Episode #90 - Free-rider Friday - April 2016

Ron’s Topics

Scott Lincicome in an international-trade attorney, adjunct scholar at Cato Institute, and visiting lecturer at Duke. 

A recent study labor economists: “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade,” by David H. Autor, David Dorn, Gordon H. Hanson, NBER Working Paper No. 21906 was issued in January 2016.

Findings

  • Recent surge in Chinese imports inflicted pronounced harms on the and labor-force participation of US workers in local markets.

  • On the podcast EconTalk, Russ Roberts interviewed David Autor.

  • US manufacturing jobs declined from 17.2 million in Dec 2000 to 12.3 million last year.

  • Is this proof of needed protectionism?

Reality

  • No evidence imports are primary driver of US manufacturing job losses

  • Manufacturing slowly and steadily shedding jobs since late 1940s, long before NAFTA or China

  • USA is second largest manufacturer, 17.2% global output, 3rd largest exporter

  • USA is world’s top destination for Foreign Direct Investment $384 billion in 2015, more than double 2nd place Hong Kong, and nearly triple China

  • Job losses mostly result of productivity gains and deep recessions, not trade,

  • The paper says import competition only explains 25% of job loss between 1990-2007

  • Free trade benefits by $2800-$5,000 additional income average American, $7100-12,900 average household. Benefits mostly middle, poor, some 90%

  • More than ½ of all imports are inputs and capital goods consumed by other manufacturers

  • Tariffs are a hidden tax that benefits mostly labor unions. Obama’s 35% tarrif on China tires equated to $900,000 per job saved

  • Global value chains are incredibly complex. Almost 40% of all US exports involved in GVC; 34% of US exports contain inputs from China, Canada and Mexico

  • Gordon Hason: “The problem is not trade liberalization…the problem is that labor-market adjustment too slow”

  • Civilian labor-force-participation rate lowest at 62.5% since late 1970s

  • Traded goods arbitrarily exclude services—legal , accounting, advertising, travel, telecom, insurance,  32% of US exports ($28 billion surplus with China 2014), $233 billion with world

  • $30.5 billion (2015) trade surplus with Hong Kong, not counted as trade with China

Why less fluidity in the labor markets?

  • Americans less likely to move where jobs are

  • 60% Americans have less than $1,000 in savings (US tax policy has no tax-free savings, like Canada

  • Health care, education cost are rising above inflation

  • Tax code: education expenses deductible only for existing job, not new skills

  • Employment protection laws erode employment-at-will doctrine

  • Occupational laws limit opportunities for poor middle class to start businesses

  • Minimum wage laws

  • Employer provided health insurance creates job “lock-in”

  • Extended unemployment benefits subsidizes non-work

  • Social Security Disability Insurance—becomes permanent, very few reenter labor force. SSDI doubled from 1990-2014, from 2.3% to 5.1%

  • Trade Adjustment Assistance notorious failure. Breeds misconception that trade is somehow different from other forms of disruption, such as business models, automation, etc.

Ed’s Topics

Dee Gordon of the Miami Marlins was suspended for 80 games for testing positive for PEDs (performance enhancing drugs). Ed posited the idea of eliminating the regulation against PED use in favor of a reputation based model. His idea would allow for PED use, but require, as a condition for employment, twice yearly testing in addition to random tests as well. The results would be reported and displayed on jumbotron screens along with other statistics. Follow the debate on this topic on Ed's Facebook page. 

Story on IBM’s Watson from Kidscreen: Watson teams up with Sesame Street to educate in pre-schools.

Presidential Race” www.Predictit.org, has Clinton at .64¢ and Trump at .35¢ for general election. Also, Iowa Electronic Markets.

Historian Rick Brookhiser: “The Presidency is not an entry-level political job, unless you’ve won a world war.” (Ike, Ulysses Grant)

Milton Friedman: “The point is not to elect the right people to do the right things. The point is to design the system so that the wrong people do the right things.”

Jean-Claude Juncker, primer minister of Luxembourg: “We all know what to do; we just don’t know how to get re-elected after we’ve done it.”

Here is the 1984 SNL video starring Billy Crystal that Ed mentioned.