Monday, May 07, 2007

Why I Hate Economists

via Ezra and Dean Baker, this column by Alan Blinder of Princeton is incredibly awful on a whole number of levels. There's basically something to loathe in every paragraph:
I'm a free trader down to my toes. Always have been. Yet lately, I'm being treated as a heretic by many of my fellow economists. Why? Because I have stuck my neck out and predicted that the offshoring of service jobs from rich countries such as the United States to poor countries such as India may pose major problems for tens of millions of American workers over the coming decades. In fact, I think offshoring may be the biggest political issue in economics for a generation.
First off, Alan: 2004 called, it wants it's election issue back. Secondly, you've got to love the desperate attempt to reassure readers that he's still a level-headed economist, because after all he's a free-trader "down to his toes". Not like those smelly hippies who value things like "clean air" or "liveable wages". Down the page a bit:
The first is technology, especially information and communications technology, which has been improving at an astonishing pace in recent decades.... And it's not just low-skill services such as key punching, transcription and telemarketing. It's also high-skill services such as radiology, architecture and engineering -- maybe even college teaching. [Lord, I hope that was a joke Alan.]

The second driver is the entry of about 1.5 billion "new" workers into the world economy. These folks aren't new to the world, of course. But they live in places such as China, India and the former Soviet bloc -- countries that used to stand outside the world economy....
So. Technological change and a growing population in the rapidly-developing world are an unprecedented danger to the core economies? Gee, that's never happened before, unless you count Japan, Germany, or even the United States back in the day.

What is happening here is not, as Alan Blinder would have us believe, unprecedented Nor is he trying to "save free trade from itself." He's trying to save himself from free trade. The world would not, in fact, be much worse off if some Indian Econ. Phd could teach Alan Blinder's classes for 1/10 the cost. His students would be much better off, his university could afford more books -- the only person who would be worse off would be, you guessed it, Alan Blinder.

What is being made here is not an argument about politics or economics, but rather ethics:
For these same forces don't look so benign from the viewpoint of an American computer programmer or accountant. They've done what they were told to do: They went to college and prepared for well-paid careers with bountiful employment opportunities. But now their bosses are eyeing legions of well-qualified, English-speaking programmers and accountants in India, for example, who will happily work for a fraction of what Americans earn. Such prospective competition puts a damper on wage increases. And if the jobs do move offshore, displaced American workers may lose not only their jobs but also their pensions and health insurance. These people can be forgiven if they have doubts about the virtues of globalization.
For Blinder, the American army of accountants, lawyers, programmers, etc. are deserving of protection because they played by the rules of the game -- the rules Blinder helped write -- and still look to be screwed over. This isn't an issue of efficiency or politics, but of a morally privileged position. Because the professional class behaved like good little Homo Economicus like the Chicago School told them to, they deserve to be saved. Alan Blinder is Noah, trying to build an ark for the professionals of the United States, two by two.

But of course, this isn't the first generation of people to "do what they were told to do." The baby boomer generation of industrial workers was told to work hard every day, save up for their kids and a pension, and they'd retire well in old age. About halfway through that process, economists like Alan Blinder -- guys who were "free-traders down to their toes" -- decided that, in fact, being an industrial worker was a thing of the past (especially if you belonged to a union, God forbid) and that your job could be better performed in Taiwan, Mexico, Malaysia, or any number of other places. And the downsizing of the 1980s and 1990s ensued, and the hemorrhage continues today.

This is worse than self-serving. It's grossly callous, and it sounds like Alan Blinder believes that the millions of people who lost their jobs because of "free" "trade" deserved their fates, while the millions of professionals who still stand to lose theirs don't. Alan Blinder wants to build a life raft for him and his family, after his profession helped push millions of people overboard in a storm.

And what kind of life raft does he want to build? Why, more of the same of course:
In addition, we need to rethink our education system so that it turns out more people who are trained for the jobs that will remain in the United States and fewer for the jobs that will migrate overseas. We cannot, of course, foresee exactly which jobs will go and which will stay. But one good bet is that many electronic service jobs will move offshore, whereas personal service jobs will not. Here are a few examples. Tax accounting is easily offshorable; onsite auditing is not. Computer programming is offshorable; computer repair is not. Architects could be endangered, but builders aren't.
Boy, that surname is sounding really appropriate right now, Prof. Blinder. As in "nobody is blinder to reality than I am": remember, the very professionals whose livelihoods are now threatened by offshoring got themselves educated in fields that were supposed to be "safe", as in immune to deindustrialization. Blinder's answer: more education! In different fields! Just because it's always failed in the past, that's no reason to give up hope now! Just keep clapping your hands, Alan.

Finally, this part is simply wrong. Not "open to interpretation", not "experts disagree", just plain stupid ignorant wrong:
Trade protection won't work. You can't block electrons from crossing national borders.
Oh yes, God Forbid we think about anything quite so, um, heretical as "trade protection." Because we all know that electrons can't be stopped at the border. Unless, of course, you work in China. Or any government office building. Or most workplaces with computers in North America. Yes, blocking electronic access to undesirable computers is actually a simple matter, and we do it every hour of every day, though the Chinese do it a bit more thoroughly than the rest of us. If we actually wanted to block Indian call centers from the North American phone network, we could do it. Whether we should bother would of course be another question, but there's no question we could do it, and quickly.

Look, you can accept the premise of free traders like Alan Blinder does with the 90% of American workers that aren't him or people like him, that free trade is a net plus. Or you can argue that, in fact, the reality of the global economy is far more complicated and that, yes, governments can intervene in international trade at least as much as they intervene in domestic trade, and if done competently we can all benefit. But you can't have both. Blinder was fine to let a generation of workers be ravaged by forces he's too much of a coward to face himself. So why the hell should I care what he thinks, and why the hell does he have a page in the Washington Post for this crap?


Travis Fast said...

Bravo, great polemic. There is one thing you can count a liberal (in the classical sense) economist to know: which side his bread is buttered on. It was all fun and games when it was the last generation's working class that was getting culled.

Fag Fucker said...

I agree that this column seems bizarrely out of date. Blinder seems to be having this epiphany that (shocking!) free trade is not unambiguously good and that the adjustments are wrenching.

However, I'm not sure you're being very charitable with his arguments.

First, I don't know if Blinder would use words like "unprecedented" but it does seem that the current economic context is at least unusual. While economic disruption in the face of new players is hardly new, the size and pace what's being going on for the last decade or so seems unique.

It certainly is in terms of technological change. The fact that you can have an engineering project run constantly 24 hours a day by having rotating teams on different sides of the world is new.

I also struggle to find an analogue to China, India, and the former Soviet Bloc all entering the global economy in force. The issue isn't population growth (which may have been a typo on your part) but that they have become much less autarkic and protectionist (fairly quickly I might add). You rightly point out that previously closed countries entering in force is hardly unprecedented but the scale and to some extent the rapidity seems pretty new to me.

Second, I totally agree that Blinder is wrong to only now be insisting on support for those who lose from liberalization. I think a strong social safety net is important to cushion ongoing dislocation. However (at the risk of being self-serving), I think there is at least some distinction between the loss of blue collar and white collar jobs. Working in a factory out of high school does not entail the large opportunity cost of post-secondary education. Urging people to forswear current earnings and take on a large debt load to boot is problematic if the promised economic payoff doesn't materialize.

Third, "more of the same" isn't entirely old hat. He's not advocating merely more education, but an emphasis on jobs that require face-to-face contact. However I do think Dean Baker is right to point out that this is probably misguided from an efficiency point of view and requires protectionist immigration policies to be effective.

Finally, while Blinder's article is a muddle, embarrassingly obvious at times and certainly worthy of criticism I think two key messages are worthwhile (with caveats):

1) trade liberalization is often good.

However, I do disagree with it as a blanket policy prescription and may not be appropriate under certain circumstances. I think the pace, sequencing and nature of the liberalization must be carefully managed to reap the benefits but I think they are positive in aggregate. This comes across in the trade literature and I see analogous conclusions from the Shumpetrian endogenous growth lit.

2) Focusing on western comparative advantage, i.e., the "knowledge economy" and especially science and R&D is probably a good idea. Investing significantly in protectionist policies is probably not sustainable in the very long run or is extremely expensive.

What I would add is that a strong social safety net is needed to cushion the dislocative effects. Universal health care or at least health care portability would be a good start for the U.S.

john said...

Population growth wasn't a typo, but it's not just that people are having lots of babies in the developing world -- it's that the developing world has grown, as Blinder writes, by 1.5 billion people. It's an order of magnitude more than the transition the global economy made in the late 19th century, when Germany, Japan, and the US were all simultaneously industrializing and entering the global economy to a much higher degree than they had been. (Lowering tariff barriers, importing new technologies from old core economies, etc.) But the dynamic is the same.

Clearly, there's "some distinction" between blue- and white-collar jobs. The question is whether it's enough to justify the hysterical concern Blinder has for the latter, and the neglect free-traders showed for the former.

And the problem with Blinder's education recommendation is that we don't know, and can't know, what technologies will make a job that's currently "face-to-face" offshoreable. Blinder recommends construction over architecture, for example. What happens when someone invents a remote-controlled drywaller that can be run fron Bangalore or Kinshasa? Or pick any example you prefer -- all the jobs that are currently in danger of being offshored were once considered safe because they were traditionally done locally, too. The education fix is the same old neoliberal prescription, and it's not that it's a bad idea, it's just that it's inadequate.

Fag Fucker said...

First, I suspect we're on the same page on a lot of things but I'm going to continue to quibble because I haven't had a good argument in a while.

Fundamentally I think much of the disagreement is in degree not in kind. Comparisons to the late 19th century are a case in point.

OECD stats indicate that the share of world population of Japan, Germany, and the US combined in 1870 was 9%. Using 2001 as a contrast, China had about 20.7% of world population with India clocking in at ~16.6%.

Japan's per capita GDP grew 88% from 1870-1913. The figures for Germany and the US are 102% and 117% respectively. Whereas China's grew 327% from 1973-2001, India a more "modest" 130%. (Sorry the time periods aren't commensurate but I'm giving the advantage to the late 19th C.)

Another thing that I wish I had made clearer in my earlier post is that while the U.S., Japan and Germany industrialized dramatically , so did a lot of other countries. Much of the Western European per-capita GDP grew 80-100% during the same time period (e.g., France, Austria, Denmark). Who constitutes the "core" economies during this period? Is it just the UK? I'm not sure there's a clear distinction between upstarts and incumbents. Also, did growth in Japan et al come at a cost to the UK? Were British jobs being lost hand over fist because of foreign rivals?

This isn't to say that the wave of globalization in the 19th C wasn't substantial. It just seems to me that what's happening now is in many ways on a larger scale (especially given population proportions), and at a more rapid pace. I suppose reasonable people can disagree but it's hardly an absurd proposition. Also, does Blinder even make this assertion? In the article he talks about it being the biggest economics issue "for a generation". But I'm curious what policy implications you would draw from the 19th C to apply today.

In terms of the blue collar- white collar issue, I agreed in my earlier comment that not failing to properly account for the adjustments faced by the latter was wrong. I merely wanted to point out that merely making a distinction between the two is reasonable.

In terms of policy prescriptions, I think a focus on face-to-face jobs is problematic but for different reasons. No one would argue that they are invulnerable but they probably are more secure in the face of offshoring. E.g., remote controlled construction just isn't that plausible. Ditto for onsite auditing. Even if it was plausible, who services the machines? The real problems to me are a) picking winners in general is bad and b) it requires restrictive immigration to work.

Since we do agree a lot, I guess my comments here are prompted somewhat by the surprising level of vitriol. Blinder is "hysterical" and more blind to reality than anyone? I'd write it off to polemic and creative license but the "hate" seems genuine. I can only surmise that this level of animosity is prompted more by previous statements or actions since this article seems rather innocuous to me. Even still, do you really hate these people? Or I am I taking things way to seriously?

Finally this isn't a criticism but I'm really curious what kind of protectionism you'd advocate. Would it have implications for poor in the developing world?

gary_mh said...

It does seem that it would be a lot easier to talk about trade if we did not believe the idea of comparative advantage is a real and tested theory or that it ever made any sense at all. It has seemed to me that is so. Ricardo's idea, noted up as a hypothetical notion in a couple of paragraphs of a 300 page book in 1817 did not work then and has not since. It seems to me he must have known this since he did not test the idea with real figures and he knew very well why England was "so circumstanced" as to defeat the Portugese in cloth manufacture. That was the result of a treaty made about a hundred years before in which the Portugese agreed to get their cloth from England (not making it themselves) in consideration of an exclusive position for their wine (or that from Oporto--hence "port"). England wanted a good source for wine as European supply was stopped due to a war at the time. Nothing to do with comparative advantage. And it was English capital that captured the wine making of this "port" in Portugal so Ricardo's assumption that capital would stay at home was false, to his own knowledge. And he did assume that if capital could and would go as it peased to where the rate was best, there would be a leveling out to an average return, then his idea did not work either.
When you work out a table of the cases his notion presents you will soon see there is a case of Portugal having either a relative or an absolute advantage for several of them in man hours on cloth making (labour theory of value used by Ricardo). Also wrong and Ricardo must have known it was the treaty and the subsequent history of power looms that made England way ahead in this trade by 1817. So let us forget about comparative advantage and the economists and talk about the political economy of trade. That will lead to a sensible discussion.

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