Economist's Challenge Puzzles Free-Trade Believers

E-Commerce Times ^ | Feb 27 2004 | Paul Blustein

[gg188]

Thanks to the movement of American jobs overseas, including well-paying jobs for engineers and computer programmers, "the United States will be a Third World country in 20 years," economist Paul Craig Roberts said at a Brookings Institution forum.

If economists could condemn members of their profession for heresy, Paul Craig Roberts would probably be a candidate for excommunication. Few tenets, after all, are so widely shared among economics PhDs as the belief in the positive impact of free trade. Yet Roberts is publicly challenging that precept, and making waves doing so at a time when trade has leapt to the forefront of the nation's political debate.

[gg188]

Posted for discussion purposes.

[tiamat]

I'm waiting to hear the howling the day the economists get off-shored for some guy in India who is willing to work for 12 k a year......

[Glenn]

"Some entrepreneur out there will figure out something; that's the best answer you can give," said Ruffin, the University of Houston economist.

It used to be you had to have a plan. Now you just sort of hope someone else will come up with one.

Not terribly reassuring. Perhaps some other country's eggheads will come up with the final answer.

[68skylark]

"The United States will be a Third World country in 20 years," economist Paul Craig Roberts said at a Brookings Institution forum.

The sky is falling!

[sgtbono2002]

Evidence is already here , look at American companies and watch them leave. To listen to the Democrats its all Bush's fault , they forget how hard they were pushing NAFTA and KYOTO and all that free trade crap.

[ReleaseTheHounds]

Paul Craig Roberts went off the deep-end years ago, usually commenting on social policy, but now that has expanded to economic policies. This is an affliction I've seen in a number of "movement" people: Barry Goldwater comes to mind (I think Barry's reaching out to the lefties was in part a result of his second marriage but it also probably can be attributed to too many years in the Senate). Lou Dobbs is another one who should know better.

[samtheman]

Many other economists after Ricardo have demonstrated the positive effect of both free trade in goods and the free movement of factors of production, Ruffin said, and although "you need a lot of hairy mathematics" to prove the point, "the evidence is overwhelming" that with free trade, "you have benefits that exceed the costs. There are always costs, but the benefits always exceed the costs."

Let's see the math.

[MarkT]

To the extent that the US heads toward third-world status, it will not be a function of trade policies.

Free trade merely allows the purchaser to purchase from the lowest cost producer. If the producing country wants to subsidize the producer, so be it - that is merely a back-door tax on the people of the producing country and a tax-given benefit to the people of the purchasing country.

The US problems are much more insidious...as we dumb down our educational system, we produce un-educated people who do not have the intellectual or educational skills to transfer from employment or occupation to another. That will be our downfall.

Also, because of some flaw, we have granted the voting franchise to far too many people who should not have it. Too many people who cannot read, speak English, do not pay taxes and who, generally, do not have a stake in the system, get to vote. We should get back to basics and only allow those who are educated, at least 35, who pay taxes and own property the franchise to vote - this country started going down hill in a serious fashion back in the 60's when the Great Society began - government cannot do for the people that which the people should do for themselves.

[sarcasm]

ping

[kittymyrib]

You must not live in the southwest, where much of our country is already "third world." Wake up.

[billl]

offshoring entry-level economists is already happening.
at least 1 investment bank has opened research offices in India to use their kids as the grunt number crunchers instead of ours. that was formerly the entry-level job to get on those sort of research teams.
when research got more distanced from deal-making as a result of recent scandals, the compensation for those research stars got cut off, hence the cost cutting urge.
i have also read, though, that some question was raised about the supervision and licensing issues if those off-shore number crunchers do anything above the most basic work.

[ARCADIA]

look at American companies and watch them leave.

What American companies? Many of them now are just foreign owned brand names.

[Zeppo]

Thanks to the movement of American jobs overseas, including well-paying jobs for engineers and computer programmers, "the United States will be a Third World country in 20 years,"

Unrestrained illegal immigration will take care of that without any help from India...

[oldironsides]

I spent 2 nights ago in a very busy city ER waiting for my relative to be seen and admitted. It was an absolute madhouse. Standing room only and it never improved the 8 hours we were there. Third world? Only the nurses spoke English fluently. The MDs were all foreign. There was one female MD that appeared to be American. The patients and loved ones about 90% minority. I sat and watched the staff working hard. The place itself was more than a little dirty. Walls and floors neeeded a good scrubbing. Third world? Who knows?

[e_castillo]

"We're all scrambling to counter these guys at a political level," Baldwin said. "It's not hard to counter them at the classroom level. But in the real world, it's not so easy."

I'm sure it would take an act of congress to get this guy fired for incompetence. Real world all right.

[ovrtaxt]

It used to be you had to have a plan. Now you just sort of hope someone else will come up with one.

What, you don't have one? I guess you're not an entrepreneur.

I have a plan, and poverty isn't in it.

[ovrtaxt]

Unrestrained illegal immigration will take care of that without any help from India...

THAT"S exactly correct.

[Glenn]

What, you don't have one?

I was speaking about the article. Don't make this personal before I've had my coffee, okay?

[ovrtaxt]

Hehe, sorry!! :^) I just get tired of people who have all the world's potential and they just complain. I employ people like that, and they will always depend on someone else unless they change.

[A. Pole]

"These pronouncements are especially troubling" because Roberts is "a professional economist with a genuine free-market bent to his work," wrote Donald J. Boudreaux, chairman of the economics department of George Mason University, in a draft article he wrote for a journal published by the libertarian Cato Institute. According to Boudreaux, "Paul Craig Roberts does not understand the principle of comparative advantage," one of the central tenets of trade theory. For his part, Roberts dismisses such criticism as typical of the profession's "knee-jerk" views on trade.

Trade theory bump

[crz]

("Thanks to the movement of American jobs overseas, including well-paying jobs for engineers and computer programmers, "the United States will be a Third World country in 20 years,")


20 years? That long? Engineers and computer programs are not the industries that are the foundation of the economy. Farming, Logging and mining are. And all three have become so much under attack that they are near collapse.

Russia will become the worlds most powerful economic nation in 10 years if they make the correct political moves. Raw natural resources-Russia has them and will use them and the eco fruits had better not show up there to try and stop anything.

[A. Pole]

In a phone interview from his home in Panama City, Fla., Roberts, 64, said the questions his detractors have raised about his motives show the weakness of their case. "They're looking for some reason that has nothing to do with my economic argument, because they cannot confront my economic argument," he said. The overwhelming majority of economists, he said, take the free-trade side because they "are just programmed. For them, free trade is a religious experience. They just 'know' it's good."

Bump.

[P.O.E.]

Fairness and equality sound nice on paper, but the reality is that free trade rapidly arbitrages out differentials, bringing the "tops" down. Pump lot of people into the denominator of the equations, suddenly there's a lot lower average. The high standard of living Americans built is rapidly being dispersed. If it were intellectual property or - gasp - a song, there'd be a hue and cry to rein it in.

[eno_]

Unrestrained illegal immigration will take care of that without any help from India...

That, plus corruption, plus high taxes, plus a heavy regulatory burden...

Free trade is way down the list.

Nations turn themselves into economic backwaters. If it happens to us, it won't be India's fault.

[neutrino]

Great article, thank you for posting it!

The point about Ricardo's underlying assumptions is, I think, powerful - and this factor needs to be understood by the free traders.

Remarkable, is it not, that the same FReepers who would revile the views of university professors on most things embrace free trade with such fawning affection.

[Malesherbes]

Samtheman has it right: let's see the math. All we ever hear from the "free trade" economists is slogans. A favorite slogan is: we'll retrain our workforce for higher tech jobs. This is said in a country where half the blacks and hispanics do not graduate from high school, and a high percentage of the whites who do graduate are functionally illiterate - not to mention the inability to do simply math.

We're in deep do-do, and it's time to get serious about what's happening.

[eno_]

20 years? That long? Engineers and computer programs are not the industries that are the foundation of the economy. Farming, Logging and mining are. And all three have become so much under attack that they are near collapse.

Yes, and they are under attack from within. We are doing it to ourselves. Blaming outsourcing is a distraction from the fact it is leftists in the U.S. that are the most dangerous enemy.

[eno_]

This is said in a country where half the blacks and hispanics do not graduate from high school, and a high percentage of the whites who do graduate are functionally illiterate - not to mention the inability to do simply math.

You are correct. So what do you want to do about it? Put all these people into unionized jobs so they can stick the productive among us with the cost of their improvidence?

[eno_]

If the "1st World" economy is freely connected to a "3rd World" economy, then the two economies will move toward equilibrium, with one dropping and one rising. This is an indisputable fact of life. Oh, there are those that will cloud the issue with arguments that synergy will improve both economies, and that may be true. But it will only improve them relative to the equilibrium point.

You are correct. But you don't count the value of adding large markets to the economy. 20 years ago you could only sell technology products in the U.S., western Europe, and Japan. The rest of the world was not accessable as a market. The small (15 people, but growing!) company where I work sells products in China, and will add India this year. Even with most of their population still poor, both India and China are about as large a market as Japan. That means my company can sell about 40% more stuff than if those markets were not available to us.

40% more ain't chicken feed. As a significant shareholder, that means a couple million dollars to me, in terms of the company's valuation. For one of our engineers, that's tens to hundreds of thousands in the value of their options.

Russia could be as big as Germany. If Brazil or Argentina make a comeback, that would add another large market.

[Taxman]

Interesting that in all this discussion, no mention is made of the impact federal taxes and regulation have on businesses in the US.

Also, no mention is made of the fact that the US takes it in the shorts re: our trading partner's VATs and import duties. We do not have either FRee or Fair Trade policies in this regard -- disproportionally, our economic "partners" discriminate against American products in their VAT and import duties while our "FRee Trade" poobahs refuse to play the hardball game that REAL international fair trade policies demand.

The playing field is not level, FReepers!

Third World status for America will be assured if we do not force Congress and the Administration to change our tax code (National Retail Sales Tax), restore some sanity to federal regulatory policy and play hardball with our trading "partners" in respect of import duties.

[Taxman]

Whoops! Taxreform ping to my #24.

[ARCADIA]

Put all these people into unionized jobs so they can stick the productive among us with the cost of their improvidence?

I hope that you remember that line when clock ticks for you. You will be shocked by how fast this market can turn a star into a turd. Hold onto that little job/business of yours and pray hard. If you are really lucky, the worst of it won't hit you for a couple of years.

[Taxman]

Whoops! #32.

Not enough coffee yet!

[eno_]

Well, OK, how would you address what the original poster said:

This is said in a country where half the blacks and hispanics do not graduate from high school, and a high percentage of the whites who do graduate are functionally illiterate - not to mention the inability to do simply math.

How will we pay for a higher standard of living for these people except by taking it from the money I would otherwise spend on my children?

[George Frm Br00klyn Park]

"Thanks to the movement of American jobs overseas, including well-paying jobs for engineers and computer programmers, "the United States will be a Third World country in 20 years,"

Guys, That's the idea. "Harmonize the world economy". But, We won't be a "third world country". We {The U.S. of A. "middle" class along with the "underprivileged"} will be on a par at "the LOWEST common denominator". Socialists all. Present day policies and proposals make this inevitable. Peace and love, George.

[BlazingArizona]

You must not live in the southwest, where much of our country is already "third world." Wake up.

Immigrants are not the problem becauase anyone living here pays the same taxes, gasoline, and rent that the rest of us do. There is no way that an Indian programmer living in America can make do on $10K per year.

[mo]

You are so right...missing from most public discussions of this issue is the profound fact that the welfare, tax and regulatory burden each American job is saddled with renders almost anything we do economically incompatible with a similar job anywhere else outside of Europe. A European job is the only job with a higher such burden.

[1rudeboy]

I'm waiting to hear the howling the day the economists get off-shored for some guy in India who is willing to work for 12 k a year....

So I presume you'd add some more arguments based on emotion to your side of the column. Having known some economists, however, I'd wager you'll keep waiting.

[tiamat]

Your screen name suits you.

[Taxman]

Wake up America!

America can compete in the world economy, but not with the welfare, tax and regulatory shackles OUR OWN GOVERNMENT imposes on our economy.

If we were to FRee the economy of these entirely artificial shackles, we would be the leading manufacturing nation in the world, no problem.

Dr. Roberts used to advocate for a National Retail Sales Tax and Fair Trade laws -- wonder if he still does?

[1rudeboy]

Thanks. I chose it carefully.

[M-cubed]

2+2=5...its called "fuzzy math"...it doesnt make sense now...but...some entrepreneurial genius will prove its true and reap huge rewards...Its maths free market equivilant to an economist!!!

[ninenot]

Nobody says Indian programmers make $10K/year here.

But they DO take work at $43K/year, about 20k under USA average.

And the Tata-type firms pay them "only" $24K--and provide about 30K in housing allowance in addition--not taxable.

[Iscool]

Mainstream trade experts contend that such a scenario is no more grounded in reality than past scares about mass job losses, which centered on "automation" in the 1950s and 1960s, "de-industrialization" in the 1980s, and the "giant sucking sound" of jobs moving to Mexico conjured up by Ross Perot during the debate over the North American Free Trade Agreement in the early 1990s. In each case, the limited job losses that occurred drove down costs and generated efficiencies that fueled increases in U.S. productivity -- the ultimate source of higher American living standards.

Now here's the real deal...The "mainstream" economists have to resort to lying to convince the people of their dreamworld...When a few million people lose the jobs (forever) we call it limited losses...These "experts" don't want the "mainstream public" to know that these jobs continue to leave on a daily basis...

You can bet if any American is for this sham, he/she sees an opportunity to make a buck in it...That includes many on FR...This is not a party issue...It's an American survival issue...

[DustyMoment]

Sadly, you nailed it!!

We all want to point the fickle finger of fate at India but, in all reality, they are only doing what any other nation would do under the same circumstances.

WE are responsible for our own future and, from the data currently available, the future is not looking too bright.

[Iscool]

As a significant shareholder, that means a couple million dollars to me

How will we pay for a higher standard of living for these people except by taking it from the money I would otherwise spend on my children?

What, now they can't have gold plated skateboards??? I am sympathetic to you your plight...My hearts bleeds for you...

[DustyMoment]

Wow, that's an aspect of this whole debate I hadn't even considered!! That's powerful.

You could well be onto something, there.

[Snuffington]

Boudreaux asserted that as long as the United States maintains policies that make it an attractive place to invest, the U.S. capital that gets shipped overseas "will in all likelihood be replaced by new and more productive capital." But there's no way to be more specific than that.

Well we haven't exactly been in a deregulation phase for the past decade. All those feel-good diversity, environmental, and "accesibility," regulations have imposed ever greater costs on doing business in the U. S. And we have an undeniably out of control legal system imposing even more cost on business.

If America wants to pursue free trade, we need to shed ourselves of some of the silly little regulations made up in the boom-times, when money was growing on trees. But I don't see either party even talking about that sort of thing.

[jpsb]

Free trade is one thing, and what we have ins't free trade. For 200 years our republic it fine with tariffs, but now the big spending, high taxing nanny state lovers of th one party system have taken over and they just can't wait to destroy the usa. Democrats and neocons bringing Marxism to the republic. Tyrants.