the stuff you will buy in the future, while using things created under worse conditions, is not hypocritical.

    I never claimed that they were hypocrites.

    The implication of my point is that they benefit from imports, most likely to an extent that they don’t appreciate, which makes me doubt that they would want to pay considerably higher prices if those imports were kept out.

    It’s nice to say in the abstract that we want to preserve American jobs. But if keeping those jobs in the US ends up making your phone, laptop or whatever cost 2-3x what it does now (or whatever it would be), then I’m willing to bet that the supporters will start to look for exceptions. Even more modest price increases would probably result in some protest.

    It’s one thing to go to a rally and chant a slogan. It’s quite another to go to the phone store and find that your next phone is going to cost you $1200.

  42. MarkedMan says:

    @michael reynolds: @michael reynolds: the Saudi trade is fundamentally different than that of China. The Saudi’s have one export, oil, a raw material that can be intermixed with all other suppliers, and when that is gone they will have no trade advantage on anything else. There isn’t much we can do in terms of trade agreements.

    I agree that trying to protect American textile workers is largely futile, but that’s not what modern pacts are mainly concerned with. It may be best if everyone opened their market completely, but that’s not going to happen. And one country doing so on its own is just a sucker. Don’t forget that the US exports a huge amount. In fact, excluding China (admittedly a huge exclusion), we run a trade surplus with he rest of the world.

    Countries want into our market and we use trade pacts to help the US in both the short and long term. So they allow inspectors at foreign food plants and impose limitations on the amount and types of pesticides used on fruits imported into the US (I have had strawberries in China that literally numbed my lips because of the high residual pesticide and fungicide ). Longer term, they impose limitations on atmospheric pollution or agree to protections against overfishing.

    The idea that it is either 100% free trade or tariffs everywhere is straw men on both sides.

  43. Grewgills says:

    @michael reynolds:

    The idea that we can demand that ‘nations’ – that are only nations by virtue of some thug’s secret police network – raise the wages and working conditions of an illiterate labor force whose parents still believed the sun was a burning jackal or whatever, to the level of a Seattle hipster, is bizarre…
    In a poor country a miserable job with terrible pay is the antidote to S-P-N-B-&-S. It is the only antidote. Other than, say, piracy or terrorism. Insisting that it’s either 12 bucks an hour, 40 hours a week, plus maternity leave or. . . nothing, is cruel…
    Don’t make the perfect the enemy of the good. And don’t use “compassion” to take from people the little they have.

    Who is suggesting that? Where is this world where only strict dichotomies exist? Where the only choices are $0.25/hr in squalid conditions for 16 hrs a day on pain of prison or death is only opposed by $40/hr with hourly foot massages and lattes?
    Fair trade isn’t what you and Verdon are making it out to be.

  44. MarkedMan says:

    Trade pacts are immensely complicated, and they are far from ‘free trade’, and that is a good thing. Right now my company has recently created local manufacturing in several countries not because it makes economic sense directly, but because those countries have official policies that exempt local manufacturers from onerous duties. Trade pacts deal with these types of counter incentives. In another example, we have a small amount of manufacturing in China but that is in a special economic zone. So when someone two miles away purchases some of the product made there, we ship it to a third country then ship it back, adding significantly to the cost. There are thousands of inefficiencies like this. Some of them hurt US manufacturers, and some work to our advantage. But just remember, one of the reasons that Britain’s drive on the left is that it was seen as protecting their domestic markets from imports. How did that work our for the British auto industry.

    Trade pacts done well remove inefficiencies, promote product safety and resource management and (should) also promote reduced pollution and worker safety.

    -Jim

  45. Just 'nutha ig'rant cracker says:

    @Michael Robinson:

    I’ve not seen any credible authority arguing, pretending, or even alluding that we’re going to bring back textile factories and steel blast furnaces, so as far I am aware, the answer to your question is “yes”.

    Would you like to reconsider?

    In 2013, companies in Brazil, Canada, China, Dubai, Great Britain, India, Israel, Japan, Korea, Mexico and Switzerland, as well as in the U.S., announced plans to open or expand textile plants in Georgia, Louisiana, North Carolina, South Carolina, Tennessee and Virginia.

    Additionally while I was still in Korea, I saw an article–probably from The Atlantic–noting that GE(?) was reopening the Appliance City manufacturing complex in Louisville (IIRC–too lazy to look this one up) to manufacture a high-end water heater, relocating the jobs from China. The reason? Manufacturing wages had become depressed enough in the US that there were finally better economics in manufacturing the product where it will mostly be sold than to transport the item from China. (My expectation, BTW, is that the creation of some $16/hour jobs in that region will probably not raise the standard of living for these worker to the point that they will be likely to replace their broken water heater with the $3000/per unit heater they are making.)

    And, granted, these new textile jobs returning to the US are not going to be the old jobs that workers used to have, but jobs are returning, to a US with better wage advantages than the Second and Third world can now offer. What happened?

    Ironically, some of the return has to do will protectionism in the form of WalMart not being willing to buy textiles not “Made in the USA.” Hmmmm…..

    http://www.usatoday.com/story/news/nation/2014/02/05/stateline-textile-industry-south/5223287/

  46. Just 'nutha ig'rant cracker says:

    @michael reynolds:

    20 years from now we may have a 10,000 man army, all sitting at consoles in Nevada.

    That would be bad logistics–one missile wipes out the whole force. EMP vulnerability would also be extreme.

  47. Just 'nutha ig'rant cracker says:

    In the few economics classes that I have taken over the years, I was most impressed with the contributions that various philosophers made to the discipline:

    Two of Adam Smith’s contributions were capitalist market theory and the concept of the “invisible third party” guiding our consciences so that we didn’t cheat or trading partner.

    Ricardo contributed competitive advantage–as a primarily macroeconomic concept (I think I got that right…)

    One of Marx’s contributions was to remind us that too many of us tell the invisible third party “when I want your opinion, I’ll tell you what it is.”

  48. Michael Robinson says:

    @Just ‘nutha ig’rant cracker:

    Thank you, and noted, but:

    Textiles, mostly cotton, once dominated the economy of the South. Employment peaked in June 1948 with 1.3 million jobs. In just one state, North Carolina, 40% of its jobs were in textile and apparel manufacturing in 1940. By 2013, just 1.1% of that state’s jobs were in textiles.

    So, yes, the export of textile jobs appears to have bottomed out, and may be rebounding somewhat, but to clarify my point, I don’t believe anyone is seriously suggesting that textile jobs are ever going to return to the relative importance in the economy that they previously enjoyed (which is what Michael Reynolds wishes we’d stop pretending, as I understand it).

  49. Andre Kenji says:

    @Pch101: That´s precisely what happens in Brazil, where tariffs and things like that make electronics and all kinds of stuff pretty expensive.

  50. stonetoools says:

    Bernie Sanders didn’t win the Democratic primary, Hillary Clinton did. Talk of Bernie Sanders determining trade policy is deflection. The current President, Barack Obamas, is in favor of TPP and may get the treaty ratified in the lame duck session. Even if he doesn’t, it’s likely that Clinton will try to get TPP passed with more protections for US labor negotiated.
    Both Clinton and Obama favor generous assistance to workers disadvantaged by free trade, so it sounds that the OP is OK with the official Democratic program. Such assistance , however, has to be paid for, which the OP avoided mentioning. Seems only fair that it should be paid for by higher taxes on the wealthy and corporations, who are the very persons that benefit the most from international trade.
    Is Mr. Verdon OK with that? Somehow, I doubt that. These libertarian types never are.

  51. Franklin says:

    After all we do not want people to be working simply for the sake of working–work in an of itself is not a good thing, nobody likes work, at least in general.

    This was the last line of Verdon’s post. If it is true (and I believe it is), then why is the rest of the post going on and on about giving people in poor countries a job?

    The fact is, if one country is producing more pollution than another to make my product, I’d choose the latter. Same with a country that uses child labor, etc. And I’d gladly pay more for those conditions – pollution eventually affects all of us, and child labor is simply about basic human decency. If you are fine with buying products produced through child labor, people will keep having kids and making them work.