----- Original Message ----- From: "Erik Reuter" <[EMAIL PROTECTED]> To: "Killer Bs Discussion" <[email protected]> Sent: Saturday, December 18, 2004 1:35 PM Subject: Re: Trade's Bounty
> On Thu, Dec 09, 2004 at 09:03:18AM -0600, Dan Minette wrote: > > > At the present, due to the growing imbalance, the jobs we might expect > > from free trade are not materializing, > > > Why do you expect jobs to "materialize" from free-trade? Trades of goods that we can make more efficiently for goods another can make more efficiently should result in income and jobs for them making stuff for us to use and for us making stuff for them to use. The examples you gave earlier illustrate that. Jobs are created by the production of products we sell, as well as jobs lost when we no longer make our own products. If we buy without selling, we lose the jobs we would have had making the stuff, while increasing our net debt....which cuts down our ability to make investments at home. If we trade evenly, we gain jobs making what we trade without increasing our net debt as a result of trade. > I'm not aware of anyone promising jobs from free-trade. My recolection was that NAFTA was sold as long term plus for jobs...from the increased efficiency. The Smoot-Hawley and other trade restrictions were described as having worsened the Great Depression, partially from the job losses that resulted. >The promise from free-trade is improved efficiency -- both parties end up with more than > they could have produced themselves with the same resources. No arguement here. >One should expect greater income, on a national level, from free-trade. This is usually true. And, historically, increases in national income have resulted in increases in jobs...so that's where I got my correlation between free trade and increased jobs. But, I think that increased trade, when the trade is IOUs for goods should not result in increased income for the country trading IOUs. Let us look at a toy model. Lets consider country A, which produces 1000 units of X, at a cost of 1000 aa, and a thousand units of Y at a cost of 1000 aa. The GDP of A is 2 million aa. Country B produces 1000 units of X, at a cost of 800 bb and 1000 units of Y at a cost of 1000 bb. The GDP of B is 1.8 million bb. Now, trade takes place, and country B sells 1000 units of X to A, with aa set equal to bb by some agreement. A pays in IOUs, morgaging factories and land in the process. The GDP of B goes to 2.8 million bb, and the GDP of A goes to 1 million aa. There is an inflation deflator, because A gets unit X for less, so that would raise it to 1.111 million aa. GDP still drops tremendously. National income drops as a result of trade. Now, the toy model I have is a bit extreme, no trade will be completely in IOUs for goods. But, I think there are some historical cases where the majority of the trade was that. The US is not there, but it is starting to get to the point where the trade in goods for IOUs is getting close to the level of trade of goods for goods. (so far in '04 it's at 80%). Trading goods for IOUs does not seem to help income. Clearly, it can't go on forever. One big question is whether the adjustment will be gradual or a shock....like the stock market correction in '29. >How that > income is distributed is a very important question that America needs to > work much harder on addressing. Indeed, the article I referenced stated > this: All that is true. > Crucially, this is a one-time cost. I don't see that. In the case of my toy model, the cost continues for as long as the trade imbalance does. The lost jobs are a one time shock...the lost income from the jobs is not. >The benefits of trade, by > contrast, accrue year after year as long as free-trade policies are > in place. Because the benefits from trade are vastly bigger than > the costs, the losers could in theory easily be compensated. America > has already taken some steps towards turning this theory into > practice. It can and should go much further." > But since you brought up jobs -- from 1948 to 2004 the average US > unemployment rate was 5.64%. Current unemployment rate is 5.4%. Now, > you may quibble with the methodology, but at least as a rough gauge, it > is clear that the employment situation is not way out of line at the > moment. No, but as Brad Delong pointed out, its an unusual unemployment rate in that the percentage of the population in the job market showed the biggest 4 year drop since '48 during this time period: 1.1%. If the fraction of people in the job market were constant, unemployment would be at 7%. IIRC, according to Brad, the reasons for this are still uncertain. We cannot count on a continuation of a decrease in the number of people who are looking for work to keep the unemployment rate down. > > But I digress. As I said, I'm not sure why you are expecting GAINS in > employment from free-trade. Some people derive most or all of their > income from sources other than "a job". Having a job isn't a universal > measure of well-being. In fact, I would much rather live comfortably and > not need to have a job if I could. Wouldn't you? This isn't difficult > for a Sci-Fi fan to imagine -- a future with machinery and robotics > and low-level artificial intelligences doing all the manual labor and > tedious thinking, leaving all humans free for leisure, hobbies, creative > thinking, etc. 100% unemployment nirvana. Sure, but jobs have been the traditional best way of distributing income....a goal we both agree upon. It is my opinion the requirement for able bodied people to produce something of some worth for income is a good thing on the whole. In short, a society in which a store salesperson makes $50/hour for giving a personal touch to sales has some real advantages over a society in which everyone gets a royalty check of $30,000/year. > > One way I can think of to look at the situation is through the poverty > rate, which as of 2003 the US Census bureau measures as 12.5%. If > free-trade is having a strong negative effect on the poor, then we > should expect to see a positive correlation between free trade and > poverty rates. We can see if the poverty rate was higher or lower in the > past. > Well, it was higher in '03 then it was from '72 to '78. Even at the height of the Clinton boom, the poverty rate for individuals was higher (11.3% in 2000), than it was in '73 (11.1%) or '74 (11.2%). in '93 it reached 15.1%. The '70s poverty rate was lower than the '80s or the '90s. It's about the same as the '00s, so far, but the poverty rate is rising ...and I would expect that, after '04 comes in, the poverty rate for the '00s will be above what it was for the '70s. http://www.census.gov/hhes/poverty/histpov/hstpov2.html > It would be interesting to compare free-trade from about 1929 to the > present with poverty rate over the same period. World trade liberalized > quite a bit after World War II compared to the Depression era, and the > data on poverty rate that I found from the US Census Bureau shows a > decrease in the poverty rate from 22.4% in 1959 to 12.5% today. > You are good at finding data. Maybe you can do a better analysis than my > hand-waving one above. How about checking for time series of US imports > and exports as a percentage of GDP and comparing changes in trade to > changes in poverty rate from 1929 to 2004? I could only get yearly figures on poverty back to '58 at the census bureau. I also got a point for '50 at http://www.businessbookmall.com/Economics_33_Distributing_Income.htm Given that, I've obtained the following table, with all numbers in %. I think we can safely say that there is no positive correlation between trade and the lowering of the poverty rate. The poverty rate did stop declining when the trade balance went negative. The trade imbalance is now, roughly 2.6* what it was 10 years ago, as a percentage of GDP, so I think we are now going into uncharted territory for the US. One think worth looking at is how trade was fairly steady from '50 to '69, with the poverty rate falling by almost a factor of 3. Its been roughly steady since then, and trade has been increasing. The import/export numbers came from: http://home.att.net/~rdavis2/tradeall.html imports exports poverty rate 1940 2.7 4.1 1941 2.9 4.5 1942 1.9 5.6 1943 1.9 7.2 1944 1.9 6.8 1945 1.9 4.4 1946 2.2 4.4 1947 2.5 6.2 1948 2.8 4.9 1949 2.4 4.5 1950 3.3 3.8 32 1951 3.4 4.7 1952 3.1 4.4 1953 2.9 4.2 1954 2.7 4 1955 2.9 3.9 1956 3 4.5 1957 2.9 4.6 1958 2.8 3.9 22.4 1959 3.1 3.6 22.2 1960 2.8 4 21.9 1961 2.8 4 21 1962 2.9 3.8 19.5 1963 2.9 3.9 19 1964 2.9 4.1 17.3 1965 3.1 4 14.7 1966 3.4 4 14.2 1967 3.3 3.9 12.8 1968 3.8 4 12.1 1969 3.8 4 12.6 1970 4 4.3 12.5 1971 4.3 4.1 11.9 1972 4.8 4.3 11.1 1973 5.4 5.5 11.2 1974 7.1 6.9 12.3 1975 6.3 7 11.8 1976 7.1 6.7 11.6 1977 7.6 6.2 11.4 1978 7.9 6.6 11.7 1979 8.4 7.5 13 1980 9 8.3 14 1981 8.5 7.8 15 1982 7.6 6.7 15.2 1983 7.5 6 14.4 1984 8.6 5.8 14 1985 8.1 5.3 13.6 1986 8.3 5.2 13.4 1987 8.7 5.5 13 1988 8.8 6.4 12.8 1989 8.8 6.7 13.5 1990 8.6 6.9 14.2 1991 8.2 7.1 14.8 1992 8.5 7.2 15.1 1993 8.8 7.1 14.5 1994 9.5 7.4 13.8 1995 10.1 8 13.7 1996 10.3 8.1 13.3 1997 10.6 8.4 12.7 1998 10.6 7.9 11.9 1999 11.2 7.6 11.3 2000 12.5 8.1 11.7 2001 11.4 7.3 12.1 2002 11.2 6.7 12.5 2003 11.6 6.7 12.4 2004 12.4 6.9 Anyways, I think we have at least a few more numbers now. I looked for additional poverty numbers, and it became clear to me from reading several papers and seeing the same data set, that the 1950 number is an estimate and estimates before 1950 are hard to find. Dan M. _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
