Friday, January 10, 2014

Noah's Battle in Seattle

On le Twitter, NS invited the KPC crew (inter alia) to comment on this Atlantic piece. Mungo... well Mungo demurred:
Angus seemed a bit more willing, but only after being buttered up a little:
 I'll bite though. You know, so I can say idiftl and all that. Let's hit the high points and see what we can bounce off against the rubber-lined walls of EE with our fashionably long-sleeved suit jackets.

Noah: Competition with foreign labor drives down domestic wages. The empirical literature [the Autor, Dorn, and Hanson link is busted, Noah] shows (SLW note: I will refrain from complaining about the IV approach ADH use) wage and employment shocks to domestic households even outside what you'd expect (manufacturing), having distributional consequences even if overall welfare is improved. Recall that K-H efficiency just says we're better off in the aggregate; this criterion still allows for some folks to lose.

Spivonomist: The point of liberalized trade is to increase capital mobility. The part of my analytical toolkit grounded in sterile economics is puzzled by a corresponding failure to increase the mobility of labor. Clemens might be overly optimistic about doubling world GDP with open borders, but I can imagine quite plausible production functions that exceed his estimates. All you need to get there are returns to thicker networks, increased specialization, and complementary firm structure. Richer organizational structure types means more experimentation with production methods, more creative destruction, and more TFP development. But all the pie-in-the-sky economic optimism I can muster inevitably gets clotheslined by political constraints as I go a-galloping through the hundred-acre wood on Eeyore's back. The AFL-CIO was the big presence at the Battle in Seattle (which I remember fondly since I was just across the Puget Sound as it happened), but with open borders on the agenda at the same time, even a lame duck Clinton fresh out of the Lewinsky wringer couldn't have made substantial immigration reform happen. No way, nohow. Marginally more mobile capital without an increase in the mobility of labor will quite naturally have distributional effects. Obviously.

Noah: Returns to increased globalization have gone to owners of capital rather than to labor.

Spivonomist: Part of that is the increased volume of pairwise euvoluntary exchange. Part of it is the result of political rents. I think you and I both agree that political rents are a problem. I don't know for sure if we agree about wealth inequalities that naturally arise as a result of more vigorous EE, but that latter question is probably relatively low priority.

Noah: Are you drinking carrot-beet juice? That's disgusting.

Spivonomist: It was good till I got to the dregs. Beet pulp is objectionable.

Noah: Product quality is a sincere collective action problem. Consumer protection is a farce in developing economies, and you know as well as I the supply chain failures characteristic of Communist regimes. There's no incentive for producers to behave scrupulously, especially with American merchants who can't be bothered to learn how Chinese business works. Also, Sam, haven't you and Alex been working on the lead-crime connection? You should know better than anyone the perils of heavy metals in toys.

Spivonomist: Yeah, with the lead and crime, the thing is, the connection isn't actually particularly robust. Including Canadian observations was the stake through that vampire's heart for me. But yes, there's an information asymmetry problem with imports. It seems to me that there are probably some pretty good, low-cost solutions to the problem. US distributors have no vested interest in poisoning their customers, so something akin to UL but for imported consumer goods seems like a pretty good idea. Put distributors on the liability hook for the mountains of plastic crap they haul across the Pacific. Tort law needs some work, but that's a problem with the tort system, not with international trade.

Noah: Pollution, bro. Global warming.

Spivonomist: Yeah, the air quality in coastal China is terrifying. But clean air is a normal good. I am reasonably confident that economics will win. As far as climate effects, carbon sequestering is a great way to transfer wealth! Why not tax wealthy Americans and Europeans to build fancy-pants algae ponds or forests and let developing countries continue using low-cost energy until the margins equalize on their own? We'll get better worldwide GINI coefficients and a healthy, happy environment. What's not to love? Unless of course environmentalism isn't about the environment. But that can't be right. Right?

Noah: I'm actually with you guys on the working conditions stuff. Rattletrap factories are places you and I wouldn't want to work, but none us of here in American Academia come from a dirt farmer background, so we shouldn't be using our own experiences to judge the BATNA of others.

Spivonomist: Oh, that's what Angus meant. Okay then.

Noah: And in the end, an end to the misery of chronic poverty for hundreds of millions of Chinese citizens is a damn fine result, so maybe their welfare should be a more important component of our moral estimations of the effects of international trade.

Spivonomist: Noah Smith is starting to sound a bit like Adam Smith there at the end. I like it.

Increasingly vigorous international trade is a step in the euvoluntary direction. There are still big problems with its specific execution, but the meet and proper response to those problems are to address them on their own terms, and emphatically not to return folks already on the brink of desperation back to their misery. Euvoluntary for me but not for thee? I'm with Noah: I can think of few sentiments as vile.

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Do you have suggestions on where we could find more examples of this phenomenon?