Wednesday, May 16, 2007

I'm gonna have to agree with my fellow economist on this one.

Mark Thoma's patience and good humor has been rewarded with a well deserved flurry of links. Also he linked to me once. The problem is that he is discussing one of the few issues where I buy into the economics profession orthodoxy -- free trade. I must stress that I think rich countries should not protect because I care about workers in poor countries, so I may not be totally convinced that free trade is part of an optimal set of policies for every country.

However, Thoma uses the magic acronym EITC

Thoma "Here's what I mean. We say we need to use some of the gains from trade to help workers hurt by globalization, but beyond the broad acknowledgment of that point, we don't have much specific to offer. There's the usual list, unemployment insurance, wage insurance, job retraining, help with relocation, food stamps, minimum wage, EITC, etc., etc., but most of these have been around for awhile and don't generate much excitement or interest."

Guy saying economists suck (GSES) "That's because things like job retraining don't work, though they seem to make people who still have jobs feel better, and the rest of the things on the list just help you put off taking a worse job than you had before."

Wrong. GSES you were doing OK with the bit about economists, but you are clueless about the EITC. In addition to being a transfer to the poor it encourages people to not put off taking a job they can get.

Thoma goes on the explain that what this country needs is a balanced tax program, that is soak the rich and spread it out thin. He does have very odd views on politics however.

"Most of the ways we've dealt with this in the past have, as I talked about before, been targeted at groups of people demonstrably hurt by globalization. That has two advantages. First, when you can point your finger at a particular person it draws sympathy and support. Help is easier to get when there's an identifiable victim. But when the effect is, say, to lower the wages of low-skilled workers generally by, say, 5% or 10%, it's harder to find that particular group or person to single out as an example of the harm from globalization. The politics behind the problem are very different. In addition, there is a second advantage to targeted help. When help is given to specific groups of individuals, those getting the help understand what the help is for and those giving the help can see that it is going to the affected parties. This is different from, say, increasing taxes to transfer money from higher to lower income individuals. The reason for the income transfer may be to compensate the losers from globalization, but the disconnection between the income transfer policy and the reasons for it - compensation for the costs of globalization - will make such a policy difficult to implement and sustain."

Huh ? Why ? Taxing the rich and sending the cash to US workers will be a very very popular policy. People demand it whenever they are polled. It is a political mystery that the rich have managed politically so far. I think it has more to do with Democrats fearing the disapproval of pundits than any Rovian political genius.

I'm sure it is only a matter of time. I would guess about 2 years till the President signs the bill.


Anonymous said...

May 10, 2007

Why Populists Need to Re-think Trade: Progressives prioritize a trade agenda that would not actually achieve the objectives they have in mind. It's time they adopted a reality-based approach.
By James K. Galbraith

The 2006 election opened up American politics, for the first time in decades. It has presented progressives with the opportunity, and the obligation, to define themselves on the big issues. Of these, trade is clearly one of the most potent; alongside the war, it is one of the few questions plainly capable of turning elections in the battleground states.

In a Washington Post essay published late last year, on the eve of the Democrats' ascension to the majority, Senators Byron Dorgan and Sherrod Brown articulated a trade policy that typifies the consensus view of the party's labor-liberal wing. They criticize "free trade," call for strong labor and environmental standards in future trade agreements, and argue for aggressive policies to open foreign markets to American goods. Their critique reflects a genuine anger, and the concerns their piece embodies deserve to be met. Their program is populist, nationalist, muscular, and in tune with the mood of the Democratic base.

But it is not reality-based. As policy, it would not achieve the senators' basic objective -- namely, more jobs at higher wages in the United States. As politics, the danger is not that it will fail but that it might succeed. And then, progressives in power will repeat the pattern that conservatives set in 1981, pushing a program based on high expectations and illusions that ends in confusion, reversals, defeats, and an eventual lapse into incoherence and disrepute....


Anonymous said...

Ah, Brad DeLong has also referred to the article by James Galbraith, along with Paul Krugman's article on trade.


Anonymous said...

May 14, 2007

Paul Krugman: Divided Over Trade
Edited by Mark Thoma

Paul Krugman discusses the recent trade deal and whether the inclusion of provisions such as labor standards will prove to be a substantial benefit to U.S. workers:

NY Times: Nothing divides Democrats like international trade policy. That became clear last week, when the announcement of a deal on trade between Democratic leaders and the Bush administration caused many party activists to accuse the leadership of selling out.

The furor subsided a bit as details ... emerged... But the Democrats remain sharply divided between those who believe that globalization is driving down ... wages..., and those who believe that ... international is ... essential... What makes this divide so agonizing is that both sides are right....


mark said...

I was going to post this today, but didn't quite get it ready and ended up with the thing on transportation adn housing costs instead. It's a pretty good review of the EITC program that was posted today at the Richmond Fed site:

This has quite a bit more, including Brad's view on the EITC, an Atlanta Fed study, summary of a CBO report:

That was a sloppy sentence, but I agree on the EITC.

And I do hope you are right on the rest!