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October 01, 2015

Comments

Luis Enrique

w.r.t lifting people out of poverty, if we are talking in developing world, then growth of total trade is not the thing to look at, what matters is migration of trade patterns - i.e. East Asian tigers start doing less and sub-Saharan Africa and South Asia start doing more.

incidentally, you won't be surprised to learn existence of middle income trap is disputed
http://blogs.worldbank.org/futuredevelopment/there-no-middle-income-trap

Steve

Your complaint makes no sense: the healthiness of global trade makes no difference to the question of whether or not we should be restricting it further. If it is a good, then we should not be acting against it even if it is in poor shape.

Luis Enrique

this post is also related to the idea of premature industrialisation. here is Rodrik much in sympathy with you here, from transcript of recent conversation with Tyler C:

"the world economy isn’t going to be as much of an engine for growth for developing and emerging markets in the future as it has been until now"

https://medium.com/conversations-with-tyler/a-conversation-with-dani-rodrik-e02cf8784b9d

Deviation From The Mean

"He points out "nothing has actually done more in world history to ensure the poor don't stay poor...than the advance of free trade""

Coupled with the smart use of protectionism and the fight of trade unions. For example this study shows that the reason workers share of national income has been reducing is due to the erosion of trade union influence.


http://blogs.lse.ac.uk/politicsandpolicy/how-can-the-uk-boost-the-wage-share/

chris

@ Steve - I'm not rguing for trade restrictions at all. I'm complaining about the (implicit) view in Montie's piece that the only threat to trade growth comes from left-wing protectionism. This is (for now) the least of our problems.
Montie's view, in turn, is a specific example of a common idea - that the economy would be OK if only govt policy were right. FOr me, this is centrist utopianism.

Deviation From The Mean

"Montie's view, in turn, is a specific example of a common idea - that the economy would be OK if only govt policy were right"

The question we should be asking is why just government policy? Why not private bankers policy, or the decisions of company directors etc etc etc etc etc etc etc etc?

Asking this question reveals that we are not talking about utopianism, centrist or otherwise, but ideology pure and simple.

Behind every bourgeois prejudice lies bourgeois interest.

aragon

It is clearly technology that has changed the world, and the spread of technology, since first use of flint and other tools.

The emphasizing the importance of free trade is support for laissez-faire and an implicit accusation of, and rejection of Mercantilism or Neo-mercantilism.

Yet Neo-mercantilism was the system used by Germany, Japan, China etc to rapidly develop, while they abused free trade!

https://en.wikipedia.org/wiki/Mercantilism

Aromatic Fanny Adams

Trifffin's dilemma explains it.

nick ford

I think Aragon makes a very important point. Poverty reduction has come about as the result of productivity increases, which is generally the result of adopting modern technology, embedded in modern equipment. Free trade is one mechanism that has permitted 'third world' countries to more rapidly apply such technology and boost their productivity, but it is not the only way. Indeed trade is a means to an end -productivity growth- not an end in itself.

Bob

Yes, productivity increases are important, but it is also important to ensure wages grow in line with productivity.
http://bilbo.economicoutlook.net/blog/?p=31981

Kaleberg

Trade improves well being by abitraging the costs of labor, resources, IP, capital and the like. Trade lessens the differences, so one would expect trade to decline as the profits are taken.

I have yet to hear a believable theory explaining how taking trade arbitrage profits someone increases overall trade.

Bob

"Trade improves well being by abitraging the costs of labor,"
http://www.3spoken.co.uk/2014/06/how-immigration-affects-uk-economy.html?m=1
The total amount is fairly stable until 2004, which is when the new member states of the EU were allowed unlimited access to the UK jobs market. What you see then is the total amount of hours desired going up, along with the amount of hours worked, but the gap between the two tends to widen.


This is the effect of unlimited immigration. And the way it works is something like this:


Business puts out an advert for jobs. Any that are matched with the available workforce will disappear near immediately. That means that the 'total vacancies' number released every month by the ONS are jobs for which there is no current match, much as the outstanding bids and offers on the stock market are for shares where there is no current buyer or seller at that price.


Business then has a choice:

Invest in training somebody that is available up to the standard required.
Invest in plant and machinery to make the job redundant.
Don't bother filling the job and let the competition steal a march on you by doing 1 or 2. 

(We'll assume for the sake of brevity that the bidding of people from competitors has already got to the futility point where alternative strategies have come to the fore).


All of those cost money, and business doesn't like spending money. So it lobbies for a further option - nick somebody suitable from somewhere else in the world. 


If government relents and gives business this option, then a new person comes in, the match is made, production happens, trade happens and the expansion of the economy creates further work opportunities. 


And that is the standard pitch - let the multiplier take effect and prosperity will ensue. 


But of course from the graph we can see that isn't really happening. And the reason is straightforward. For immigration to have a positive effect it needs to be of high value. That helps to ensure that the multiplier is large, and that the new jobs created by the cascade have a chance of being of a low enough level to soak up the remaining people on the unemployment queue. 


However if you allow an unskilled migrant to come in, then the chances of creating a job that will match somebody else decrease significantly. The multiplier doesn't have as strong an effect. More likely you will just recreate nearly the same job you just filled. 


And that is what we see. Over time the number of people goes up, the number of hours demanded goes up, but the rate of under engagement stays about the same. If the total goes up and the rate stays roughly the same then the number of people unemployed, underemployed and inactive continues to go up - each one of those cases being a personal disaster for the individual involved. 


So allowing unskilled migrants into the country is great for the business involved and great for GDP, but it offloads costs onto the existing unemployed (who don't get trained) and society at large (which struggles to maintain an infrastructure that can cope, and suffers lower productivity and wage growth ). Again business gets to socialise their costs to increase private profit, and we see the impact in terms of lower productivity and lower business investment across the economy and a degree of social unrest.


A rational immigration policy is one that concentrates on high value individuals and one that makes those visas very expensive for the businesses involved. That way business is more likely to choose to improve the capital stock of the nation rather than going straight for the 'nick somebody else from abroad' option.

Yes we need the release valve of immigration to get around persistent shortages on the supply side in high value services, but business should never profit if they use that option. The value should really accrue to the state to offset the additional social costs of maintaining a higher population.

Bob

And its the same with trade. You want to ban imports of luxury goods and other crap. Import what you *need*

Keith

Strictly speaking "protectionism" is not left wing or right wing. It is a code word for a form of collectivism and economic planning managed by trade control. A policy followed many times before in economic history by different Governments and political systems. It was all the rage among conservatives in England from 1900 until the fifties.

The reason why trade growth raises the income of the masses in a long historical perspective is the connection with economic development. Trade grows fastest during an industrial take off when the population moves from low productivity agriculture, to manufacturing, and then to service /tertiary production.

It is quite possible for changes in trade to devastate certain industries or entire countries as the competitiveness of each industry or nation on the world market is always changing. As the steel workers or soon to be ex steel workers are discovering again.

How far trade will increase in the world depends on the degree to which fast growth in output can be produced by moving people to more productive sectors in places like China and India. If you think there will be effective development by the big countries you will have a different forecast about trade growth than if you think development will be slower. As chris says all such forecasts will be wrong most of the time.

Bob

"can be produced by moving people"
Here is an idea. We don't force people the roam the Earth for jobs like the EU does. We force businesses.

david

Global trade will obviously crash to unfathomable depths.... Air France, like Tesco's and all the others have just replaced their ground staff with robots....
Who is going to buy their products when NOBODY has a job?
David.

aragon

Did Mercantilism not convince you that Tim is wrong?

How about Dr Ha-joon Chang, University of Cambridge.

https://en.wikipedia.org/wiki/Ha-Joon_Chang

http://www.sed.manchester.ac.uk/research/events/conferences/povertyandcapital/chang.pdf

http://hajoonchang.net/wp-content/uploads/2012/01/Lall-Memorial.pdf

http://www.bloomsbury.com/us/bad-samaritans-9781596917385

"Bad Samaritans was an introduction to open-minded economists and political free-thinkers to Ha-Joon Chang's theories of the dangers of free-trade."

"Chang blasts holes in the "World Is Flat" orthodoxy of Thomas Friedman and others who argue that only unfettered capitalism and wide-open international trade can lift struggling nations out of poverty. On the contrary, Chang shows, today's economic superpowers-from the U.S. to Britain to his native Korea-all attained prosperity by shameless protectionism and government intervention in industry, a fact conveniently forgotten now that they want to compete in foreign markets."

Bob

"Who is going to buy their products when NOBODY has a job?"
Correct. Machines don't buy jobs.
We create lots of public sector jobs doing work for the public good.
That's the whole point of allowing capitalism at all. Capitalism with bullshit jobs isn't efficient. Might as well have communism.
You have an Job Alternative Guarantee open to all at the living wage. This leads to competition and suddenly "no deal" is in play.
You introduce a skills based immigration system and limit open immigration to wealthy countries also with full employment and universal healthcare and education. This is a sanction that says "improve your social infrastructure and join us."

Bob

Silly me, machines don't buy output. They don't buy jobs either, they steal them :)

Metatone

Most of the improvements Montie and others crow about relate to the rise of China. To all this "free trade" is really an abuse of the phrase.

So "trade", rather than "free trade" but even that largely underestimates the contribution of increased exploitation of energy resources.

When you remove that factor, trade is a really marginal one. It's curious how economists have latched on to it as such a totem.

Bob

There has been a significant amount of "export led" growth in China but this does not show the govts contribution:
Myths about China
http://bilbo.economicoutlook.net/blog/?p=16523

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