Monday, April 25, 2016

On Those Clueless Establishment Economists and Free Trade

I was curious what Bernie Sanders meant on Meet the Press yesterday with his line about how it was too late for “establishment economists”. I have never heard of Michael Stumo and I bet neither has Team Bernie. But this claim struck me as silly:
Establishment economists will defend to the death the idea that trade does not destroy jobs. Yes, I’m serious. They believe that. Really. Instead, they say, job losers move into other jobs so there is no net job loss.
He goes onto to bash TPP which is not more about protecting patents and less about free trade. But his new research is a great paper by David Autor, David Dorn, and Gordon Hanson:
Adjustment in local labor markets [after trade liberalization] is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed worker experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but offsetting employment gains in other industries have yet to materialize.
Autor, Dorn, and Hanson are confirming what anyone familiar with the Stopler-Samuelson theorem would have predicted. Even if these workers found another job – their real wages would fall by more than the price of goods at Wal-Mart. I have no clue who establishment economics may be but those of us who studied international economics were not surprised by these research results. Incidentally this version has a picture that includes Paul Krugman as if he does not understand the Stopler-Samuelson proposition. C’mon man!


Nigel said...

I agree it's a silly article to claim that Krugman et al. don't understand trade theory but does the Stopler-Samuelson theory itself really refute the thrust of the article - that international trade can lead to a loss of jobs? From what you yourself say, the SS theorem seems to imply that workers who lose jobs WILL be redeployed but at a lower wage. Don't you have to add in some extra ingredient to get an overall fall in employment?

And did you mean to say "their REAL wages would fall by more than the price of goods at Wal-Mart"?

ProGrowthLiberal said...

Yes to both questions. The extra ingredient is a commitment by the makers of aggregate demand policies to insure we get back to full employment which alas has been lacking of late.

timm0 said...

I think you'd get closer to correct in interpreting the Senator's meaning if you were to realize that he's now bargaining with the 'establishment' for a relevant role in the post-primary world. And in doing so, Sanders is going out of his way to not excoriate the economists in the Obama administration for their clear and unwavering devotion to the neoliberal benefits of TPP. For that matter, Obama and his advisers seem to believe in most neoliberal tenets (manufacturing in US is over, college degrees will fix our structural unemployment problem, etc.).

Krugman has noted the downsides of the TPP, however, he has not come forward with a clear anti-TPP position. His dithering - plus his gushing advocacy for Clinton and tut-tutting over concepts like $15 per hour - has made him a special target for Sanders. It's an association game... not a helpful one, but low-info voters seem to respond to it.

So if you're in favor of TPP and believe there are no deleterious effects on jobs and wages, then you're in the net of those who Sanders is trying to slam. If you're mindful of the deleterious effects and are sensing a slight from Sanders, then it appears that you are just being over-sensitive to the use of the word 'establishment.' And in the case of the latter, you should be able to get over that relatively easily.

ProGrowthLiberal said...

Fair enough. For the record - the patent protection extensions of TPP are one reason I'm against TPP. Then again - no one has ever said I was "establishment".

inquirer said...

All SS says is that returns to the resource with a comparative advantage go up and those to the resource with a comparative disadvantage go down. There is nothing about if, or how, workers are re-deployed.

And in fact it has often been assumed that the labor market does adjust and everyone ends up employed at a wage comparable to what they had before. Numerical forecasts have been made on this basis.

Kaleberg said...

Sanders' problem is that he is running for president of the United States, so he can't count Chinese jobs in his favor the way economists can. I doubt he'd get much traction running for president of China.

Doc at the Radar Station said...

"Even if these workers found another job – their real wages would fall by more than the price of goods at Wal-Mart. I have no clue who establishment economics may be but those of us who studied international economics were not surprised by these research results."

The general public who haven't studied international economics were generally under the impression that the reverse was *supposed* to be true. Without top level politicians bringing this up and yourself unearthing this observation for the rest of us, who would know?

economist.political said...

The problem is not with economists but with economic theory which does not substantially include contingent or cumulative causation, let alone historical contingency including black swans or even responsibly analyze people in a non-functionary way. As an example of the latter, consider by contrast Adam Smith: "man is of all sorts of luggage the most difficult to be transported."