Zoellick eyes Australia trade vote, quiet on CAFTA.
197 words
26 February 2004
05:58 am GMT
Reuters News
English
(c) 2004 Reuters Limited
NEW YORK, Feb 26 (Reuters) - U.S. Trade Representative Robert Zoellick said on Wednesday the Bush administration hoped Congress would vote this year on a new free trade agreement with Australia.
But in a speech to the Asia Society, the chief U.S. trade negotiator did not mention whether the administration also wanted a vote on a free trade pact with five Central American countries.
After the speech, Zoellick declined to clarify the administration's intentions on the U.S.-Central American Free Trade Agreement, or CAFTA.
Leading Democratic presidential candidate Sen. John Kerry of Massachusetts has said he opposes CAFTA because its labor and environmental provisions are not strong enough.
A coalition of labor, environmental and other groups have also lined up against the pact.
The Australian agreement has not generated the same amount of opposition because Canberra is perceived as having stronger labor and environmental laws than Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.
The White House has notified Congress that it plans to sign CAFTA and the Australia agreement this spring. That would potentially allow a vote on both pacts before the August congressional recess.
Economist's Challenge Puzzles Free-Trade Believers
By Paul Blustein
Washington Post Staff Writer
Thursday, February 26, 2004; Page E01
If economists could condemn members of their profession for heresy, Paul Craig Roberts would probably be a candidate for excommunication.
Few tenets, after all, are so widely shared among economics PhDs as the belief in the positive impact of free trade. Yet Roberts is publicly challenging that precept, and making waves doing so at a time when trade has leapt to the forefront of the nation's political debate.
Roberts, a former assistant secretary of the Treasury for economic policy in the Reagan administration, co-authored an op-ed article in the New York Times last month with Sen. Charles E. Schumer (D-N.Y.) in which they contended that the case for free trade "is undermined by the changes now evident in the modern global economy." Thanks to the movement of American jobs overseas, including well-paying jobs for engineers and computer programmers, "the United States will be a Third World country in 20 years," Roberts said at a Brookings Institution forum, according to a transcript of the event.
In university economics departments and establishment think tanks, such talk is akin to a biology professor endorsing creationism. "These pronouncements are especially troubling" because Roberts is "a professional economist with a genuine free-market bent to his work," wrote Donald J. Boudreaux, chairman of the economics department of George Mason University, in a draft article he wrote for a journal published by the libertarian Cato Institute.
According to Boudreaux, "Paul Craig Roberts does not understand the principle of comparative advantage," one of the central tenets of trade theory. For his part, Roberts dismisses such criticism as typical of the profession's "knee-jerk" views on trade.
Whether Roberts is right or wrong, economists acknowledge that he is forcefully raising concerns that deserve to be addressed as controversy mounts over the loss of jobs to foreign competition. Passions are running high over the issue in the Democratic presidential primaries, especially after N. Gregory Mankiw, the chairman of President Bush's Council of Economic Advisers, was quoted recently as saying that the outsourcing of jobs abroad was "probably a plus for the economy in the long run." The White House had to scramble to quell the political firestorm -- Mankiw clarified his position with a statement that "any loss of jobs is regrettable" -- even though his basic point was defended by many economists, including Democrats.
Roberts's deviation from the prevailing orthodoxy offers an illuminating window into the trade debate. A few other PhDs in economics can be found whose opinions are similar to Roberts's, but among trade specialists at universities, they are almost unheard of. (One of the exceptions is Ravi Batra of Southern Methodist University, author of "The Great Depression of 1990," but he hasn't received much attention since the economic disaster he predicted failed to materialize.) Other economists who question the benefits of trade tend to be employed by labor unions, pro-labor research institutes, or industries favoring protection from imports.
Roberts is no left-winger, and though he serves on the board of one multinational firm, he appears to be largely independent from union or industry entanglements. He does, however, have a reputation as a prickly outsider in the economics profession; even conservative allies often describe his zealotry as hard to take.
He was one of the most combative of the true believers in supply-side economics, first as an aide in the 1970s to Rep. Jack F. Kemp (R-N.Y.), co-author of the tax-cut bill under President Reagan, then as a member of the Wall Street Journal editorial page staff, then as a top Treasury official in 1981-82. In the years since, Roberts has worked as a columnist and writer while holding positions at several conservative and libertarian think tanks.
His emergence as a critic of free trade elicits head-shaking dismay from his former comrades-in-arms in the supply-side movement.
"I've been trying to figure this out myself, why Craig has moved in some of the directions he has," said Richard W. Rahn, who helped promote the Reagan tax cuts as chief economist for the U.S. Chamber of Commerce and considers himself a onetime close friend of Roberts.
Other conservative economists aver that Roberts's trade views presumably stem from xenophobic sentiments that they discern in some of his columns and Internet postings. In one Washington Times column, for example, Roberts complained that "native-born U.S. citizens are being 'ethnically cleansed' " by liberal immigration policies. "When I first came to Washington, D.C., 25 years ago, the only international-looking people one saw were in the diplomatic community," he wrote." Now, it is every third person."
In a phone interview from his home in Panama City, Fla., Roberts, 64, said the questions his detractors have raised about his motives show the weakness of their case. "They're looking for some reason that has nothing to do with my economic argument, because they cannot confront my economic argument," he said. The overwhelming majority of economists, he said, take the free-trade side because they "are just programmed. For them, free trade is a religious experience. They just 'know' it's good."
Like virtually all economists, Roberts was taught -- and, he said, still accepts -- the classical argument for free trade based on the 1817 tract by British economist David Ricardo, who showed that trade between two countries could benefit both of them even though intuitively that didn't seem possible. Using the simple example of trade in wine and cloth between England and Portugal, Ricardo said both nations could raise their overall living standards through trade despite the fact that Portugal, with its low costs, had an absolute advantage in producing both goods. As Ricardo demonstrated, each nation could gain by specializing in the product in which it held a comparative advantage -- that is, an advantage relative to all the other things it could make -- and buying other goods from abroad.
The problem, in Roberts's view, is that Ricardo's theory does not apply to the world of 2004, because it was based on assumptions that are no longer valid. The British economist, he notes, assumed that a country's "factors of production" -- its land, its labor and its capital (factories and machinery) -- could not be moved abroad.
"The way it's working today, firms close facilities here, remove them to China, produce there and send the products back here," Roberts said. "This is not the 'Ricardian' case for free trade." Moreover, he said, the Internet has made it possible for labor to effectively move across borders as well, with Indian radiologists examining X-rays and Chinese software engineers writing code -- jobs that their American counterparts never used to worry about losing to lower-wage foreigners. Under those circumstances, which vary starkly with Ricardo's assumptions, "the case for free trade -- that it benefits all countries -- collapses," Roberts said.
Not so at all, according to Roy J. Ruffin, a University of Houston economist whom Roberts frequently cites as his main expert on Ricardo. Roberts "is simply not an expert on international trade, and he's making these outrageous claims," Ruffin said.
Even though Ricardo did base his argument for free trade on certain assumptions, the validity of the theory doesn't depend on them, Ruffin said. "It's like the law of gravity. To prove it, you assume you're in a vacuum. Well, just because we're not in a vacuum doesn't mean the law of gravity is false," he said.
Many other economists after Ricardo have demonstrated the positive effect of both free trade in goods and the free movement of factors of production, Ruffin said, and although "you need a lot of hairy mathematics" to prove the point, "the evidence is overwhelming" that with free trade, "you have benefits that exceed the costs. There are always costs, but the benefits always exceed the costs."
Roberts, however, is not convinced. Sure, he said, trade is usually beneficial when it's just trade. For example, if China ships cheap brassieres to the United States and 20,000 workers in U.S. bra factories lose their jobs, the lower prices for 100 million American women mean that "the gains to the multitude are greater than the loss to the displaced workers," he wrote in one of his Internet pieces. That is because the savings enable people to spend more money on other things, creating demand for other jobs, he said.
But the U.S. economy as a whole will suffer if bra manufacturers and other industries move overseas, according to Roberts, because so many workers would lose their jobs that "the loss of incomes outweighs the lower prices."
Mainstream trade experts contend that such a scenario is no more grounded in reality than past scares about mass job losses, which centered on "automation" in the 1950s and 1960s, "de-industrialization" in the 1980s, and the "giant sucking sound" of jobs moving to Mexico conjured up by Ross Perot during the debate over the North American Free Trade Agreement in the early 1990s. In each case, the limited job losses that occurred drove down costs and generated efficiencies that fueled increases in U.S. productivity -- the ultimate source of higher American living standards. Now that the big worry is outsourcing, the basic lesson of those episodes is being overlooked, said Brink Lindsey, director of trade policy studies at the Cato Institute.
"If a back-office job is consigned to oblivion by a computer, that's 'progress,' '' Lindsey said. "But if a living, breathing Indian gets a job as a result, that's a national catastrophe."
Still, mainstream economists can't answer a key question that Roberts raises, which is how the U.S. economy can generate better employment opportunities to replace the white-collar jobs that are suddenly vanishing. In his article dissecting Roberts's argument, Boudreaux asserted that as long as the United States maintains policies that make it an attractive place to invest, the U.S. capital that gets shipped overseas "will in all likelihood be replaced by new and more productive capital." But there's no way to be more specific than that. "Some entrepreneur out there will figure out something; that's the best answer you can give," said Ruffin, the University of Houston economist.
Roberts recently got some support for his argument from a heavyweight academic economist, William J. Baumol of New York University. Though not a trade specialist, Baumol is a past president of the American Economic Association, and a book he published in 2000 with a leading mathematician, Ralph E. Gomory, pokes some holes in economic orthodoxy by showing that free trade will not necessarily provide mutual gains to countries. (Gomory is a member of The Washington Post Co. board.)
Regardless of what the academic evidence shows, the people who subscribe to Roberts's views seem to be winning the battle for public opinion at the moment, lamented Robert E. Baldwin, a trade economist at the University of Wisconsin. "We're all scrambling to counter these guys at a political level," Baldwin said. "It's not hard to counter them at the classroom level. But in the real world, it's not so easy."
John Kerry's To-Do List; Create jobs, get tough with China, and redefine NAFTA are all high on the Democratic hopeful's agenda, as he explains here
1,535 words
26 February 2004
BusinessWeek Online
English
Copyright 2004 McGraw-Hill, Inc.
Heading into a key Mar. 2 battle for the Democratic Presidential nomination, Massachusetts Senator John Kerry seems increasingly confident of his ability to weather the challenge from North Carolina's John Edwards. Now, Kerry is shifting his sights toward a showdown with President George W. Bush -- a battle many Democrats think will hinge on a debate over globalism's toll and the economy's achingly slow job growth.
On Feb. 24, en route by plane to Ohio's battered Rust Belt, Kerry sat down with BusinessWeek Washington Bureau Chief Lee Walczak to discuss his economic philosophy. Here are edited excerpts of the interview -- a shorter version will appear in the Mar. 8 edition of BusinessWeek.
Q: Every candidate seems to have a 10-point plan to create jobs (see BW Online, 2/26/04, "Jobs: Desperately Seeking Answers "). Why is yours the best?
A: It's the most comprehensive. [Now,] we actually reward people for taking jobs overseas. With the business deduction, you get a benefit for offshore status, which allows you to avoid taxes. Tyco (TYC) is a classic example: They move to Bermuda, shift the corporate address, and reduce their tax burden by $400 million. I'm going to end that advantage. [But] I'm not going to penalize companies for competing globally.
Q: Don't you also want to reduce the tax rate on companies that keep manufacturing jobs in the U.S.?
A: That would encourage manufacturing job-creation in the U.S. That [break] is just targeted to manufacturing. I also have a zero capital-gains tax proposal with a holding period of five years for patient capital purposes. And I would [aid] the so-called critical technologies.
Q: Wouldn't cheap wages send many other companies overseas, tax credit or no?
A: The differential in labor makes a great deal of difference for some industries, and you can't redress that. But the [profit] margin, with respect to some of these tech areas, is such that if you begin to reduce health-care costs, reduce energy costs in America, and neutralize the tax benefits [for offshoring], then that begins to create a different playing field.
Q: What's wrong with the Republican approach to job growth -- cut marginal tax rates, stand back, and let 'er rip?
A: I like low rates, and I have voted for them. I don't want to raise them beyond where they were in the Clinton years. I simply believe we can't afford the tax cut that George Bush has given us.
Q: But when you repeal a chunk of that tax cut, you are taking stimulus out of the economy, right?
A: I am taking a little bit of stimulus out, but there's an awful lot of stimulus that has been put into the system. In the past couple of years, there has been a lot of [federal] spending.
Q: Fed Chairman Alan Greenspan is worried by some of the protectionist rhetoric being voiced this election year. Isn't this sort of talk inflammatory?
A: The consensus [for free trade] has been fraying. The backlash is not only coming from American workers but from companies, too. Look at Boeing (BA). It has been fleeced by Airbus' subsidy structure, and we didn't do anything about it.
Or look at intellectual-property laws. We have companies getting clobbered by China's [piracy]. You need to keep the consensus for trade alive. But you keep it alive by making sure everybody is being helped by it, and that's not what's happening.
Q: How would you fix NAFTA?
A: I want to put [changes] into the body of the treaty. I know the Republicans don't like that approach. But I believe it's important for sustaining the consensus on trade. And I'm not talking about draconian, counterproductive standards. I'm talking about doing reasonable things.... I'm for the trade laws we passed being implemented. In NAFTA, we have labor [and environmental] protections in the side agreements. But they have not been enforced.
Q: Still, labor codes are notoriously weak in many countries. Are we dealing with symbolism here in all this fix-NAFTA talk?
A: I don't think we're dealing with symbolism. If you don't have enforcement, you will have revisions with respect to the agreement itself.
Q: You're a critic of Beijing's economic practices, so why vote to admit China into the World Trade Organization?
A: Because we can enforce the agreement. Because it was important to get the foundation in place -- and it had antisurge and antidumping provisions.
Q: But you intend to apply more pressure on Beijing on the trade, intellectual-property, and currency fronts, right?
A: Absolutely. I think you have to.
Q: I recall candidate Clinton promising to pressure the Chinese and then flip-flopping....
A: I disagree. Clinton did, in fact, leverage some changes from time to time, and this Administration has been slow to rise to the challenge. Commerce Secretary [Donald] Evans was over [in Beijing] a few months ago. He rang a few bells. [But] I'm not convinced this Administration has done [enough]. Number Two, with our current-account deficit as bad as it is right now, we lose leverage because we're dependent on China to buy our debt.
Q: You frequently assail corporate bigness -- Big Oil, big insurers, big HMOs, and big drug companies. Are you surprised that some CEOs get nervous?
A: What I'm talking about is fairness. What the drug companies did in the [Medicare prescription] drug bill was unfair. It's simply a transfer payment that's asking taxpayers to pay more.
Likewise with the oil companies. We're going to drill for the next 40 to 50 years -- I acknowledge that. I want the oil companies to be successful. But I'm not going to support drilling in the Arctic National Wildlife Refuge (ANWR) when we have other alternatives.
Q: Do you favor a return to national industrial policy in the form of massive federal support for homeland security and energy independence?
A: What I want is to create incentives. I'm not going to make decisions for people. In my judgment, that's industrial policy. We create incentives all the time. We have a national low-income housing credit. We have incentives for oil and gas drilling. The question is, what do we do it for?
Q: Republicans claim you're antibusiness and, since you propose to raise taxes, a job-destroyer to boot....
A: Ha!
Q: Still, you have made a lot of promises for expanded health care and education -- and everything is based on the problematic repeal of the Bush tax cuts, right?
A: The repeal of the high-end cuts, only. I'm not going to repeal the middle-class tax cuts. Look, I'm going to pay more tax. But I think it's the right thing to do, and countless executives around the country have said the same thing.
Q: But the linchpin for funding everything remains the Bush tax cut, no?
A: Part of it. Part of it comes from closing some [tax] loopholes. But look, if we don't do that, we can't pay for [my programs].
Q: Then what? A gradual phase-in of new initiatives?
A: Yes. You've got to pay for it, because I've pledged to cut the deficit in half in four years. I've always been up front with people. I say this is a choice election. They can have a tax cut for [rich] people...or we can invest in other things.
Q: Where did all this anti-special-interest rhetoric in your stump speech come from? In 30 years in the Senate, you didn't strike many folks as a populist?
A: I have fought against the oil companies over drilling in ANWR. I have fought developers and other who tried to change the Clean Air and Clean Water acts. I stood up to the insurance companies and banks over the bankruptcy-reform bill. The votes are there. There's a consistency in my battles against powerful interests.... I think the term "special interests" needs to be better defined, frankly.
Q: Too hot?
A: It's not so much the hotness of it, it's the lack of specificity. You need to find a better way to describe what you're fighting over, and that's something I'm going to try to do more effectively.
Q: Once you were described as a neoliberal, then a New Democrat. Now the Bush campaign calls you a Ted Kennedy-style retro-liberal. Which is it, Senator?
A: I don't think it helps to be ideological or doctrinaire. The principles that guide me are these: One, you want to maximize competition, you want to maximize freedom of entrepreneurial ability and create jobs and wealth. But you also need to regulate at an appropriate level so you're not concentrating too much power.
Number of Mass Layoffs Rose Sharply in January
2,400 Employers Let Go 50 or More
By Kirstin Downey
Washington Post Staff Writer
Thursday, February 26, 2004; Page E02
More than 2,400 employers across the country reported laying off 50 or more workers in January, the third-highest number of so-called mass layoffs since the government became tracking them a decade ago.
Only in December 2000 and December 2002 were the number of large layoffs higher. A total of 239,454 workers lost their jobs in the January layoffs, the Bureau of Labor Statistics reported yesterday, based on unemployment insurance claims filed with state employment agencies. Among them were 17,544 temporary workers.
The total jobs lost in January was the most since November 2002, when 240,171 workers were let go in groups of 50 or more. Manufacturing workers, particularly in transportation, food processing and retail jobs, were hardest hit. The large layoffs also included 10,876 government workers, most at the state and local levels.
January often brings pink slips for workers because many employers staff up for the holidays and lay people off after Christmas. It's also the end of the fiscal year for many employers, making Dec. 31 a convenient last day for terminated workers.
The report, which helps states direct retraining funds to troubled industries, comes as continued job losses have sparked debate in the presidential campaign. President Bush's Democratic opponents cite the administration's poor job-growth performance as a reason he should be unseated. Administration officials counter that the positive stock market performance, the uptick in manufacturing orders and improved consumer confidence should soon translate into employment growth.
The administration tried in late 2002 to cease publication of the mass layoff report, citing its cost. But Congress restored funding after state officials complained.
California, the most populous state, had the most mass layoffs, 576, according to the BLS data. This was followed by 194 in New York, 171 in Michigan and 167 in Pennsylvania. In Virginia, 24 employers laid off 50 or more workers, affecting 3,061 jobs. In Maryland, 19 employers did so, with 2,009 jobs lost. No mass layoffs occurred in the District.
"California has continued to lose jobs in recent months," including food-processing, film production and education jobs lost to budget cuts, said Howard Roth, chief economist for the California Department of Finance. "Our labor market is not showing any signs of improving."
