Topic: International Economics and Development

More Trade, More Jobs, Higher Wages

Critics of international trade argue that imports mean fewer jobs and lower wages for American workers. They repeat this mantra despite plain evidence to the contrary.

The latest evidence comes this morning with another U.S. Labor Department report that the U.S. economy continues to create new jobs at a healthy clip. U.S. payrolls grew by another 132,000 in November. The unemployment rate ticked up slightly to a still relatively low 4.5 percent because new workers surged into the labor market.

In the past year, total payroll employment has jumped by 1.8 million. Since mid-2003, payroll jobs have grown by 6.2 million, and since 1990 total payroll jobs have grown by 27 million. That impressive job growth has occurred against a backdrop of rising U.S. trade with the rest of the world, so clearly trade does not mean fewer jobs for American workers.

What about wages? They too are rising again, according to the same labor-market reports this morning. Average wages are up 4.1 percent from a year ago, ahead of inflation. When benefits are added, total compensation for U.S. workers continues to rise faster than inflation and is up significantly in real terms compared to previous years.

Like technology, trade can cause turnover in the labor market. But also like technology, trade raises the overall productivity of American workers, leading to better jobs and higher real wages.

The best analysis on this subject remains the 2004 Trade Briefing Paper, “Job Losses and Trade: A Realty Check,” by my Cato colleague Brink Lindsey.

Lou Dobbs Watch

The “Lou Dobbs Tonight” show on CNN long ago ceased to be a serious news program and has become a nightly screed against free trade, immigration, and a competitive, market economy. The opinions expressed by Lou Dobbs, his “correspondents,” and the large majority of his guests are typically based on questionable and selective facts that miss the real story.

Consider a “Lou Dobbs Tonight” segment the other night on how a “flood” of imports into the United States has caused “the incredible deterioration of the manufacturing industry.” The program’s anchor that night, Kitty Pilgrim, blamed the development on “the commitment of successive administrations to so-called free trade policies.”

The segment featured two biased CNN correspondents plus three guests who are all professional critics of trade: Alan Tonelson of the U.S. Business and Industry Council, an organization of generally declining, protectionists industries; Robert Scott of the Economic Policy Institute, a labor-union backed research group; and Bob Baugh of the AFL-CIO, the largest union umbrella organization.

As for the facts, nowhere in the segment was it mentioned that American factories are producing more goods than ever as measured by inflation-adjusted volume. U.S. manufacturing capacity and production have actually increased by 50 percent, in real terms, since the early 1990s, when such important trade agreements as the North American Free Trade Agreement and the Uruguay Round Agreements Act went into effect. Domestic output of automobiles and parts, a special focus of the CNN segment, is also much higher than in the earlier, pre-NAFTA, pre-WTO days.

As Cato research has shown, imports of manufactured goods and domestic output of manufactured goods tend to rise and fall together along with the overall health of the U.S. economy. When we prosper, we trade; when we trade, we prosper.

Apparently the “Lou Dobbs Tonight” program won’t let a few basic facts get in the way of a sensationalized story. Perhaps CNN should change its name to the Cable Opinion Network, or CON for short.

A Timely Chiding from the Washington Post

Today’s editorial in the Washington Post is a timely reminder of the negative consequences if Congress does not renew certain non-reciprocal trade preference deals (mainly allowing developing countries to import certain goods to the United States tariff free).

Although it strikes a somewhat mercantalist tone (e.g., it seems to imply that there may be reason to block trade deals if they do not “save American jobs”), the editorial board is right to say that the benefits to the United States from renewing these deals, both economic and political, certainly outweigh any “costs” from opening up trade that some members of Congress usually get upset about. Extending permanent normal trade relations to Vietnam (a topic I have blogged about here and talked about in this podcast) should be an especially simple matter.

I am a little skeptical about the long-term benefits of non-reciprocal trade preferences; they can lead to a culture of dependency and concentration in certain industries, and create political constituencies against multilateral trade liberalization, for example. But I wouldn’t go so far as to say that the problems related to these types of deals generally are sufficient to outweigh the benefits of approving the particular deals under consideration. In any case, somehow I doubt that the nuanced arguments against development-related unilateral preferences are the reason behind failure to pass the deals. The Washington Post suggests the inertia may be due to simple laziness. Surely not?

Equality Isn’t Natural

A New York Times article from the day after Thanksgiving falls into a familiar trap of assuming that equality – among people, among regions, among growth rates, etc. – is a natural condition, so that any deviation from equality is not only worthy of note but a “problem.” Reporter Ian Austen writes:

But [Canadian finance minister Jim] Flaherty did not address a much broader economic problem that has been troubling people who follow the nation’s economy. Although Canada’s economy as a whole is expected to grow by a healthy 2.8 percent this year, there is an expanding gulf between the eastern and western halves of the country.

Indeed, in the past year economic growth has been stronger in oil-rich Alberta than in industrial Ontario, the largest province. Alberta remains the wealthiest Canadian province. But Ontario is not far behind, and it’s wealthier than the other western provinces. The main point is that it would be absurd to expect Canada’s provinces to show the same growth rate each and every year. Yet the Times calls disparity in annual growth rates ”a much broader economic problem that has been troubling people.”

The reality is that nothing is equal. The world is diverse and complex. Different provinces (or states or nations) have different resource endowments, different histories, different policies. Why would we expect them to have the same outcomes, annually or otherwise? The same is true for individuals; we’re all different in infinite ways, so it’s crazy to expect us to end up with the same incomes or assets or accomplishments. And crazy to think that Harvard or the NBA or the Wal-Mart workforce would “look like America.”

Footnote: Google isn’t helping any. When I searched for the New York Times headline “In Canada’s Economic Divide, West Surges While East Struggles,” Google responded:

Did you mean: In Canada’s Economic Divide, West Surges When East Struggles  

Zimbabwe Ignores Milton Friedman’s Advice

Before he passed away last month, Milton Friedman had the satisfaction of seeing many of his free-market policy ideas and economic insights vindicated by real-world events. 

A story in today’s Financial Times from London offers a clear, yet tragic, illustration of Friedman’s famous maxim: “Inflation is everywhere and always a monetary phenomenon.” 

Zimbabwe’s erratic and despotic President Robert Mugabe has wrecked the country’s economy during his quarter-century in power by flouting virtually every free-market idea Milton Friedman advocated, including sound monetary policy. One result has been rampant inflation. According to the FT, Zimbabwe’s finance minister “admitted that inflation—1,070 percent in the year to October—was excessive, blaming money supply expansion of more than 1,000 percent.” 

Just as Professor Friedman would have predicted!

The Results of Defending Freedom of Religion and Referring to “This Man” in Turkey?

Dr. Atilla YaylaA respected political scientist, Dr. Atilla Yayla of the Gazi University of Ankara, Turkey, has been dismissed from his teaching position and pilloried in the press in Turkey for daring publicly to make critical remarks about the legacy of Mustafa Kemal Atatürk, whose version of “secularism” has meant state control of and suppression of religion.

Kemalist secularism is not well understood by Americans and Europeans. As Dr. Yayla put it some years ago (about 10, I think) at a seminar on Islam and civil society I organized for him at the Cato Institute, “People say that you have separation of church and state in America and we have separation of mosque-and-church and state in Turkey. In America, that means freedom of religion. In Turkey, it means freedom from religion. There is a great difference between the two.” Private property, contract, and limited government, he argued, should create the framework for people to decide on their own, through voluntary cooperation, whether and how to build a mosque, a church, a synagogue, or anything else. Such decisions should not be made by state officials.

Atilla was calm during the hot discussion that followed and offered a voice of reason and true liberalism, as passionate secularists and Islamists around the seminar table argued against each other, the former for suppressing and controlling religion by force and the latter for imposing it by force. One secularist even showed a calculation of how many square meters a Muslim needs to pray, multiplied it by the Muslim population of Turkey, calculated the number of square meters of Mosque space in Turkey, and concluded that Turkey had a 50 percent surplus capacity of Mosque space, and therefore that no more should be allowed to be built. Dr. Yayla suggested that that decision should be left to the religious devotion of the faithful, whether Christian, Jewish, Muslim, or otherwise, and calmly appealed for peace by promoting freedom of religion: religion should be neither suppressed nor supported by the state.

Americans can be grateful that they enjoy the First Amendment to the Constitution of the United States: “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” That is not the same as “secularism,” as it is understood in the Middle East. That’s why when I’m in the Middle East I promote freedom of religion, rather than secularism, for the simple reason that secularism in that context doesn’t mean the same as the term “secular state” does elsewhere. That is one element of the Kemalist legacy that Dr. Yayla dared to criticize.

Advocates of freedom the world over should support Dr. Atilla Yayla, a principled voice for freedom of speech, for toleration, and for the civilized values of limited government, protection of property, and freedom of contract, association, and trade.

Those who wish to express their support for Dr. Yayla should contact Ms. Ozlem Caglar Yilmaz, executive director of the Association for Liberal Thinking in Ankara, of which Dr. Yayla is the president. The email is ozlemcaglar [at] liberal [dot] org [dot] tr and the fax is +90 312 230 80 03.

The New Russia and the New Eurasia

For anyone interested in what’s going on in Eurasia, specifically Russia and its relations with all of the other nations of the continent, I highly recommend watching or listening to the Cato Institute’s policy forum today on “Russian Energy Policy and the New Russian State.” (I’m not sure when the video and audio will be archived for online streaming, but it will be very soon). Robert Amsterdam, Attorney for jailed Russian oil entrepreneur (and now political prisoner) Mikhail Khodorkovsky, made some very sharp and interesting comments about what is happening to the rule of law in Russia.  Andrei Illarionov, former Economic Adviser to President Putin, then laid out the course of Russia’s energy policies under President Putin and explained the disastrous effects of those policies of re-nationalization (which has taken place alongside a coincident “privatization” of the Russian state, which is coming rapidly under the control of a KGB-corporate-state network) on the Russian economy, on the legal system of the Russian Federation, and on the long-term prospects of liberty in Russia.

Interest in the topic is increasing, as shown by Sunday’s Washington Post, which had a very insightful article on developments in Russia. As the article shows, Russian businessmen such as Vladislav Tetyukhin are strong-armed into turning control of their firms over to the ruling elites:

Last year, Tetyukhin was invited to tea at the Moscow headquarters of Rosoboronexport, and the conversation, he said, quickly took an unpleasant but not unexpected turn. Executives from Rosoboronexport told him that they wanted to buy a controlling stake in the titanium concern. The tea, he said, suddenly did not taste so sweet.

At first, Tetyukhin and Bresht publicly protested any sale of their shares, but their company quickly found itself under investigation by the tax police, and the prosecutor’s office launched an inquiry into VSMPO-Avisma’s share structure. Before it was acquired by VSMPO, Avisma, a raw materials supplier, was owned by Khodorkovsky, a potentially dangerous connection.

Rosoboronexport said it planned to move into the metals industry to “prevent the enterprises of the metallurgy sector from being usurped by various organizations, including those acting in the interests of foreign capital and using illegal methods.”

Not so sweet, indeed.