Topic: Trade and Immigration

The Media’s Snapshot View

An AP story on the minimum wage begins, all too typically:

The nation’s lowest-paid workers will soon find extra money in their pockets as the minimum wage rises 70 cents to $5.85 an hour today, the first increase in a decade.

Some versions of the AP story, though not the ones that ran in the Washington Post and the New York Times, did acknowledge the possibility that some low-paid jobs might disappear. But most of the news stories this week focus more on criticism of the increase for being too low than on the consensus of economists that minimum wage laws reduce employment for low-skilled workers. It’s enough to make you think Bryan Caplan’s right about the irrationality of the political process. But it’s really just an example of the tendency to look at market processes with a “snapshot view” rather than a dynamic understanding of costs and consequences.

On an unrelated note, unions are outsourcing the arduous job of picket lines to non-union workers. Apparently the carpenters and construction workers are too busy working in our booming economy to have time to picket non-union contractors. The picketers aren’t paid union wages, but they are paid above the minimum wage.

Meet the New Farm Bill

Prepare to pay more for your food. The House Agriculture Committee on Thursday unanimously passed a 2007 farm bill that, in the words of a committee press release, “makes historic investments in conservation, nutrition and renewable energy while maintaining a strong safety net for America’s farmers and ranchers.”

For “investments,” read “spending increases,” and for “a strong safety net,” read “subsidies and trade barriers to keep commodity prices and production artificially high.”

Sadly, the new 2007 farm bill looks a lot like the old 2002 farm bill that is due to expire on September 30. No real changes were made in the Title 1 commodity programs that lavish production subsidies on farmers who grow corn, wheat, cotton, and other program crops. Trade barriers remain against imports of lower-priced sugar, rice, and dairy products.

As we have pointed out in a number of recent Cato studies on farm policy, tens of millions of American families will continue to pay for these programs through taxes and higher prices at the grocery store. Once again, members of the House Agriculture Committee, Democrats and Republicans alike, have demonstrated that they represent a small number of farmers rather than the general interests of the American people.

Economics and Values

A recent NYT article has roiled the economics blogosphere by spotlighting several prominent economists who ostensibly challenge the “fundamental assumptions” of their field. A snippet:

“Economists can’t pretend that the consensus for free markets and free trade that existed 30 years ago is still here,” said Robert B. Reich, a public policy professor at Berkeley who served in President Bill Clinton’s cabinet.

Part of the reason is the growing income inequality and dislocation that global markets and a revolution in communications have helped create. Economists who question the free-market theories “want to speak to the reality of our time,” Mr. Reich said.

The article references some interesting material, including Alan Blinder’s criticism of offshoring and David Card’s provocative work ($) with Alan Krueger on employment and the minimum wage. However, contrary to its tone, the article is not (for the most part, anyway) about disagreements in economics — it’s about disagreements over values.

Consider, for instance, this bit from Blinder’s recent Washington Post op-ed:

And if the jobs do move offshore, displaced American workers may lose not only their jobs but also their pensions and health insurance. These people can be forgiven if they have doubts about the virtues of globalization.

We economists assure folks that things will be all right in the end. Both Americans and Indians will be better off. I think that’s right. The basic principles of free trade that Adam Smith and David Ricardo taught us two centuries ago remain valid today: Just like people, nations benefit by specializing in the tasks they do best and trading with other nations for the rest.

Blinder does not dispute (and indeed endorses) the economic orthodoxy that trade materially benefits participants. Instead, he notes that a change in trading partners produces both winners (the new trading partners) and losers (displaced partners), and that change can often be painful for the loser — a notion that most all economists would endorse.

Given this economic analysis, Blinder offers a values judgment: the United States should implement public policies to aid displaced workers caught in such change (but he expressly eschews protectionist measures that would prohibit change). Libertarians may disagree with Blinder’s policy proposals (perhaps on the grounds that such policies are not appropriate for limited government, or are economically inefficient, or would create perverse incentives and unintended consequences). But this disagreement is not about economics, it’s about competing values (e.g., limited government is preferable; economic inefficiency is undesirable, perverse incentives and unintended consequences are to be avoided).

Like “hard” science, economics is a non-normative field that attempts to determine certain types of relationships — in this case, economic ones (e.g., what is a minimum wage’s effect on employment; what market power effects result from industry regulation?) — and use those determinations to predict the future. Economic analysis often leads to policy recommendations, but those recommendations are the product of value judgments: Should the well-being of one group of workers (e.g., domestic, unionized, members of a particular group) be promoted over another? Should the harm experienced by displaced workers be mitigated, and if so, how?

From a policymaking perspective, it is useful to distinguish what part of economic policy is about economics and what part is about values. Economic analysis of U.S. farm subsidies and trade protections reveals their effect on farmer and consumer behavior, but good policy ultimately comes from answering such values questions as whether the tradeoff of higher consumer food prices for higher producer revenues is acceptable, or whether ag subsidies are a good use of the public fisc.  Or, concerning Prof. Reich’s comment above about income inequality, good policy would come from answering the values question of whether it is a problem that some people are rich or, instead, that some people are poor.

All of this is not to say that we should not question whether neat, simple economic theory plays out cleanly in this messy, complicated world. The debate ($) over Card & Krueger’s minimum wage findings is one of the most interesting in economics, and the burgeoning field of behavioral economics is reinvigorating long-simmering questions about the rationality of market actors — though those questions may not support the values judgments that the apostates and heterodoxoi presume. But I would argue that economics is not so different from the hard sciences — the core tenets are quite solid (though revolution does occur). What remains (appropriately) shaky is a pluralistic society’s attempts to apply its many values (as well as its hopes, fears, grievances, immediate concerns, and political aspirations), to economic phenomena.

Food Safety and Imports

Unhealthy products from China have been in the news lately. First it was poisoned pet food, then contaminated toothpaste, toy trains with lead paint, and now farmed fish containing unauthorized chemicals. For skeptics of trade, the news offers yet another reason to beware of imports in general but especially those “Made in China.”

Consumers have every right to be concerned about the safety of the products they buy, but the problem of potentially harmful products is not unique to China or even imports. As a New York Times story points out today, U.S. customs officials routinely intercept more potentially harmful food imports from Mexico and India than they do from China. Federal inspectors have turned away hundreds of shipments of produce from the Dominican Republic and even candy from Denmark.

Safety concerns are not confined to imports. Americans have been poisoned by beef from Nebraska, spinach from California, and peanut butter from Georgia. The same safety standards apply to imported food as to domestic food. The right response is not wholesale restrictions on imports, but to find better ways of keeping harmful products out of stores no matter where the products originate.

The large majority of food products imported to the United States, like those grown domestically, are safe and healthy. In fact, imports improve our health by making fresh produce available year around. Imports also keep prices down at the grocery store, which benefits low-income families most of all. Raising tariffs on imported food would certainly do more harm than good.

Mr. Frank Gets Mixed Up

In an article today in the Boston Globe, Rep. Barney Frank (D, MA) commented on the closure of a fabric maker located in or near (the article is unclear) his district:

These working-class people are bearing the brunt of a policy of globalization that benefits the few and damages the many,” Frank said. (my emphasis)

Mr. Frank has the problem precisely backwards. Open trade benefits the many — through more competition and lower prices — even though it takes away the protection of a chosen few. It is tariffs that impose (relatively small) costs on many dispersed consumers, but benefits concentrated interests (and harms the economy overall). In this case, the closure of a 900-employee textile plant is a highly visible manifestation of a phenomenon that has been largely postive on net. It is sad for those losing their jobs, to be sure, but millions of American consumers benefit every day from opening the U.S. market to cheaper imports.

As a Wall Street Journal article yesterday pointed out (and my colleague Dan Ikenson blogged about here last week), the power of organized labor in the Democratic Party has probably spoiled any further trade liberalization in the near future, despite the month-old and much-hyped “bipartisan deal” on trade. This backtracking comes after the administration agreed to Democrats’ demands for stronger labor and environmental provisions in trade agreements.

The recently-inked deal with Korea — the biggest trade deal for the United States since NAFTA, and one that promises large market opportunities for American farmers and service providers, not to mention deals for U.S. consumers — is probably off, all because of American automobile makers who fear competition from Korean imports and assert that the Korean market was not going to open enough for their liking. (Of course, if the deal fails, then the market probably won’t open further at all, but that logic is apparently unconvincing.) Talk about benefiting the few and damaging the many.

The ‘Pseudo-Dictatorship of the Market’

Some people hoped that new French president Nicolas Sarkozy would liberalize France’s economy and reduce the burden of government. But all the evidence points in the other direction.

The International Herald Tribune reports on Sarkozy’s statist choices:

[C]riticism of Sarkozy’s interventionist language…is mounting. The question that Eurocrats, central bankers and fellow politicians are asking is the same they asked three years ago: Is the man who wants to shake up France’s labor market and ignite economic growth with a flurry of tax cuts the liberal European he claims? Or is he an old-style Gaullist in modern disguise?

“Institutions, procedures, directives and rules are not ends in themselves,” Sarkozy declared in Strasbourg, calling for a Europe “that does not submit itself to the pseudo-dictatorship of the market….

Sarkozy has shown little willingness to abandon certain nationalist instincts of past French leaders. He has defended EU agricultural subsidies against demands for greater trade liberalization. He has shown little inclination to withdraw from France’s aim of creating national champions, particularly in the energy sector. On Thursday, he debated the future of the state-controlled gas company Gaz de France with his prime minister and finance minister. And rather than encouraging globalization, he has appeared to reinforce French fears of unfettered capitalism — for example, by fighting to remove a largely symbolic affirmation of EU competition policy from the revamped treaty agreed last month in Brussels.

“Sarkozy talks right but rules left. Portrayals of him as a French Thatcher who will shake things up are vastly exaggerated,” said one EU official in reference to the former British prime minister Margaret Thatcher. “He is, after all, French.”

An EU Minimum Wage Law?

The European Union commissioner for economic and monetary affairs, Joaquin Almunia, thinks there should be a minimum wage for all EU member nations. This is a destructive notion, considering many European nations suffer from substantional unemployment and under-employment. To the extent that minimum wage policy is harmonized (as opposed to 27 different minimum wage policies in 27 EU nations), poorer countries will be hardest hit.

The EU Observer reports on the latest proposal from the statists in Brussels:

EU economic and monetary affairs commissioner Joaquin Almunia has mooted the idea of minimum wages being introduced in each of the 27 member states across the European Union. “Every country in the EU should have a minimum wage,” Mr Almunia told the German weekly Die Zeit in an interview.

…[O]nly 20 EU member states currently have a set level of minimum wages…. Germany … is one of the few major world economies without a minimum wage.