Obscure, Deny, Qualify: How economists lie…
Two economists, Pravin Krishna and Mine Z. Senses, recently undertook a study of the impact of global trade on the wage income of American workers.
A good study, you might say, since as American corporations appear committed to off-shoring most – if not all – of American production to places like China, Brazil, and other low wage nations, the affected workers might want to know how this process will affect their ability to put food on the table and keep warm in the winter.
So what did our scholars find?
Well, you are jumping into the study far too quickly, you see. First, we have to advance the prevailing viewpoint of the American corporation: namely, that,
As has been argued on this site before, protectionism is the wrong response because import protection stifles access to a greater variety of goods, raises prices and hinders the efficient allocation of resources. Moreover, if the major trading nations were to engage in retaliatory protection against each other, the impact on world growth would be devastating.
This is to get your head shaking, “Yes.” Protectionism, bad! Free trade, good! “Free trade good for everyone, because it means the price of 42 inch high definition wide screen plasma television go down.”
OK. Cool. We agree that free trade is good. Nobody wants to pay a penny more than they need to for toilet paper – now what?
Unfortunately, for the economist, free trade poses something of a problem since, despite all the propaganda and hype, a bunch of auto workers in Detroit are living in $7,000 homes, and freezing this winter, because their jobs went, “Bye, bye.”
The problem is solved by treating the propaganda about free trade as a fact rather than an as yet unproven assertion:
Despite these facts, heightened public concerns regarding globalisation remain – and not without justification since greater trade may induce reallocation of workers across sectors and firms and in the process expose workers to the possibility of income losses and unemployment.
Well, you see, there is the fact, asserted but never proved, that we all benefit when trade is open and free, and then there is the fact called Detroit.
The first fact looks like this:
And, the second fact looks like this:
You see? Everyone has their facts. It is not up to us to judge which facts are real and which facts are total fucking bullshit, because, we’re just economists.
As to the latter shock, the authors acknowledge that, “Shit happens.”:
… an increase in foreign competition increases the elasticity of demand for domestic goods and thereby raises the elasticity of derived labour demand. This, in turn implies that shocks to labour demand could lead to large variations in wages and employment with significant economic consequences.
Yes, such significant economic consequences as the collapse of an American city, and the resulting catastrophic immiseration of its entire population.
But, now that we established the ground rules:
- Free Trade is good for everyone, but
- Shit happens
There are still problem with facts like Detroit.
The first problem is that they are unpredictable – even though Michael Moore made a fucking movie about it – and, second, no one knows if they will be temporary or permanent. Because, you see, the fact that your job ended up in a maquiladora in Mexico, and then was moved a slave labor camp in China, doesn’t mean it might not eventually return to you in Detroit.
Moreover, we really do have to factor in that your skills designing, engineering, building, and assembling automobiles may not be fucking valued at your new job with Wal-Mart, or Home Depot.
(Yes. The authors of this study really did say this.)
For example, during the adjustment process following trade liberalisation, workers may experience temporary job loss resulting in a temporary loss of income. Alternately, individuals moving across sectors may see permanent income losses since their work experience may not be valued and, thus not be rewarded, in their new sector.
You cannot make this shit up.
Not surprising, the potential impact on your wages might just hinge on how long it takes for that inmate in China to lose HIS job to off-shoring back to the United States:
When faced with transitory income shocks workers can borrow or use their own savings to smooth consumption. However, this is clearly not feasible when income shocks are permanent. As a result, highly persistent income shocks will have a far more significant effect on the well-being of workers compared to transitory shocks.
Wow! Gravity is real!
So just how much do you have saved up? Can you go a couple of decades on only half of your previous wages? Economists really want to know this, because retail consumer goods companies want to know it. They need to know how many 42 inch high definition wide screen plasma televisions to put on order for the next Christmas glut-o-fest.
And, everyone has a share – except you.
As shareholders of J.C. Penney (we are all shareholders of J.C. Penney, right?) we are all interested in two things:
- Will your boat sink? And,
- How long can you tread water?
The answer to the first question is: “Boy, you’re gonna need a bigger boat!”
How big? Well, China has 700 million peasants just itching to do your job, and the shareholders at J.C. Penney want to take the kids on an educational rock climbing tour of Kazakhstan with their own private tutors.
Which means, if it can be made, it will be made in China – with technical support from India and the Philippines.
You’re fucked! LOL
In the dictionary, there is a definition of fucked with your picture.
Yes, the authors found what appears to be an outsized impact of free trade on your wages:
The relationship is strongly positive. An increase in import penetration by 10% of its initial (1993) level raises the standard deviation of shocks to income by around 23%.
Most of that sentence is gobbledygook to us, but it look pretty bad, guys. Home Depot just ain’t paying union wages. If someone told us that our deviations would be penetrated by such shocking standards, we just might punch them – but, you can vote Republican (or, Democrat, we do get these things mixed up.)
Again, the authors insist at the close of their article that they are not saying free trade is bad for everyone – just you, asshole.
You, and, some guy named Lorin Feldpausch, who used to have a real job.