However, the blame for the radical change in economic conditions for new American workers is not merely the result of rational choices made by ordinary citizens in the marketplace or at the voting booth. It's true that Americans as consumers buy a lot of stuff from places that get their stuff from China. Some of those Americans have the option of buying American-made goods instead. Those things are now a luxury good, but they didn't used to be: it used to be that American-made clothing factories were all around the South, and it wasn't particularly more expensive to buy American-made and American-grown cotton.
Still, the major changes to the law that enabled globalization to undercut worker wages weren't enacted because of wide popular support. They were enacted because of lobbyists from wealthy interests. Did the massive losses of American jobs and family farms following NAFTA result in a net transfer of wealth from American workers to Mexican ones? No! It turns out it resulted in a net transfer of wealth from the workers of both countries to the wealthy interests, as the interests could more easily undercut workers on both sides of the border.
[I]t is easy to see that NAFTA was a bad deal for most Americans. The promised trade surpluses with Mexico turned out to be deficits, some hundreds of thousands of jobs were lost, and there was downward pressure on US wages – which was, after all, the purpose of the agreement.... But what about Mexico? Didn't Mexico at least benefit from the agreement? Well if we look at the past 20 years, it's not a pretty picture. The most basic measure of economic progress, especially for a developing country like Mexico, is the growth of income (or GDP) per person. Out of 20 Latin American countries (South and Central America plus Mexico), Mexico ranks 18, with growth of less than 1% annually since 1994. It is, of course, possible to argue that Mexico would have done even worse without NAFTA, but then the question would be, why?The American public isn't against trade, either. The author is right, though, to say that while we're happy to trade, we don't think 'free trade' or even 'more trade' is an end in itself. Economic activity is a means to our ends, and for American and Mexican workers those ends have been harmed rather than helped by the free trade pact.
[Long analysis of why NAFTA didn't help Mexico clipped, but available at the link. -Grim]
It's tough to imagine Mexico doing worse without NAFTA. Perhaps this is part of the reason why Washington's proposed "Free Trade Area of the Americas" was roundly rejected by the region in 2005 and the proposed Trans-Pacific Partnership is running into trouble. Interestingly, when economists who have promoted NAFTA from the beginning are called upon to defend the agreement, the best that they can offer is that it increased trade. But trade is not, to most humans, an end in itself.
So the blame for the 'great reset' is only partly on the people who, in 2000 or so, bought the cheap shirts from Bangladesh instead of the slightly more expensive ones made in South Carolina. The blame is mostly on those who lobbied for this law, then used the advantages it gave them to put workers in competition with each other. Very little of the 'savings' got passed on to you as a consumer: inflation was pretty strong during that period, up until the financial collapse of 2008. Your money wasn't going further.
Also, buying American didn't become a luxury good slowly over time, as a result of the buildup of rational choices made by individuals in the marketplace. It happened suddenly, as a choice made by corporate entities that forced the consumers' hand. You can't buy American goods from South Carolina at near the same prices if all the factories were closed in a rush to take advantage of wage competitions enabled by the new law. "We" didn't make that choice at all.
Neither the economic choices nor the political ones are really in the hands of ordinary Americans. Possibly we can make the political choices going forward, though quite possibly not: the entrenched interests are very strong here. Still, let's not make the mistake of thinking that Americans are just having to live with the effects of their choices as consumers. Their choices as consumers had very little to do with the forces at work here. Not nothing, to be sure: but not nearly as much as economists like McArdle would like to believe.
Well, the other part of the equation was supposed to be a booming economy that then provide other opportunities, but instead we got the bust and the worst recession ever that never ends.
ReplyDeleteI think that has to be taken into account.
I think you'll find it was accounted for in the argument I clipped. Mexico did badly in part because NAFTA shackled it to the American economy, which has had a bad several years. However, as they point out, it would be far worse for Mexico if they hadn't been able to dump massive unemployment into America (where, economists tell us, all the jobs of the 'recovery' have been taken by immigrants). Other Latin American nations less tied to the USA did better in the same period.
ReplyDeleteNow NAFTA can't be blamed for that, since after all the immigration was chiefly illegal. But the same economic interests that wanted NAFTA also want open borders for cheap labor transfers. They are the ones pressing for both free trade policies and 'comprehensive immigration reform' that starts with a failure to enforce immigration law.
Grim, I think it's very hard to argue that people aren't (at least in the monetary sense) generally better off now than they were several decades ago.
ReplyDeleteWhen I go to my local Wegman's (the kind of luxury grocery store that simply did not exist when I was younger) and look around, I see people of all socio-economic classes with baskets full of wonderful fresh and frozen vegetables and fruit and prepared foods: stuff I could never afford to buy when we were first married. I made everything from scratch because processed foods were unaffordable, as were fresh fruits and veg. And forget frozen anything. We were married 10 years before I could afford that.
My oldest son and his wife make less than we did at this point (due to career choices), yet they buy fresh food and frozen/prepared food all the time. They can afford to. Their kids have tons more clothes than my boys ever did because kids' clothes are dirt cheap. I was literally shocked the first time I went shopping for them.
Almost no one does layaway anymore: they don't have to. My Mom ALWAYS used layaway, but discount stores don't do it anymore because customers don't want it.
People have more of virtually everything (more clothes, larger houses with smaller families, cars, electronics, etc.) than they did when I was young. They eat at restaurants more than anyone in my generation did because they can afford to do it.
Jeez - we never went out to eat, unless you count going to McDonald's to get an 89 cent sundae or a kids' meal as a rare, special treat when Dad was deployed.
People may not, as a consequence, spend their money wisely or save or do any of the things people need to do for long term stability, but honestly: where's the rainy day they're saving for? With unemployment benefits that literally go on for YEARS and income redistribution and paying few/no taxes (and in fact, being net gainers at tax time if they are in the lowest income brackets), it's kind of hard for me to see what you're talking about.
And the total employment package now includes all kinds of benefits unheard of when I started working.
*shaking my cane in your general direction* :p
If buying American is relatively more expensive, it's because American employers pay higher wages and provide more benefits than Chinese ones. How the heck do you think they can afford to ship products halfway around the world and STILL make a profit?
The truth is, if every American absolutely refused on principle to buy anything BUT American made goods, the Chinese would be out of business at least here in the USA. But we don't do that, and as a result our paychecks go farther than they once did.
I don't see how you can seriously argue this point: if every single American bought only American goods, demand for American goods would - by definition - go up. Same or close to the same number of buyers, fewer goods available (and rising prices) in the short term, hopefully more American factories and jobs in the long term.
One more thing: aren't workers ALWAYS in competition with each other? Even if there are more jobs than workers, they'll be in competition for the best paying jobs.
ReplyDeleteI agree that American workers compete more with foreign workers (and illegal immigrants) than they once did, but a BIG part of the reason is the increase in mandatory benefits and costly regulation aimed at protecting said workers. These things raise the cost of American labor relative to foreign labor.
This is why American companies move overseas.
As for inflation, by historical standards 21st century inflation is pretty mild (and MUCH more stable - a "high" of under 5% is nothing like the nearly 15% the year the Unit and I got married!):
http://en.wikipedia.org/wiki/Inflation#/media/File:US_Inflation.png
When we bought our first house in 1983, we paid nearly 14% interest. Car loans were up around 18% for young buyers.
I think we need to be careful about looking at short time spans and assuming "this happened here, thus it caused that", when "that", historically speaking, isn't really all that remarkable or extreme.
I think it's very hard to argue that people aren't (at least in the monetary sense) generally better off now than they were several decades ago.
ReplyDeleteWe're not talking about 'several' decades ago, we're talking about two decades ago. NAFTA is 1996.
So yes to your anecdote about luxury grocery stores in Maryland. Still, the little town nearest here used to have a car dealership. It's clearly worse off than it was decades ago. There's another town not too far that is a ghost town compared to its now-decaying brick main street. Areas near DC have gotten rich, but not for purely economic reasons. Other areas have done much worse.
And the total employment package now includes all kinds of benefits unheard of when I started working.
Again, that's true for a certain class of employees, most of whom are of a certain age. But the jobs that have been created in the last seven or eight years are often temporary/seasonal or, if you're lucky, part-time without benefits.
I don't see how you can seriously argue this point: if every single American bought only American goods, demand for American goods would - by definition - go up.
Sure. That's true. I said there was some partial truth to the thesis, and that's the part.
However, it's also true that this wasn't a marginal call. Those 'all American' pants, with American cotton woven in American factories, that I linked to in the OP are fifty bucks a pair. That's because all the South Carolina factories with cheap American labor closed as soon as they could move to Mexico.
So it's not that we had a choice of paying $10 for made-in-Mexico jeans or $15 for American ones, and over a long time the Mexican products won out via competitive advantages due to our economic choices as a free people. Rather, it's true that the companies lobbied for a law that would allow them to undercut American labor, then immediately shifted production so that only boutique producers still make 'all American' cotton products.
So you could, as a consumer, elect to buy only all American products even today. If, that is, you can afford to pay five times as much. We can't really blame you for not being a very good American if you don't have enough money to buy $50 jeans. (I get mine at thrift stores.) The point is, it didn't have to be this way. The choices that made it a 5-1 proposition and not a 1.5-1 proposition weren't made by consumers.
It's more than wage-arbitrage.
ReplyDeleteOffshoring manufacturing also relieves manufacturers of several other burdens: EEOC, EPA, FLSA, health coverage, pensions, worker's comp, unemployment taxes, and income tax come to mind immediately. These are significant costs, none (or very few) of which are in play off-shore.
In a well-run manufacturing plant, the cost of direct labor is only about five percent (!!) of the total cost of the product. Raw material is a far more significant cost.
It's not just labor. I would argue that labor may have been the least of the justifications unless you count the pertinent regulations as part of "labor cost."
[GRIM] We're not talking about 'several' decades ago, we're talking about two decades ago. NAFTA is 1996.
ReplyDeleteThe same is true for two decades ago, though.
[GRIM]
Again, that's true for a certain class of employees, most of whom are of a certain age. But the jobs that have been created in the last seven or eight years are often temporary/seasonal or, if you're lucky, part-time without benefits.
1. There's a reason for those exemptions, Grim (employers can't run a business paying low/unskilled or temporary workers those benefits). I agree with you that expensive regulation and min wage laws exert downward pressure on wages, but don't agree that this is some kind of conspiracy on the part of corporations to screw the little guy.
I think you have the causation backwards: corporations aren't begging fedgov, "Please, please raise the total cost of domestic labor relative to foreign labor!" They're reacting, not driving the bus.
[Dad29] Offshoring manufacturing also relieves manufacturers of several other burdens: EEOC, EPA, FLSA, health coverage, pensions, worker's comp, unemployment taxes, and income tax come to mind immediately. These are significant costs, none (or very few) of which are in play off-shore.
I couldn't agree more. All those things (which I alluded to here) all raise the total cost of labor - which is not limited to wages:
I agree that American workers compete more with foreign workers (and illegal immigrants) than they once did, but a BIG part of the reason is the increase in mandatory benefits costly regulation aimed at protecting said workers. These things raise the cost of American labor relative to foreign labor
It's pretty well documented that the cost of employer-provided health insurance comes at the expense of wages. All these benefits exert upward pressure on prices and downward pressure on wages.
Finally, how much one demands in wages absolutely depends on the purchasing power of those wages. My son moved to GA because even though he took a pay cut, his paycheck goes farther there. He could afford to buy a very nice house on one income (impossible in the DC area).
If the cost of most goods goes down over time (and it has), then why assume wages must continue to climb? It's not as though there's no connection between the two: there absolutely is.
One more thought: there's a lot of outrage about executive salaries going up, but the current regulatory environment and competition in a global (not local) economy both have the effect of making it far harder to run a business today than formerly. What effect do you think the demand for more skilled/capable leadership might have average CEO compensation?
There was a great article the other day in the WSJ about Chobani's runaway initial success in the yogurt market. But they quickly found that staying in business is much harder than making that initial splash, and the founder is having to hand off management to more seasoned personnel. My own company is struggling with the complexity of growing in this regulatory environment.
All of a sudden, we have mandatory federal compliance training several times a year for management (in the past few months alone I've been to classes on hiring, interviewing, substance abuse/mental health crap, ethics.... you name it).
16 years with the same company, and we never did ANY of this before. And you'd better believe it costs beaucoup bucks :p
Oh - I left out all the discrimination stuff: how to handle allegations of sexual harassment, racial discrimination, viewpoint discrimination...
ReplyDeleteAye, Chihuahua.
Both of your arguments about the additional costs of regulations further undercut McArdle's claim, however. The American consumer isn't responsible for that: these vast sets of ever-new regulations come out of an unelected bureaucracy over which the ordinary voter/consumer has neither control nor significant influence.
ReplyDeleteAn ordinary voter/consumer can have some influence over the small subset of these regulations that are actually laws passed by Congress. By prioritizing their interests and keeping engaged, they can follow the bills before Congress and write the appropriate legislators. If (by good fortune) their own Senator or Representative happens to be on the right committee, they can have more influence, but that's a matter of luck.
However, by far most of these rules come out of the executive branch's bureaucracy. Their processes are often opaque. There are tens of thousands of pages of these things produced every year, so no citizen could even read it all if it was their full time job to do so. When the agencies do ask for input on a matter you happen to be aware of they aren't obligated to heed citizen input in any way, and there's no mechanism to punish them or hold them accountable. Even the President can't necessarily fire them given Civil Service rules, and may have little capacity to do more than transfer them around the bureaucracy. The ordinary American voter/consumer has essentially no influence at all over this process.
Now my sense has been that major corporations are happy about all this, as they can exert some influence by having the ear of the President and lesser appointees via the donation solicitation process. They can also hire teams of lawyers and managers to keep them up on the regulations, which imposes a barrier to entry against any new smaller businesses that might want to compete with them. They benefit from this process in the second way, and have more influence than we do in the first way. So it's in their interest.
But it's not the fault of the ordinary American. McArdle's argument grows weaker the more we explore this.
Both of your arguments about the additional costs of regulations further undercut McArdle's claim, however. The American consumer isn't responsible for that: these vast sets of ever-new regulations come out of an unelected bureaucracy over which the ordinary voter/consumer has neither control nor significant influence.
ReplyDeleteI don't agree that they undercut her claim - I think they support it! Her central point was that voters wear two hats.
The worker hat wants expensive benefits and regulation to protect them, without understanding that these things raise the costs of domestic production and result in lower wages/fewer jobs.
The consumer hat wants abundant consumer goods and low prices (which also make it harder for American firms to compete and exerts downward pressure on wages).
Voters want contradictory things, and they don't think about/understand the tradeoffs.
You seem to think executive agencies aren't political. I assure you, they are. I have several friends who have worked all their lives in various agencies, and the wind definitely shifts when the party in power does. Political appointees flood in and everything changes direction.
My oldest friend spent 30 years in Social Security and we've discussed this many times. One has only to look at the shenanigans at the Consumer Financial Protection bureau, the IRS, the Justice Dept, INS... the military. The list goes on and on and on and on.
The idea that bureaucrats aren't political (or influenced by which way the political wind is blowing or voter desires) is sort of stunning. They are the very definition of political.
Do you seriously believe our response to ISIS isn't driven by the perceived political support for US involvement in another war? It absolutely is, and it ain't the military brass not wanting to engage. It's a political calculation.
Again, we want to be safe from the bad terrorists, but we don't want to pay the price of safety (American tax dollars and lives spent).
My claim isn't that she's wrong that voters wear two hats, nor that agencies aren't political. It's that the vast majority of the causal powers at work are unrelated to us as either citizens or consumers.
ReplyDeleteIf the reason companies move overseas is burdensome regulation, well, what are the influences causing all these regulations to come to be? It's not widespread public desire for more regulations. The public doesn't know what these agencies are doing because of the opacity of the process, couldn't keep up with it if they wanted to because of the extensiveness of the new regulations constantly coming to be, and has no direct influence on the process.
So yes, the political has some effect on the bureaucracy. Sure. Doubtless Republican rank-and-file voters are furious about the IRS. They're influencing their Congressmen to try to rein in that bureaucracy. But Congress keeps holding hearings, and keeps finding that hard drives have been damaged or destroyed, that nobody knows anything, emails are gone forever, no one can be fired (even if the President himself wanted to fire them, it'd be hard given the Civil Service laws), no one is accountable, and you're all bad people for even asking.
And that's before the gaming of the system that comes up in today's post about the EPA. That's not just insulation against the public via the public comment process, it's insulation against Congressional influence: the whole point was so they could go before Congress and testify that their comments were 9-1 in favor.
Umnnnhhhhh....don't be too naive about Congress, friend.
ReplyDeleteThe term "failure theater" describes the (R) Party's current mania: pretend VERY hard to be thwarting Obozo, while writing legislation which empowers him (and his bureaucratic machine).
They do it all the time--even with "hearings" that stretch into infinity with no conclusions, no hangings, no summary dismissals.
We note that Ms. Lerner is still on the taxpayer's tit--and will be until she dies.
And the (R) people KNOW that. They KNOW it's 'theater.'
Voters can and do demand more regulation. Or perhaps to be more accurate they demand that government "do something" about X, Y, or Z.
ReplyDeleteWell, the way that government "does something" is to make laws and issue regulations. Simply passing non-binding resolutions won't do the trick. All the nonsense going on with banks right now is the direct result of VOTERS screaming that someone ought to *do something* about those awful banks. The consumer financial protection agency nonsense is the direct result of voters complaining about being charged banking service fees (wow.... I remember when it was customary to pay a small processing fee each month just for the privilege of having a checking account. Now that's "predatory" banking!). Oh, and if I agree to an unsecured line of credit and violate the terms of my loan agreement (which was fully disclosed to me at the time), why should I not be charged a late fee? It wasn't MY money I was using. It's someone else's, and if I don't pay it back as agreed...
And we have people complaining when "their" house is repossessed for nonpayment of other people's money used to purchase it. Hint: if you haven't paid for it with your own money, it's not "yours", yet.
*sigh*
Voters can and do influence and demand regulation when they demand protections. There's a reason for that old chestnut, "There oughta be a law!"
Two things.
ReplyDelete1) Very few of the thousands of new regulations that happen each year have any tie to a public outcry. There's simply no causal link most of the time. Yes, it happens in some cases. For the most part, though, voters aren't even aware of what the executive bureaucracy is doing -- and the executive bureaucracy returns the favor by neither asking nor caring what the people want.
2) There's also a counterbalancing demand for decreased regulations. This is an area where Americans have even organized a political movement. They are screaming and yelling too, and they've gotten together to try to make the effect louder and more pointed. It's not succeeded in reducing regulation, nor even slowing the pace of regulation.
Mostly this is unmoored from Americans as consumers or voters. It's just the bureaucracy doing what it does, automatically, with some input from those rich enough to sway their bosses.