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<< Following Directions | Main | Jobs- and Union-Busting for Africa >> November 12, 2003Conservative Doubts on Job GrowthPaul Craig Roberts was a Reagan-era economic official and one of the brain trust that promoted "supply side economics." He's been doubtful, however, on the effectiveness of Bush's tax cuts and his analysis of the recent "positive" job news is interesting: Only a few of the 116,000 private sector jobs created in October provide good incomes: 6,000 new positions in legal services and accounting – activities that reflect corporations gearing up to protect their top executives from Sarbanes-Oxley.Roberts blames immigrants and trade with low-wage countries for US problems, an analysis that I think misses some of the complexity of the global economy-- but there is little question that Bush's failure to engage in what jobs are being created is a major problem.
Posted by Nathan at November 12, 2003 04:47 PM Related posts:
Trackback PingsTrackBack URL for this entry: CommentsYou know I've been following this site for some time now, and I still can't decide where you stand on "(un)free trade". I don't think there is a doubt that it has been a catastrophe for this country. Of companies are going to move as many high wage jobs offshore as possible and once you reach a certain critical level, it is almost impossible to "goose" the economy. Any job created here is just going to be in retail. The manufacturing jobs that would have been created here, are going to be created in a low wage country, I just don't think there is any doubt that this is what is happening. Posted by: SteveC at November 13, 2003 12:14 PM That's, Of course companies... Posted by: Steve C at November 13, 2003 12:15 PM Steve- A complicated subject, so I'll give an incredibly simplified answer :) In the ideal, I believe in zero tariffs and completely global trade, regulating by global labor, environmental and business standards. In the less than ideal reality, the answer is more conjectual based on how a particular proposal serves justice, both here in the US and abroad, on the path to that ideal system. Posted by: Nathan Newman at November 13, 2003 12:24 PM It looks like you believe in free trade, with conditions. The problem is, that isn't what we have right now, I stand by my former post, that is I think we've almost completely destroyed our job creating (except for low wage retail)ability. Posted by: SteveC at November 13, 2003 12:33 PM Actually- the trade issue is only part of the question. The other issue is the failure of the government to invest in the underlying investments to strengthen the economy-- job training, transit systems, research & development in new technologies, multi-firm partnerships to share the various production costs, and so on. Denying jobs to working people in other countries is not a progressive solution to helping working people in the US. In any case, it's unlikely to work very well. A far better approach is to redistribute money from the wealthy in the US to productive investments, support raising labor standards in developing countries so workers on both sides of borders benefit from trade, and strengthen global regulatory institutions to stop the "race to the bottom" of destructive competition to lower taxes and cut standards. Posted by: Nathan Newman at November 13, 2003 12:51 PM Steve C.: 1) As manufacturing productivity rises with technical improvements in capital stock, ouput increases at lower unit cost and employing less labor. Thus the manufacturing sector shrinks with time as a percentage of GDP, as both employment and per unit prices decrease. In the 1960's manufacturing was about 30% of U.S. GDP; today it is less than 15% of U.S. GDP. The same trend effects other advanced, heavily industrialized economies such as Germany or Japan. The main trend has nothing to do per se with free trade. Shifting manufacturing employment to poor countries to take advantage of low wages has, at least, until recently, taken place in low-wage, low-skill labor-intensive and hence lower- productivity sectors. This contributes, at least, to raising the overall measured productivity rate in the domestic manufacturing sector, though those left unemployed by such job exports will have to find work in other economic sectors perhaps for no better or somewhat worse pay. But you should realize that the largest part of international trade occurs primarily between the economies of the advanced industrial nations for reasons of industrial and technical specialization. 2) Comparative advantage, the reason economist almost unanimously support free-trade in principle, is a valid argument and a real economic effect in the complexities of the real world. The result is that, by each trading nation concentrating their investment and efforts on those sectors where they have the highest productivity-rate, regardless of the difference in overall productivity rates between the two countries, the overall productivity-rates of both countries, and thus the overall long-run standards of living of both countries, will be raised. The problem with the argument of at least some economists supporting free trade is that, though comparative advantage is a real effect in the world, they tend to ignore or underplay possible countervailing effects in the real world, that would diminish the net gain from comparative advantage. One of these is, of course, that the intersectoral re-alignment in both trading economies in the short-run will create winners and losers and the costs of remedying the dislocations of businesses and workers from losing sectors should be counted against the gain from free trade. Another possibility that needs consideration is the effects of trade on the distrubution of income in the respective countries. Businesses and workers in winning sectors will experience increased profits and income from the productivity gains, but, over the long-run, if the overall standard of living of the nation is to rise, the effects of this productivity gain will have to be redistributed economy-wide. (Of course, the first pathway by which this occurs is lower real prices, due to the lowered costs of increased productivity.) But, if the effect of trade overall in an economy is to redistribute income and wealth to the top level of the economy- (and competition from structurally unemployed workers will tend to hold down wage gains from workers in winning sectors, compared with gains in profits)- then a short-fall in overall aggregate demand in the economy can develop, negating the effects of increased productivity. Posted by: john c. halasz at November 13, 2003 10:33 PM American economics is not stable and Bush isn't to blame for all the problems (indeed the bubble and rapid speculation combined with corporate corruption went on right under Clinton). Our economy has never been so "sick", our corporate and personal debts are the highest in the industrialized world (and the highest our nation has ever experienced), our trade deficit is close to a half trillion and we're having to borrow enormous quantities of cash from all over the world to finance our out of control consumption of foreign produced goods and services (in the past issue of Fortune Magazine, Warren Buffet wrote an article advocating a form of trade protectionism), trillions of $s in stocks, bonds, real estate are owned by investors from abroad that could choose to liquidate those investments if there was a slump in confidence, no longer is private investment sufficient to finance our trade short fall (it's a fact, we now are getting most of our cash for our trade deficits from foreign Central Banks such as the one in China that purchases hundreds of billions of $ in federal bonds to sustain the value of the dollar). Business Week, The Economist, Fortune, Money, you name it and the issue has come to the top , the "Twin Deficits" won't disappear over night. Our federal regime has $6 trillion in debt, future obligations of $44 trillion that won't be able to be covered, will spend over $3.9 trillion during the coming decade making interest payments on our 'current' public debt (it'll be more if our deficits continue and The Economist reports the fed. deficit could peak at $800 billion in 2013). Most of the "7.2%" boom came from (1) lowest interest rates since the 50's and drastic surge in the amount of cash in circulation & (2) government tax reductions (financed via borrowing) that pumped short term demand into the market. That's not sustainable, how hard is it to comprehend that? In fact, most economic growth has been via fiscal and monetary "stimulus", with nothing long term being pushed. We have the second worst corporate tax regime in the industrialized world, our educational levels are the worst in the industrialized world (our workers just aren't that skilled and you can blame India on stealing out "high-tech" jobs but look at Israel, Israel has high labor costs but their ITC is the second best in the world and is prospering), our high taxes on investment & savings, deprive enterprise of cheap capital, our trade partners like China that hold down the value of their currencies via state intervention to make goods cheaper is not 'free' but one-sided trade. The problem is even deeper (private pension funds have a $2 trillion short fall), health care costs in the United States are the highest in the industrialized world and it's killing our employers. It's next to impossible to run a proper small business in America. What we need to do is: end the corporate tax, 'down size' the Pentagon (all save R&D investments), inflate the R&D tax deduction for private businesses, repeal the capital gains, dividend and interest taxes on all Americans earning under $100,000 (in all forms of income combined) (though keeping the taxes on the rich), introduce universal health care based on the Canadian model, boost the Earned Income Tax Credit and Child Tax Credits, end corporate tax "loopholes" that give certain companies advantages over others, double the small business tax incentive but take off automobiles as a deductible investment, end the Import-Export Corporation which uses our money to subsidize our corporations that move production out of America, make higher education universal as well as labor training services and enact a new form of tax (when an employer re-locates a production plant to another nation, that employer should have to deposit $1,400 - $1,800 per worker into a general fund which can be used to re-train and re-employ the workers that don't have work because of the move). We should also work to bring down the national debt (stop allowing people to take mortgage costs off their taxes, introduce tax credits that help and promote paying down of credit card and loan debts, the state should act and help renegotiate interest rates on debt owned by the poorest members of our community and help them get the debt down faster. We should not resort to trade protectionism though, push a head with FTAA & end the steel tariffs and agriculture welfare and work with European Union toward a North Atlantic Trade Agreement. Posted by: Richard Wilson at November 14, 2003 12:48 AM My deficit is just $60 billion more vs. Bush's and health care is free, benefits are more generous and help people vs. subsidize irresponsible behavior and education is free (as is most child care). Spending ($2401.96 billion: increased $169.17 billion)
Military Spending ($250.13 billion: cut $149.54 billion)
Iraq War ($0 billion: cut $49.99 billion)
Veterans and Military Retirement ($38.96 billion: cut $58.02 billion)
International affairs ($15.84 billion: cut $7.94 billion)
General science, space, and technology ($46.95 billion: increased $23.48 billion)
Non-Defense Energy Spending ($1.41 billion)
Natural resources and environment ($38.43 billion: increased $8.03 billion)
Agriculture ($8.31 billion: cut $12.82 billion)
Commerce and housing credit ($17.53 billion: increased $8.83 billion)
Transportation ($47.41 billion: cut $16.41 billion)
Community and regional development ($15.1 billion: increased $1.51 billion)
Education, training, employment, and social services ($163.6 billion: increased $81.8 billion)
Non-Medicare Health Spending ($490.84 billion: increased $245.05 billion)
Medicare ($517.29 billion: increased $258.65 billion)
Non-SS Retirement and Unemployment ($37.6 billion: cut $59.24 billion)
Social Welfare Spending ($217.52 billion: increased $35.02 billion)
Social security ($506.9 billion: increased $8.06 billion)
Administration of justice ($77.51 billion: increased $38.75 billion)
General government administration ($22.53 billion: increased $3.05 billion)
Net interest ($-26.88 billion: cut $189.58 billion)
Undistributed offsetting receipts ($-53.64 billion)
Tax Expenditures and 2001 Tax Cut ($896.39 billion: cut $90.92 billion)
2001 Tax Cut ($19 billion: cut $84.99 billion)
2003 Tax Cut ($0 billion: cut $109.88 billion)
Corporate Tax Breaks ($138.84 billion: increased $69.42 billion)
Personal Business & Investment Benefits ($273.22 billion: increased $136.61 billion)
Pension & Retirement Deductions ($311.39 billion: increased $155.69 billion)
Employer-paid Health Insurance ($0 billion: cut $120.15 billion)
Itemized Deductions ($88.02 billion: cut $107.52 billion)
Other personal tax expenditures ($65.92 billion: cut $30.06 billion) Posted by: Richard Wilson at November 14, 2003 01:10 AM "But you should realize that the largest part of international trade occurs primarily between the economies of the advanced industrial nations for reasons of industrial and technical specialization." Helluva post, but have you been to a Wal-Mart? How much of their crap is made in China? China is doing the manufacturing for one reason and one reason only, EXTREMELY low wages. I don't want to hear about this productivity crap. Posted by: SteveC at November 14, 2003 12:18 PM Just to add to the problems with the idea of comparative advantage: One thing that hasn't been mentioned is the infant industry argument. Short-term comparative advantage is different from long-term comparative advantage. The development of third-world countries is not aided by free trade because they need to protect emerging industries. If, say, a steal industry is being started in some country, it needs time to become internationally competitive. If its market is open to really cheap steal, it is not going to have a chance in the domestic market. It needs to be protected as it develops. Posted by: Brent Buxton at November 20, 2003 09:35 PM Post a comment
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