Archive for the 'Globalization' Category

Globalization and taxes

August 9, 2012

Eduardo Porter, writing in the New York Times, says we need policies to help adjust to, not fight against, economic globalization.

In the Financial Times, Jared Bernstein argues that our chief tax problem is lack of revenues, not lack of progressivity.

I agree (here, here).

Poverty and immigration in the U.S. and abroad

November 29, 2010

The incomes of American households at the low end of the distribution aren’t especially high, and haven’t increased much, when compared to those of their counterparts in other rich nations. But perhaps this is an unfair comparison. After all, hasn’t the United States absorbed a much larger flow of immigrants than any other affluent country?

Actually, as the following chart shows, we’re not exceptional in this regard.

Does the U.S. have more of the type of immigrants most likely to struggle in the labor market — those with limited education? Again no. As this next chart indicates, here too we’re in the middle of the pack.

America and the world

May 13, 2010

Lecture slides for the “America and the World” section of my Social Issues in America course:

Is there a cure for poverty?


When should we intervene?

How many immigrants should we let in?

Coming to terms with globalization

Reducing inequality: put the brakes on globalization?

April 15, 2009

Trade, outward foreign investment (movement of plants and services abroad), and immigration very likely have contributed to the growth of U.S. earnings inequality over the past several decades. Reducing any or all of them might well help to boost wages among Americans in the lower half of the distribution.

But in my view this shouldn’t be even a minor part of a strategy for inequality reduction, much less its chief focus. Trade, investment abroad, and immigration tend to benefit citizens in and from poor countries, which includes the bulk of the world’s population. Most of these people are substantially poorer than even the poorest Americans.

Yes, globalization enriches some rapacious corporations and despotic rulers, and vulnerable workers are exploited. But access to the American market and to employment by U.S.-based transnational firms has helped improve the lives of hundreds of millions of Chinese, Indians, and others in recent decades. And moving to the United States almost invariably enhances the living standards of immigrants from poor nations. It would be a bitter irony if American progressives succeeded in making a real dent in our inequality problem at the expense of the world’s poorest and most needy. We should look elsewhere for solutions.

I’m not suggesting we should sit idly by and let globalization have its way with the Americans who lose their jobs or experience falling wages. But rather than try to slow or block globalization, we should instead do what we can to enhance their flexibility and adaptability and to provide adequate cushions and supports. Among the things we Americans can learn from the Danes, Swedes, and Dutch, one of the most valuable is that it’s possible to embrace globalization (and other sources of economic change and disruption) and still have a high-opportunity, low-inequality, low-poverty society. The following chart offers one indication of this. It shows earnings inequality by imports as of the mid-2000s. Import-heavy countries are by no means doomed to high inequality.

Most of us want policies like wage insurance, better unemployment compensation, portable health insurance and pensions, support for retraining, and assistance with job placement not just because they can help to blunt the adverse consequences of globalization, but because they do so for economic change in general — whether it’s a product of technological progress, geographical shifts of industries and firms within the United States, or what have you. Arguing for limits on globalization directs attention away from these policies, making their adoption less likely. Paradoxically, then, we end up with the worst of both worlds: marginal trade limits, half-hearted steps to curtail investment abroad, confused and ineffective immigration policy, and too little of the supports and cushions needed for successful adjustment.

If you don’t like my take on this, consider what the following have to say before you make up your mind: Alan Blinder, Paul Collier (ch. 10), Brad DeLong, James Galbraith, Nicholas Kristof, Paul Krugman, Dani Rodrik (ch. 9), Amartya Sen (ch. 4), Gene Sperling, Joseph Stiglitz (ch. 3).

Why Embrace Economic Change?

April 6, 2008

I suggested in an earlier post that it would be good if leading Democrats encouraged Americans to embrace economic change. Doing so would increase the political feasibility of putting in place a policy package that enhances economic security and promotes mobility.

I want to try to spell out the argument a little more clearly and elaborate a bit.

The argument

1. Economic globalization tends to benefit Americans as consumers. We get to choose from a wider array of products and services, and the increased competition among firms tends to reduce the prices we pay.

2. Economic globalization also benefits some Americans as workers. The prices their employers pay for inputs are lower, and the number of customers is larger. Both may increase employment and/or wages.

3. Economic globalization hurts some Americans as workers. Some lose their job; others experience stagnant or falling wages.

4. Access to the U.S. market tends to benefit citizens in poor countries, in the form of more jobs at higher wages. This is good for Americans on both altruistic and self-interested grounds.

5. It is economically and politically wise to have government policies in place that help those hurt by globalization to adjust. These include unemployment insurance, portable pensions and health insurance, retraining, job placement assistance, wage insurance, infrastructure improvement for hard-hit communities, and a higher and inflation-adjusted minimum wage and Earned Income Tax Credit. In addition, government can support job creation via a large-scale investment in renewable energy and/or an employer subsidy. By compensating the losers, these policies make globalization win-win. And in doing so, they lessen opposition.

6. Technological advance has properties similar to globalization; it tends to benefit us as consumers and some of us as workers, but it also hurts some of us as workers. So too does the ability to move, buy, and sell across state borders within the United States.

7. The policies described in #5 are just as appropriate for those hurt by technological change or internal economic movement as for those hurt by globalization. We would want these policies even if there were no cross-country trade or offshoring at all.

8. These policies are likely to be easier to sell politically if framed as a response to all forms of economic change, including globalization.

9. We already have most of these policies, but they are inadequate in coverage, funding, and coordination.

10. Part of the reason these programs are inadequate is that debate about economic globalization tends to get stuck on the question of free trade vs. managed trade. Three groups have an interest in framing the debate in these terms. One is Republicans who find it helpful to argue that Democrats are protectionist and therefore against the interests of American as consumers. The second is lobbyists for firms that stand to benefit from protection. The third group is people who work in manufacturing and offshorable services. They hope that blocking trade and offshoring will help protect their jobs. Democrats want their votes and hence often say they’ll address globalization in part by restricting it.

Regardless of whether the proposed restrictions are relatively minor (minimal labor and/or environmental standards) or extensive, once this door is opened it almost inevitably takes center stage in the debate. Far less attention, if any, gets devoted to the adjustment and cushioning side. As a result, the political constituency and momentum for these policies tend to be far smaller than they could be.

11. For Democrats, it might not be harmful politically to shift toward a position that embraces economic change — in other words, that forgoes managed trade. Democrats could then ask voters whether they prefer globalization and technological advance with less government help (the Republican position) or with more. But even if it hurts them politically in the short run, an approach that focuses on responding to globalization via adjustment and cushioning rather than managed trade is, in my view, the right thing for Democrats to do.

12. This does not mean Democrats ought to rule out trade restrictions altogether. What it means is that they should leave them off the list, or put them at the very bottom, of strategies for addressing job loss and wage stagnation. And labor and environmental standards should be discussed mainly in the context of foreign and/or environmental policy, rather than trade policy.

A couple of examples

Barack Obama and Hillary Clinton. In campaigning in Ohio and Pennsylvania, Clinton and Obama have criticized trade agreements such as NAFTA for contributing to American job losses. What’s ironic is that the leading economic advisers to both candidates — Austan Goolsbee for Obama and Gene Sperling for Clinton — are known to have different views about how to approach economic globalization. I’m not sure whether the candidates’ positions are due to the closeness of the campaign or to a genuine difference between them and their advisers (more on this here, here, and here). Either way, I’m afraid there will be little significant advance in pursuing the policy agenda highlighted in point 5 above until leading Democrats move away from the managed trade approach to globalization.

Jared Bernstein. I’ve just read Jared Bernstein’s book All Together Now: Common Sense for a Fair Economy. It’s full of compelling analysis and argument. On addressing the challenge of globalization, he offers a three-pronged proposal (pp. 72-77). One is help with adjustment. A second is a proactive strategy to create new jobs. These are both terrific. The third, though, is to more actively manage our trade arrangements, mainly in the form of imposing conditions on our trading partners — “some degree of labor standards and honesty in exchange rates.” There is nothing wrong with this per se. But once managed trade is introduced as an option, it ends up crowding out discussion of other approaches.

Okay, but …

They don’t really mean it. Neither Obama nor Clinton is likely to press for serious restrictions on trade or offshoring if elected president. This holds for most Democrats running for Congress too. But that isn’t the point. Even if they did follow through on a managed trade agenda, it probably wouldn’t have much impact on actual import levels. Pacts such as NAFTA seldom dramatically alter the degree of cross-border trade; had it not passed, imports from Mexico would not be much lower than they are today. The problem isn’t that managed trade rhetoric might lead to actual trade restrictions; it’s that it distracts from efforts to advance the scope and generosity of adjustment and cushioning policies.

Are there really net gains to Americans from globalization? I think the evidence leans heavily in favor of believing so, but some reasonable analysts are skeptical. Even if this skeptical view were correct, though, I doubt that trade restrictions would do nearly as much good for Americans as a generous set of cushioning and adjustment policies.

We need the cushions in place first, before agreeing to forgo trade restrictions. This is a reasonable notion in the abstract. But it traps us in an unproductive loop. Insisting that the cushions come first reduces the chance we’ll get them. And round and round we go.

I might be wrong about the impact of restrictionist rhetoric on the politics of social policy. My argument rests on a hypothesis that Democratic leaders’ trade rhetoric has a significant effect on the political feasibility of more generous and extensive social policies. I could be wrong about this. But given that any trade restrictions they might actually put in place would probably do little to stem globalization, it seems to me the potential costs of abandoning managed trade rhetoric are likely small.

More reading

Here are links to some of my favorite writing on this issue:

Alan Blinder, Offshoring: the next industrial revolution?

Brad DeLong, Free vs. fair trade

James Galbraith, Why populists need to rethink trade

Nicholas Kristof, Inviting all Democrats

Paul Krugman, Pop internationalism

Paul Krugman, In praise of cheap labor

Paul Krugman, Divided over trade

Paul Krugman, Trade and wages, reconsidered

Robert Reich, Hillary and Barack, afta Nafta

Dani Rodrik, Has globalization gone too far?

Gene Sperling, The pro-growth progressive

Gene Sperling, Rising tide economics

Joseph Stiglitz, Making globalization work (ch. 3)

Mark Thoma and others, Helping the losers from globalization

Embrace Economic Change

March 2, 2008

Change has been the dominant theme of this presidential campaign. Barack Obama’s mantra has proved extremely popular among voters, so much so that other candidates in both parties have signed on.

The change they’ve embraced is political change. When it comes to economic change, enthusiasm is decidedly more muted. Many Americans would be happy with a change in our economic policies. But the notion that we should get used to — and perhaps even welcome — continuous, regular economic change is a tougher sell. This is particularly evident with respect to globalization. To many, change isn’t terribly appealing if it refers to more imports and outsourcing. For them this type of change equals disappearing jobs and smaller paychecks.

Globalization — much like technological advance, another key form of economic change — clearly does result in job loss and falling real wages for some Americans. Researchers disagree about the magnitude of the damage (see here). Some say it is tiny; others view it as small but growing; others conclude it is already large.

Yet on the whole economic globalization is a good thing. We benefit as consumers by having greater choice and paying lower prices. Citizens in other countries, especially poor ones, benefit from greater access to jobs and rising wages. The latter is beneficial not just on altruistic grounds. It is in Americans’ self-interest for poor countries to get richer. As countries develop economically they are more likely to become democratic, and to stay democratic. And democratic countries are less likely to attack one another. Also, as citizens in poor nations become richer they will be able to buy more goods and services produced here.

Yes, there are exceptions. But in the aggregate the advantages of globalization for Americans outweigh the costs. That, rather than because they are acting at the behest of corporate lobbyists, is the main reason why many Democrats are favorably disposed toward globalization.

Too often, though, they don’t talk that way. Especially when campaigning in states like Ohio, where large numbers of residents have lost a job in recent years or fear that may happen soon, Democratic candidates tend to say less about the benefits of economic change and more about the shortcomings of trade agreements such as NAFTA.

This is understandable as an election tactic. And on one view, it is largely innocuous. David Leonhardt of the New York Times aptly likens Democrats’ orientation toward globalization to the way many Republicans approach abortion: strong oppositional rhetoric during the campaign primaries, but little action once in office. If political leaders campaign against globalization but their later policy choices tend not to impede it, why worry?

The reason is that if leading Democrats instead were to advocate that we embrace economic change, they could stimulate a thorough discussion about, and likely generate greater public support for, policies that compensate for the adverse consequences of that change.

Most Americans who worry about globalization are not dead set against economic change. They just want government to do something to help. And government can do something. It can broaden eligibility for unemployment insurance. It can make benefits like pensions and health insurance more portable. It can help offset the cost of retraining and relocation. It can assist with job placement. It can offer wage insurance to limit income loss if getting a new job entails a pay cut. It can invest in infrastructure improvement to help rebuild hard-hit communities. It can gradually increase the minimum wage and the Earned Income Tax Credit. (More discussion here, here, here, and here.)

None of these policies would be inordinately expensive. None would require massive interference with markets. Each has considerable merit in its own right. And each would help to make globalization, technological advance, and other forms of economic change win-win.

But for this type of policy approach to make real headway in our political debate, we need our most visible political leaders to encourage us to embrace change.


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