Friday, February 13, 2004
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In theory, trade is a Pareto-improving for an economy as a whole -- that is to say, through free trade, some people can be made better off without others being made worse off. Now, that doesn't necessarily work in practice, unless the losers from trade are compensated by the winners.
In other words, TAA is designed to facilitate workers let go due to trade pressures to find jobs in more competitive sectors.
Sounds great -- but it's not clear that, as currently written, outsourced workers would fit the criteria for inclusion. The criteria are:
Since a lot of offshore outsourcing takes place within a single firm, and it increases productivity, I doubt (2) would be met -- sales/output would increase and not decrease.
Here's my question to informed readers:
posted by Dan on 02.13.04 at 04:04 PM
What about folks out of work for a year or more? What about self-employed consultants in IT when the entire industry goes south?
Job Search allowance? Job search has been completely stymied by teh intarweb, and MBA filled HR departments. What percentage of H1-B using or offshoring companies have local employment offices anymore? As an example, Honeywell does not. Say you want a job as an aerospace engineer at Honeywell. Send your resume for scanning to email@example.com. DO NOT SHOW UP AT THE LOCAL HONEYWELL FACTORY. There is no one there to interview you. Yes, the folks with the jobs are there. The managers are there. The employees are there, but there is no HR department there. The HR function has all been moved to Honeywell HQ. Most large companies are similarly setup -- best practices don't you know.
TAA is setup to take care of BIG NATIONAL companies -- that's so pre-intarweb, pre-globalization.posted by: anne.elk on 02.13.04 at 04:04 PM [permalink]
I have a quibble with your depiction of free trade. It benefits all nations that engage in it. Within each nation there may be winners and losers, but in the aggregate the population will be more prosperous.
Technology and innovation – the move from mainframes and COBOL to networks and modern programming languages or from oxen and horse to motor vehicles – do the same thing. Some win, some lose, but the economy prospers.
Thank goodness for Toyota, Honda, Kia, and the rest of the foreigners. GM is starting to produce a whole range of good cars again.
I’ve had to reengineer my skill set and move a thousand miles, all on my own dollar. I tell my kids to save and save and save for their future retraining and for my prescription drugs.
The Kid - you are not disageeing with Dan. You're just saying the same thing is a different way. The point is, that (in theory) the winners COULD compensate the losers, and still come out ahead. But it doesn't generally happen that way. TAA is an attempt to (some extent) make that happen; Dan is simply suggesting that, in the case of outsourcing, it may not work as intended.posted by: Larry M on 02.13.04 at 04:04 PM [permalink]
“In theory, trade is a Pareto-improving for an economy as a whole -- that is to say, through free trade, some people can be made better off without others being made worse off.”
Did Pareto really say something that patently stupid? I’m sorry but the gods of creative destruction are cruel bastards. The overall population always benefits from improving productivity. Unfortunately, though, some folks are going to get the proverbial shaft. A 38 year old textile worker who cannot read the headlines of his local newspaper, earning $11.00 per hour, is royally screwed when his job moves out of the country. This dude will be lucky to earn even half that in the future. I’m adamantly for free trade, but I refuse to sugarcoat the brutal truth.
“I’ve had to reengineer my skill set and move a thousand miles, all on my own dollar. I tell my kids to save and save and save for their future retraining and for my prescription drugs.”
Yup, the government can only do so much. The rest is up to the individual. Do you possess the required work ethic and willingness to delay gratification? If not, you cannot be helped.
One’s children will probably live far wealthier and longer lives than the previous generations of just some fifty years ago. But they must constantly update their skills and knowledge---and get ready to be job hoppers.posted by: David Thomson on 02.13.04 at 04:04 PM [permalink]
I would bet that the "production decline" criterion would apply not to the overall company, but to a particular "establishment" (ie, factory).
It is not true that, "In theory, trade is a Pareto-improving for an economy as a whole." A Pareto-improvement is a change where at least one person is made better off and NO PERSON is made worse off. Pareto improvements are almost never seen in real life.
What you are thinking of is a Hicks-Kaldor (or Kaldor-Hicks or sometimes just Kaldor) improvement. Enough people are made enough better off that they could compensate the losers.
In theory, trade is Hicks-Kaldor improving for the economy as a whole.posted by: Roger Sweeny on 02.13.04 at 04:04 PM [permalink]
Roger -- according to this site, the difference between the Pareto and Hicks-Kaldor criterion is as follows:
Free trade almost always meets the Hicks-Kaldor criterion -- with TAA, it comes closer to meeting the Pareto criterion. Close but not completely, otherwise there would be incentive compatibility problems for those made worse off by trade.posted by: Dan Drezner on 02.13.04 at 04:04 PM [permalink]
If you buy the premise behind TAA in the first place, it's hard to see how you avoid expanding it to cover ANY case where someone loses his job in the pursuit of productive efficiency, whether trade's involved or not. If Giganticorp decides to run lean and mean by cutting back from 14 tiers of middle management to 12, does the situation of the superfluous managers differ in any important respect from that of workers who have lost their jobs to foreign outsourcing?posted by: Paul Zrimsek on 02.13.04 at 04:04 PM [permalink]
On the contrary, the oldman would argue that the theory of free trade is itself problematic, and that even if it did current practices do not meet the minimum criterion for satisfying those theoretical considerations. Even Kaldor himself didn't believe that a trade deficit was sustainable with growth over a long period of time without a correction. I strenously disagree that either the Hicks-Kaldor or the Paretto criterion are being met in practice or theory in the current regime.posted by: Oldman on 02.13.04 at 04:04 PM [permalink]
" It [free trade] benefits all nations that engage in it."
No. Free trade guarantees a more efficient global system, this does not imply that each participating population will survive.
The U.S. has a "comparative advantage" that is killing us in free trade, namely our government which consumes about 50% of our total work day to support. The workers we compete with in, say China, have to support a government that consumes a more reasonable 35% of the economy (direct, regulatory, and recycled activity).
So, when you lose your job, and decide to join the underground, remember, you have mostly yourself to blame for screaming "more government more government"
In the California neighborhood where I recently bought property, all of the economy, about 10,000 people, operate outside of the legitimate economy. Some 54% of them are illegal aliens. All of the goods transactions take place at cash based open markets. Property is zoned agriculture, but all property violates the ordinance, and violations are conveniently ignored by government. I saw one grocery store converted from an old house, without permit, the acolohol police posted a sign prohibiting wine sales, and I entered and simply bought a case of wine.
We don't speak English as a general rule. Few of the everyday work autos are legally registered. No one cares, even the cops. We compete well, mainly by avoiding expensive imports and avoiding taxable paychecks. And we do not suffer the "comparative advantage" the rest of foolish voters suffer.
You see, we avoid the nominal 30% direct tax the rest of the voters must suffer. The only exception to our outlaw ways are property taxes, a small school; gas taxes and a few roads. But, its a much better life than waiting for some overbearing government to provide one with necessities that all but the hysterical can obtain for themselves.
Bush may give us a guest worker program, but it would be too complex for me to renounce my U.S. citizenship papers to take true advantage of it, and everything a guest worker gets we already get; by being permanent illegal aliens.posted by: Matt Young on 02.13.04 at 04:04 PM [permalink]
“Now, that doesn't necessarily work in practice”
If it doesn’t work in practice---then the theory itself is bovine excrement! Pareto’s stuff is obviously garbage. Why is he therefore taken seriously? Oh well, I guess his name has a certain zing to it. I must concede that Pareto sounds more sophisticated than Jones or Wilson. It must be nice to be an established academic. You can something dumb and you are still given credit for intellectual greatness.
Reading the statement "trade is Pareto-improving for an economy as a whole" and jumping to the conclusion that Pareto wrote it is like attributing the statement "Reading a David Thompson post is a Kafkaesque experience" to Kafka.posted by: Paul Zrimsek on 02.13.04 at 04:04 PM [permalink]
Dan, February 13, 10:37 PM,
We agree completely.posted by: Roger Sweeny on 02.13.04 at 04:04 PM [permalink]
"Reading the statement "trade is Pareto-improving for an economy as a whole" and jumping to the conclusion that Pareto wrote it is like attributing the statement "Reading a David Thompson post is a Kafkaesque experience" to Kafka."
That is precisely why in an earlier post, I asked the following cautious question:
“Did Pareto really say something that patently stupid?”
And later said, "Pareto's stuff is obviously garbage." Which, come to think of it, is pretty cautious by Thomson standards. Will you ever, ever, EVER figure out how ridiculous you make yourself look by having such emphatic opinions about things you haven't even read?posted by: Paul Zrimsek on 02.13.04 at 04:04 PM [permalink]
“And later said, "Pareto's stuff is obviously garbage." Which, come to think of it, is pretty cautious by Thomson standards. Will you ever, ever, EVER figure out how ridiculous you make yourself look by having such emphatic opinions about things you haven't even read?”
Excuse me, but you need a reality check. Why aren’t you taking Dan Drezner and Roger Sweeney to task? After all, this is what they wrote:
“It is not true that, "In theory, trade is a Pareto-improving for an economy as a whole." A Pareto-improvement is a change where at least one person is made better off and NO PERSON is made worse off. Pareto improvements are almost never seen in real life.”
“In theory, trade is a Pareto-improving for an economy as a whole -- that is to say, through free trade, some people can be made better off without others being made worse off. Now, that doesn't necessarily work in practice, unless the losers from trade are compensated by the winners.”
I’m sorry if both Sweeney and Drezner have made Pareto look like an idiot. But that’s not my problem. There is simply no such thing as an productivity increase without somebody being hurt. Creative destruction is a viciously cruel phenomenon---and some people will always be losers. Anyone telling you anything to the contrary is a blithering fool. The empirical data overwhelmingly support my position. Where are your facts? I simply refuse to play the academic suck rear end nonsense where an allegedly great thinker like Pareto becomes an untouchable and is protected from legitimate rebuke.
Furthermore, Sweeney adds this about the Kaldor-Hicks concept:
“What you are thinking of is a Hicks-Kaldor (or Kaldor-Hicks or sometimes just Kaldor) improvement. Enough people are made enough better off that they could compensate the losers.”
Sweeney is also make Hicks and Kaldor look like morons. In this cruel world, there is no such guarantee that the winners will ever compensate the losers. Generally speaking, that’s the latter’s problem and nobody else's’.posted by: David Thomson on 02.13.04 at 04:04 PM [permalink]
"Sweeney is also make Hicks and Kaldor look like morons." should read "Sweeney also make Hicks and Kaldor look like morons."posted by: David Thomson on 02.13.04 at 04:04 PM [permalink]
I'd like to step back for a minute, to clear up just what all this Pareto and Kaldor-Hicks stuff is.
Vilfredo Pareto (1848-1923) was an Italian engineer, economist, and sociologist. Among other things, he was concerned with the utilitarian idea that the best society was one that had "the greatest good for the greatest number." He argued that it was impossible to come up with a total of everybody's "good" because it was impossible to put a number on the goodness any person was experiencing. All you could say is that a situation where no one can be made better off without making someone else worse off is "the best you can do" under the circumstances. This situation has come to be called "Paerto optimality" or "Pareto efficiency." It is obviously very restrictive.
Related to this is the idea of "Pareto superiority" or a "Pareto improvement." If a change makes at least one person better off and doesn't make anyone worse off, it is a Pareto improvement. Again, this is very restrictive. A change that made millions of people much better off and one person a little worse off would NOT be Pareto superior. There are very few Pareto improvements in the world. I don't think Pareto ever argued that technical change or economic growth was necessarily Pareto improving.
Because this concept is so pure and relatively useless, attempts have been made to modify it. The most famous were by John R. Hicks (1904-1989), an English economist, and Nicholas Kaldor (1908-1986), who was born and educated in Hungary but did most of his economics in England.
Their modifications basically said, "If some people gain a lot from a change, and then compensate the people who lost from the change, the change will be Pareto superior. Any change where gainers COULD compensate the losers is potentially Pareto superior." This "potentially Pareto superior" change is now called "Kaldor-Hicks superior." It can be shown that under most all conditions, trade is Kaldor-Hicks superior.
Of course, that says nothing about whether the winners will actually compensate the losers. And in this imperfect world, we know that some of the losers will never be compensated.
It is also true that, dammit, loss hurts. It can hurt really, really bad.
I hope this clears some things up.posted by: Roger Sweeny on 02.13.04 at 04:04 PM [permalink]
Would it be possible to have some sort of retraining benefit that doesn't pay the educational establishment?
I'm tired of this "get them back into college" approach to retraining. (especially since it only includes community college). How about opening up apprenticeships? Funding self employment? Giving companies tax breaks only for hiring and maintaining new workers?posted by: Teri Pittman on 02.13.04 at 04:04 PM [permalink]
Frankly, trade-adjustment related unemployment really isn't that much of a problem in the US. Sure, everyone blames trade when they lose their manuf/service/IT job, but it's simply not true that trade is to blame in many cases.
The total number of manufacturing jobs *worldwide* is decreasing. Mexico and China have both shed manufacturing jobs. Factories move from Michigan to Kentucky and, luckily, we're spared the somewhat xenophobic political pandering that we get over trade issues. John Edwards is guilty party number one: N. Carolina would be dead in the water without foreign and non-NC domestic investment.
The real reason not to worry is that umemployment is still quite low in the United States. Despite substantial growth in the labor force over the last three or four decades (baby boom + women entering the labor force), the natural rate of unemployment is holding steady, or even decreasing. Since when is 6% unemployment a jobs crisis?
I'm not against trade adjustment plans, but the issue at hand must be seen for what it is.
(And, thanks, Roger, for squaring everyone up on Pareto. Gah.)posted by: cure on 02.13.04 at 04:04 PM [permalink]
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