“Run as fast as you possibly can in the other direction”

A reader [ht: ra] reminded me that the recent column celebrating the Trans-Pacific Partnership and free international trade by Harvard’s Gregory Mankiw has generated a great deal of controversy on the New York Times web site.

Here’s one example (by Pete C. from New York):

The consensus Ricardian view is that free trade is good for nations so long as the “winners” from trade compensate the “losers.”

In this case, it means if the 1% compensate everyone else for the lost jobs, wages, environmental protections, and all the damage “free trade” does to our nation and our communities.

What Ricardo didn’t account for was that the increased wealth and political power granted to the “winners” makes redistribution less likely, and this will probably lead to further rent-extraction and oligarchy by those who benefit from cheap labor and poor working conditions.

Economists are hired by the rich to shill for the views that will benefit the rich, not the nation as a whole. Their confidence is not misguided stupidity, it is a trick.

They are deliberately selective in their accounting of costs and benefits to support their wealthy masters.

The TPP is also supported unanimously by the same Republican party that is trying to enact a 270 billion dollars wealth transfer to the wealthiest 0.1% of the people by repealing the estate tax.

These are not people who are looking out for the economic wellbeing of the nation as a whole.

So when economists like Greg Mankiw say to support this “free trade” deal, run as fast as you possibly can in the other direction.

Much (but certainly not all) of the rest of the commentary follows similar lines, many of them quite sophisticated rebuttals of Mankiw’s free-trade dogma. Basically, the gains from free international trade might look like good in the fantasy world of neoclassical economics (and in the original theory of relative or comparative advantage developed by David Ricardo) but they mostly don’t exist in practice, in the way international trade and free-trade agreements are practiced in the real world.

Here’s one of my favorites (by John M. from Brooklyn):

So the American people are basically racist, lazy socialists and that’s why they oppose TPP, and the answer is to outsource to cheap labor markets i.e. “reduce labor inputs” and then the market will replace high paying manufacturing jobs with minimum wage jobs at McDonalds.

Sure, let the 1% hoard even more money by undercutting wages here at home and all will be well. Yeah, we’ve seen how that works.

And, of course, this one (by Siobhan from New York):

Ah, yes. Those “long run” benefits. Destroy good-paying manufacturing in the US, and increase the number of poor paying “service jobs.”

But also lower the cost of things like clothing with cheap imports. So presumably, people making poverty wages can still afford clothing, right? Never mind the Walmart employees taking up collections if [sic] canned goods for co-workers at Thanksgiving.

And how about Nafta? According to economists, that was a clear winner. According to the majority of the US, living with the results, it was a disaster.

And once again, “who are you going to believe, me or your own lying eyes?”

I’ve taught the theory Mankiw relies on scores of times over the years (although, in contrast to Mankiw, I actually explain the underlying assumptions). Students seem to be genuinely convinced by the elegance of the model (or, perhaps, by the silly examples used in the textbooks, where Jack and Jill can be seen to benefit because they specialize according to their relative advantages and then trade). They rarely pose questions or raise objections at the time. But then they get into the real world and find or develop other economic stories, other economic representations, according to which there are winners and losers and the losers never get compensated for their losses.

That’s not to say all the everyday representations of the economy run counter to the mainstream tales taught in introductory economics courses across the country and around the world. But, at least in a few cases, such as free trade and minimum wages, they’re likely to take Pete C.’s advice and “run as fast as you possibly can in the other direction.”

Cartoon of the day

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Noah’s (free trade) ark

I don’t often agree with Noah Smith. And we’re certainly not on the same side when it comes to the Trans-Pacific Partnership (which, as Timothy B. Lee explains, is really a deal that benefits only “a few well-connected interest groups”). But Smith does offer a useful reminder that Harvard’s Gregory Mankiw offers a case for free trade “that, even on its own merits, might be bogus.”

Maybe people are perfectly smart and rational enough to understand the David Ricardo idea, and also smart enough to understand something else that economists have known for 200 years — international trade doesn’t necessarily benefit everyone within a country.

That’s right — trade creates winners and losers. Econ 101 says that the winners outnumber the losers in dollar terms, but not necessarily in people terms — if the richest 1 percent of Americans gain $1 billion from a trade agreement and the other 99 percent lose $900 million, then Ricardo’s theory says the country benefited overall. That outcome is perfectly consistent with Econ 101.

Smith is right: even in the world of classical and neoclassical economics, it is quite possible to demonstrate that free trade can—and often does—create more losers than winners.

But that’s just the beginning of the problems with the story free-traders like Mankiw and Smith try to make. Because it’s also the case, as I’ve tried to explain before (such as here and here), that the mainstream case for free trade is based on an extraordinary set of assumptions (such as full employment, the absence of externalities, no economies of scale, and so on).

And, to top it off, mainstream economists persist with the false argument that it is countries that are engaged in international trade, as if the United States and Japan (or, since the usual theorems can be generalized beyond the two countries used in the standard equations and diagrams, whatever n-dimensional set of countries one wants) decide to buy and sell and goods and services produced in the other country.

The fact is, countries don’t make those decisions. Corporations do. Capitalist enterprises decide to buy and sell commodities from and to capitalist enterprises located in other countries, or to shift (without any trade whatsoever, since it takes place within firms) goods and services from one of their subsidiaries in one country to the subsidiary in another country. That’s how international trade takes place (and thus how goods and services show up on the current account). And the rest of us, without any say in the matter, go into stores to purchase commodities regardless of where they were produced or what the domestic or international content of those commodities is.

That’s the real story of international trade (and of agreements like the TPP) the Mankiws and Smiths of the world never tell— hoping that the rest of us will march, two by two, onto their free-trade ark.

Specter of capital in Baltimore

Back in 2010, when I first watched The Wire, I was struck by the fact that David Simon had done an amazing job narrativizing the ravages of capitalism without depicting capital itself.

Or perhaps better: capital is the abstract, ghostly presence of much of what transpires in the worlds of politics, drugs, policing, and international trade (through season 3). The capitalists themselves exist mostly just off-screen (except, perhaps, for short appearances by “The Greek”) but the logic of capital (its calculative rationality and homogenizing economistic project) can be felt throughout the various spheres of economic and social life that characterize life in Baltimore.

And so it is with the current situation in the real Baltimore: capital is the abstract, ghostly presence that has created a tinderbox of segregation, poverty, and unemployment that was lit on fire by the recent death of Freddie Gray.

What’s interesting, at least to me, is the fact that precisely that idea—of the specter of capital—that has surfaced in some of the recent commentary on the clashes between Baltimore’s citizens and the police.

So, we have Alyssa Rosenberg expressing her worries about our Wire-induced fatalism and then concluding that “The Greek and global capitalism will never die, but at least there will be Jameson at the bar.”

More seriously, there’s Baltimore Orioles Chief Operating Officer John Angelos, son of owner Peter Angelos, responding to local sports-radio broadcaster Brett Hollande and offering his own explanation of why people have taken to the streets:

That said, my greater source of personal concern, outrage and sympathy beyond this particular case is focused neither upon one night’s property damage nor upon the acts, but is focused rather upon the past four-decade period during which an American political elite have shipped middle class and working class jobs away from Baltimore and cities and towns around the U.S. to third-world dictatorships like China and others, plunged tens of millions of good, hard-working Americans into economic devastation, and then followed that action around the nation by diminishing every American’s civil rights protections in order to control an unfairly impoverished population living under an ever-declining standard of living and suffering at the butt end of an ever-more militarized and aggressive surveillance state.

OK, it’s not just the shipping of jobs to China and other “third-world dictatorships.” It’s also the decline of unions, the use of new worker-displacing technologies, the increasing importance of finance, and much more.

In other words, it’s the “whole damn system” that has created an economy of extraction for a tiny minority at the top and an economy of exclusion for a large portion of the working-class in Baltimore and across the United States. What we are witnessing, then, are the effects of capital that is operating in the background—in the real world just as in The Wire—just off-screen.

Chart of the day

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While relative calm has returned to the streets of Baltimore, because of the curfew, the underlying socioeconomic problems haven’t disappeared overnight.

Far from it. The neighborhood in which Freddie Gray was killed, Sandtown-Winchester/Harlem Park, is profoundly segregated (97 percent black), poor (35.4 percent of households live in poverty, and 51.2 percent have incomes less than $25,000), and unemployed (at a rate of 24.2 percent).

As Jana Kasperkevic explains,

After the unrest in Baltimore is over, the clean-up might get rid of the debris, but the inequality will remain.

Cartoon of the day

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Cartoon of the day

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Cartoon of the day

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Cartoon of the day

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Cartoon of the day

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