Consider the Evidence

Kathy G. is against it — as are many progressives, it seems. The main reason is that means testing is thought to “make the relevant programs a lot more politically vulnerable.” I used to believe this, but I’m now skeptical.

A paper by Robert Greenstein (in a 1991 Brookings book, The Urban Underclass) initially spurred my rethinking. He noted that some of our most important means-tested benefits, including the Earned Income Tax Credit and Medicaid, fared quite well during the Reagan era. Christopher Howard’s recent book The Welfare State Nobody Knows updates Greenstein’s argument and analysis. Peter Whiteford has an informative examination of cross-country patterns, with a focus on Australia’s successful use of targeted benefits. My own preliminary assessment of the evidence is here (pdf).

That doesn’t mean I favor means testing of Social Security benefits. When you have a universal program in place that is contributory, functions well at reasonable cost, and enjoys considerable public support, it makes sense to keep it universal. But for a number of other programs I worry about progressives getting hung up on the alleged superiority of universalism.

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

Andrew Leigh suggests that Australia would benefit from an Earned Income Tax Credit. I agree (pdf).

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.

The Center for the Study of Poverty and Inequality at Stanford University has begun publication of Pathways: A Magazine on Poverty, Inequality, and Social Policy. The full contents are available here. The inaugural issue includes, among other interesting articles, brief but substantive statements by Hillary Clinton, John Edwards, and Barack Obama on their proposed strategies for reducing poverty.

Particularly helpful is a piece by Rebecca Blank assessing the three candidates’ proposals. Blank is one of the country’s most careful and sensible analysts of poverty and social policy. Her conclusion:

“Obama, Edwards, and Clinton all have multifaceted and serious anti-poverty plans. Anyone concerned with poverty issues could happily vote for any of them. Edwards has made poverty a centerpiece issue for his campaign from the beginning; Clinton has the best early childhood proposals; Obama is the most thoughtful on jobs for disadvantaged youth and urban change and (for my money) the most creative in putting new policy ideas on the table, such as low-cost Internet service in poor neighborhoods.”

She also emphasizes that while each of the three favors multiple worthy policies,

“it is hard to tell how they would prioritize their current list of proposals. Presidents face limited resources and hard choices once they actually enter the White House and have to decide where to place their political chips.”

Read the full piece to see Blank’s own priority list.