Needed — a new trade policy – part 2

Yesterday, Alan Blinder, Jeff Faux and Fred Bergsten debated globalization on the Diane Rehm’s show. I use the term “debate” loosely because, as is usual in these situations, they talked past each other.
1) Faux never acknowledged that trade agreements can have a positive effect. Yes Jeff, I agree that the situation is bad. As I’ve said before, the only good news on the trade deficit is that we are digging the hole at a slower rate. But not negotiating trade opening agreements with places like Korea will keep us in the same situation of still digging the hole. We don’t need to completely stop negotiating agreements; we need to negotiate better agreements.
2) Bergsten never acknowledged that re-training is a best a half-hearted solution (if you are not creating jobs) and that wage insurance only works in limited circumstances. The unemployed worker who called in is never going to get back to $28 an hour — he is not going to get back to where he was in a few years by taking a lower wage job and working his way back up as he learns the general and firm-specific skills. His wage insurance will be a partial subsidy for a few years and when he loses it, he will be worse off. Yes, Fred, trade has positive benefits but you have to be competitive to gain those benefits. And in this new economy of task-based competition, education and skill level alone aren’t nearly enough.
3) Blinder went out of his way to re-assert his free trade ideology. But, his solution was the most protectionists of all — retrain people to go into naturally protected jobs, i.e. in the non-trade sectors of personal services. Yes, Alan, but what happens as there are more and more losers who need to be placed in those fewer and fewer naturally protected jobs? And as our economy retreats into those naturally protected non-trade jobs, how do we earn the income we need to pay for our imports. A natural autarkic economy (which is what you end up with) is not much better than a politically imposed one.
And the discussion completely focused on the wrong thing — job loss rather than wage competition. Fred completely ignored wage competition and pointed to the low unemployment rate as a measure of success. Alan mentioned it in the beginning as the real point to his analysis of offshoring — and never brought it up again. Jeff simply asserted that trade increased inequality, but never explained how.
So — the wise men are all blindly groping around the elephant.


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