Toing and froing on Obamanomics

Why is "competitiveness" a bullshit term?

I keep seeing these global competitiveness rankings all the time, and always assumed it meant a welter of factors "friendly to business/open markets".

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What's the big deal? Goolsbee is on Obama's team. And what about the H-1B visas(I think that is the correct one)? Obama is right. We are competing globally. What is so bad about pointing that out?

I see this as an important issue that needs leadership. Too many people in the old American industrial champion cities are spending too much time on victimhood and not enough on looking for the way forward, as I see it. This bit of leadership seems important to me.

There you go again, Prof Drezner. Even if we cannot find a single specific example of a job that left Michigan and went to China, it's ridiculous to deny the general principal. There is a limitless list of products that have moved production from the US to Asia: cars, electronics, home appliances, clothing, even the frozen fish that I bought recently at the supermarket. It's getting damn hard to buy American these days. Where in the hell are you living, Dan?

In this context, American competitiveness means helping American workers compete in the world labor market. Don't talk to me about the health of US business. There is no such thing. A corporation with plants in China, customers in South America, stockholders in Asia and Europe, and which just happens to be listed on the NYSE is NOT American. I don't know why I continue to comment here. I know you'll never change your mind. I guess I just like the aggrevation.

OpenBorderMan, Dan Drezner says that manufacturing productivity has gone way up on average. If we need half as many people to produce the same amount of stuff, the difference between half of those people unemployed from improved manufacturing versus all of them unemployed because the improved manufacturing has moved to china....

I'm not sure his argument is right, though. Maybe the jobs we have left are only the most productive ones. If the less-productive jobs move to china, we get lots of unemployment even while the "economy" could do OK. That would be fine if we had enough high-productivity jobs to go around.

Of course our surplus people could become real estate agents or insurance salesmen or lawyers. The only limit to the number of lawyers is the number of lawsuits, and for each lawyer who takes on a case pro bono another one gets a fee. Every lawyer who gets a fee contributes to GDP, right?

And there are jobs we can't send to china. Barbers and hair stylists. Massage therapists. Door-to-door opinion poll surveyors. But we can't run an economy off giving each other massages.

Well, as the dollar devalues, our products are worth more to the rest of the world. At some point we can have lots of jobs making stuff to send overseas cheap. We can follow china's growth strategy....

Is Obama wrong to say we need to do something about the economy and our foreign trade?

I have to dispute Drezner's argument here. From 1979 to 1999, we indeed had huge gains in manufacturing productivity; a steady level of about 19 to 20 million manufacturing jobs in this country, and huge increases in output. However, since 1999 we've lost almost a third of our manufacturing jobs. That is a historic and sudden change, and we are producing less in manufactured goods than we did and have seen a huge increase in our trade deficit. The consequence is that wages have been driven drastically down across blue-collar America; our indebtedness has gone up and so-on; but white collar America hasn't really seen the shift yet except for those tech support and accounting people who have seen their jobs offshored as well.

The point is we're still using those goods. We're still buying them, except now we put them on plastic. But they're being made elsewhere -- mostly, it seems, the Pearl River Delta and metro Shanghai for consumer goods and just about anywhere that doesn't have our health care expenses for cars and heavy machinery. Those jobs have gone overseas, pure and simple. They have not vanished. We gave China unconditional MFN status, thereby privileging production there over production here. We have completely uncompetitive health care costs due to being wedded to a broken system. And yes, the jobs in response are going overseas. And yes, small-town and blue collar America are suffering terribly as a consequence. And yes, this change is unsustainable.

DD is more wrong on this than on any other economic issue.

These discussions are going nowhere - those people who are convinced that globalization has been ultimately bad are those that are threatened by it or have very little understanding of how global economy is here to stay, whether you like it or not.

I am also quite confident that the same people who blather about how manufacturing jobs have disappeared drive around in their envirnomentally conscious Toyota Prius'es and will not come close to buying a Ford or a Chevy to "support" the American workers in..ahem.. Michigan.

Back to Dan's question though - how do you claim that Obama's economics are that of a hard left liberal ? Hmm. how about his proposals to increase capital gains ( a proposal that left Charlie Gibson flustered) or even better the rationale behind it ( its only "fair") - not to mention his ideas to increase the cap on Social security for those small to medium business owners. Increased Income taxes across every spectrum of the economy (Bush tax cuts will be allowed to expire).

I dont know what you call an economic policy that has "SOAK THE RICH" written all over it - perhaps its a bit too liberal ??

There you go Dan - it wasnt too difficult was it ?

Nagarajan,
I don't think anyone here is suggesting that globalization is necessarily bad, and I'm sure we all agree that it's here to say. My point, and I think that of some responsible politicians, is that the global labor market puts US workers at a disadvantage, and responsible policy-makers should try to do something to help them compete. What is wrong with that? You say that critics are personally threatened by globalization or else we just don't understand. I would turn that around. If you are not personally effected, you just don't give a damn about how it effects the rest of the country. Way to go.

OpenBorderMan,
I am on an H1-b, so i have to defend globalization - just kidding !

It is true that when you can get services or labor at a cheaper cost outside of the US, employers tend to use this to their advantage. But it's also true that consumers get a better deal because of reduced labor costs. Not to mention better products. (That was my point about Toyota Prius - even though people will sympathize with jobs moving out of Michigan, they will choose a Toyota over a car made by GM or Ford if they want more mileage. without thinking about how this actually does affect the bottom line of US car manufacturers)

So i would say it is very simplistic just to say that globalization is "bad". Or worse, expect politicians to "try to do something" about it. Job re-training is the best thing that i can think of. But when this issue is approached honestly by a politician, people dont like it. ( Case in point : McCain finishing 4th in Michigan after saying that manufacturing jobs are not coming back - and that workers need to get re-trained or go to community colleges (the Govt can help them with some tuition aid).

American workers are never going to give up on their expectations for better health care, better wages, better pensions etc. And businesses are never going to give up on their expectations for better profit margins and cheaper consumer goods. Walmart is the best example that comes to my mind.

In the long run, who is going to win ? Cheaper products for consumers or more worker benefits ? I think that question has already been answered.

I dont want to sound heartless here - but if you want to better the condition of the American worker, it is going to come at the expense of the American consumer. And the American consumer has spoken. for all their feelings about the worker when push comes to shove, the consumer is looking out for him/herself.

Once again, Nagarajan, I would like to point out that globalization is not necessarily bad. I and many others are just saying that American workers are ill-equipped to compete in a global labor market. We do not have to choose between helping workers and helping consumers; we can help both. I'll be more explicit for those who don't understand. Other countries win at this game with a strategy that:

1. Trains workers with the right skills
2. Structures taxes to favor exports
3. Maintains a responsible fiscal and monetary policy

Some countries (I'm talking to you, China) have an additional advantage in that they have no respect at all for the environment and workers' rights. I am not suggesting we follow their lead. But for Pete's sake we're competing in a high-stakes game, and we have voluntarily tied our own hands behind our back.

OpenBorderMan,
I would like to say that the American worker is pretty good at what he/she does.The biggest reason that businesses started looking around for greener pastures (no pun intended) was to cut costs.

Your point about China demonstrates that to a tee - no one in a Chinese factory is allowed any basic worker rights - rights to organize, a minimum wage etc. So businesses do find it tempting to move operations to China. It's not because an American worker cannot do a better job - he just cant do a cheaper one. Since we live in a rule based society with laws that protect worker rights, every employer has to pay good wages, a good health care plan, a good pension plan if possible.

But thats not the case with China, is it ? Nope.Besides the Chinese have shown that if you give them a chance they will work their tails off and deliver a product that can be sold globally.

Secondly I would also like to point out that most countries that benefit from globalization did not exactly have a national policy that took advantage of the new environment right away. it is a little better now.

On to the question of taxes for businesses that want to export to other countries. Prof Drezner has a blog post today saying that the US is still the biggest manufacturer in the world ! i could nt believe my eyes - i have to read it carefully.

Of course taxes are a big thing - Obama's plans to raise the social security cap for those earning above 250K will unfortunately target the exact same people who might be involved in running a small business that helps manufacturing. People who are successfull go beyond the Wall Street stereotype ( and i dont see the morality behind taxing some one more than half their income, no matter how much they earn)

My fundamental point is that we need less demagoguery on this issue - but this is an election year and you may as well forget what i am wishing for.

Nagarajan,
You make the case for restricting trade with China stronger than I would have. We Americans force employers to respect workers' rights and the environment, and then we tell them, "oh by the way, if these laws are inconvenient for you, go ahead and outsource your production to a country that doesn't give a shit." Then we pat ourselves on the back for our enlightened policies, while loading up our shopping cart with products made by slave labor in the dirtiest plants in the world. Is that free trade? Is that green?

The situation is similar for white collar workers, except that its mostly India instead of China, and there's less pollution.

I want to emphasize that I am in favor of free trade. I just don't think that's what we have here.

I always learn a lot from these exchanges. It seems to me that once we clarified our positions, we were not so far apart. Thanks.

I'd like to know how many people commenting on this blog are really willing to pay the "Made in the USA" price?

I paid about $120 for a linen shirt that was made in Massachusetts from an old line USA manufacturer. An equivalent Ralph Lauren shirt cost about $60. That's right. The premium luxury label brand was half what the US made product cost. Multiply that by the costs of clothes for a family of four getting ready for "back to school" and you can see why very few people care about where the goods are actually made.

When an oil company does this, we call it "price gouging."

What is the justification for taxing me for my decision to purchase something made by a Chinese worker rather than an American one?

OpenBorderMan,
I guess you still cannot accept globalization but it is not going to change things. There was a reason that manufacturing companies tried to flee from the US - there is a reason why GM is number 2 to Toyota. (Or is it worse than that ?)

In the name of worker rights, health care plans, pension plans Unions over reached and over played their hands - by negotitating for not just workers in their own firms but effectively for workers in their entire industry, they forced companies (especially small to mid size ones) to shed jobs. It has not been better for bigger ones like GM, Ford either.Does any one really think that either of these companies are going to come back to their previous positions in the industry ?

Free trade involves lesser restrictions, lesser tariffs between participating countries. This is exactly why China has lesser standards when it comes to worker compensation, rights. As much as you may not like these conditions, these ARE the VERY conditions that allow for globalization. Even if China paid its workers good salaries and pensions etc it would STILL have a competetive advantage over American companies hiring American workers to produce something.

Forget China or India - take the trade relations US has with Canada and Mexico (via NAFTA)- even this is under fire now. I fear that things are going to get worse - the economic populism that prevails in this country is ultimately going to hurt consumers. American consumers. especially those that are at the bottom income brackets.

DCLawyer also asks a very valid question. And of course, i still havent heard any answers from you or any one else who complains about the ill effects of globalization to this question - "Why do Americans buy Japanese automobiles ?" Why dont they help America by buying Ford, Chevy etc ? How come Americans accept this alone ? Isnt it taking jobs away from GM, Ford auto-workers ?

Nagarajan,
I do not understand what I said that makes you think that I don't accept globalization. I clearly said that it is both good and bad and that it is clearly here to stay. And of course consumers have the right to buy whatever they feel gives them the highest value. I myself am a big fan of Toyota. But at the same time, I have a heart for the people that lost their jobs because of my decision to buy Japanese. My criticism is that our Federal govt has no policy for helping our economy to create new jobs. I don't know what you do for a living, but it seems that you don't even know anyone who is effected. How can you be blind to the impact that it has had?

OpenBorderMan,
Sheesh, some times i wish they would publish our e-mails so that we could e-mail each other. Just kidding !

Expecting the Federal Govt to "create jobs" is in itself a troubling notion for me. (Full disclosure, i am a conservative) Government should restrict itself to business where it has constitutional authority to do something. It can help people who have lost their jobs by say paying for their re-education, re-training (what ever you may call it).

When I said that you are not able to accept globalization, I was not being heartless or mindless of your views - what i meant was that there are some negative effects to globalization, just like there are some negative effects to industrialization and so on.You cannot have it both ways - reap the fruits of this model and then complain about some of its side effects - cannot have one without the other.

Trying to involve the Federal Govt in a very direct way to "care" about these problems assumes two things

A. The Federal Govt is better prepared than any one else to deal with the situation.
B. If it put in enough effort, these problems would significantly mitigate.

I have major problems with both these assumptions as the Federal Govt is the least knowledgeable about local economic conditions. I would say that local governments could deal with this better. Secondly, people who have been laid off through these years, have actually managed to get back on their feet - this country still has historically low unemployment rates as opposed to any other economy in Western Europe. Manufacturing jobs have been moving out since the 80's - so it is a given that even though many people experienced job losses, they got back on track - a tribute to their own resilience as opposed to what any Govt plan could have possibly done anything for them.

Also my point about people buying Toyota's rather than Fords is simple - you are a consumer and you have the right to purchase what is good for you - how ever, remember you are reaping the fruits of globalization - even though i understand that you have concerns for the auto workers in a state like say Michigan, it did not stop you from making your choice. This is but one example - Globalization inevitably leads to more choices for consumers but it comes with a cost as well.

I would say that the best possible way to deal with the situation is to help workers who want to re-train, how ever hard or heartless this may sound. Pay for their tutition or educational expenses if they come forward and declare that they want to learn a new skill that would help them live a decent life.

No, I dont know any one who got laid off from a blue collar job. But i dont really have to know some one to have empathy for their situation. I just dont want to pity them or think that if the Federal Govt didnt come rushing in, they would simply collapse. The Govt can help those people who are willing to re-train themselves - but i suspect that there will be people who will move on, no matter what the Govt does.