Revisiting the outcomes of the 21th century Chinese import boom

The conventional wisdom among economists is that the post-2000 Chinese import boom—which we know rapidly devastated the American manufacturing base—was overall good for the U.S.; that (as I argue) artificial barriers to trade generally make both parties poorer, and over the long run trade ends up lifting all boats. While I think it will always be true that trade barriers increase the price of products, a lot of the other assumptions may not be true.

If it’s good to reduce trade barriers with a country, is it wise to do it overnight? We now realize that a small policy shift in 2000 boosted the confidence of companies to move manufacturing jobs to China and of the Chinese government to invest in infrastructure to meet that demand. Many American towns were built slowly on the backbone of manufacturing and rapid closing have made economic recovery in those areas almost unimaginable. The advice to “move to where the jobs are” is almost always given by people employed, who can afford moving costs, and who don’t have local family members to support.

Can Americans get by without manufacturing jobs? Economists generally say this will free up workers to do more high-level jobs, but we’ve clearly failed at efforts to raise the education level and prospects of the bottom third of wage earners. It’s looking like the people who left monotonous, but stable, decent-paying factory jobs of yesteryear do not end up in better service industry jobs. Instead, those jobs were replaced by 1) part-time jobs of lower wages and constantly-shifting scheduling—hurting workers’ abilities to form and maintain families, and 2) destructive periods of unemployment.

Aren’t the “losers” of trade liberalization a small number of factory workers? Putting a few thousand people out of work impacts their families and all the businesses they and their families frequent, and it also destroys a large social network that was probably valuable to families.

Is the under- and unemployment of a large population of Americans worth cheaper products? It seems to me that Americans would’ve been just fine had the prices of products stayed at the level they were in the late 90s or lowered more slowly. At a certain level of wealth, more products and bigger homes don’t increase real prosperity, and particularly if those come with the awareness of increased suffering of your fellow citizens.

Wasn’t this worth lifting the Chinese out of poverty? The rise of China’s middle class is certainly a win for billions of people, but rapid export to the U.S. did not do that. China left poverty not because the West invaded it with factories, but because its leaders embraced capitalism and it had a ton of untapped potential. Had the U.S. not outsourced so rapidly, China still certainly would have industrialized, and maybe without such problems of pollution and inequality.

The timing of rapid globalization also sadly coincided with the big-boxification of retail. By the 90s, Wal-Mart was such a retail behemoth that it could dictate the prices of goods it was willing to pay suppliers and essentially make or break a supplier. Under this this intense pressure, suppliers had little choice than to sacrifice American factory jobs; Wal-Mart built their company on “Made in the U.S.A.” yet knowingly forced suppliers to outsource American jobs to save pennies per product. Consumers of course had no idea that trade-off was being made. There’s still not a satisfying answer to the question of is a community better off as a whole with one Wal-Mart than dozens of smaller retailers, but I’d wager that the transition and its speed—the closing of a large number of competing stores along with U.S. factories—was not good for communities.

We, of course, can’t say for certain what would’ve happened had trade with China not progressed or had it progressed more slowly. It’s also not clear we can “turn back the clock,” but when we negotiate trade deals we should definitely think more of the millions who may be displaced, maybe permanently, and of the bigger effect that can have on America as a whole. Economists were massively naive to think this would all wash out, but then economists weren’t driving this; U.S. big box shareholders decided this was necessary.

Why wouldn’t a Basic Income be consumed by inflation?

Interest in the Basic Income is definitely picking up. This recent piece from Andrew Flowers, like most, doesn’t at all mention the possibility that the BI amount could be somewhat or completely eaten away via increased prices.

The BI will give rent collectors—landlords, near-monopolies like AT&T/Comcast, state/local governments, on and on—large incentives to increase rents, prices, and fees. Of course it will have some level of inflation.

If the inflation effect turns out to be large, BI would be a waste of time and scary to roll back, but there’s also a danger it could be regressively redistributive. I think it’s likely Congress would pass the BI only if it also reduced more direct help to the poor. If Congress took away that help, inflation—if occurred—would effectively force the poor to turn over what’s left to the rent collectors higher up the wealth distribution.

BI is still an interesting thought experiment to me, and it’s cool that studies are underway, but those studies need to be large and long enough to detect for inflationary effects, and articles discussing BI should mention that risk.

There are plenty more feasible ways to help the poor: increase wage subsidies like the EITC, target wage subsidies toward those having particular trouble finding work, or even some WPA jobs.

Obligatory 2015 Marijuana update

The minimal evidence we have of marijuana usage harms keeps withering away under more careful study, but the very real harms of police enforcement go on. I’ve really stopped paying attention to this stuff because it never ends; one month of stories look like any other. I just pop in once in awhile to see the latest abuses. Yep, young women cavity searched on the side of the roadkids shot; tons of no-knock drug raids putting everyone in unnecessary danger

America’s criminal justice system is so brutal and resistant to reform that the only way to reduce harm is to lessen people’s contact with it: move regulation strategies away from criminal law. Thankfully, state referendums to get cops out of the pot business are all over and even nation candidates are being forced to take the issue seriously.

To think how much harm could’ve been avoided if the country hadn’t wrapped up marijuana with the war on crack in the 80s. Hard drugs truly were devastating some communities then and now, but the “smell of marijuana” gave the police practically unlimited power and financial resources to forcibly invade and ruin the lives of people, particularly in neighborhoods unlikely to afford decent lawyers. Very few upper class families receive the Cheye Calvo experience, but lots of the little people still do.

Freedom by vote

I’m already seeing folks in my Twitter feed assuring themselves that Ireland’s recent marriage equality referendum could never be repealed. The danger of freedom-by-majority is that public opinion is fickle, and a shift in voter turnout can have a huge effect. No doubt large numbers of Californians against Prop 8 assured themselves that it could never pass and didn’t come out to vote.

So, for Irish freedom-lovers, pat yourselves on the back, but consider the repeal efforts a serious threat.

Update: In this case it’s unlikely the demographical and cultural shift to acceptance will swing back, and it looks like this could not be repealed by simple vote. In fact, putting it to a popular vote might’ve been a wise move even if it would’ve been non-binding; it got people talking and gave the public an anonymous way to voice their support.

Sometimes liberty is finite and must be redistributed

The Civil Rights Act was a triumph of people willing to recognize that, to increase the liberty of black Americans, you had to reduce the freedom of whites to practice discrimination. By 1964, the 1st Amendment’s principles of freedom of association and federalism (emphasis mine):

… had been used as weapons against black Americans, and esoteric concerns seem less important than being unable to eat or get a hotel you’re willing and able to pay for as you drive across your own country. This sort of adherence to principle at the expense of the tangible freedom of millions of African Americans sent a clear message of whose liberty received priority.

Of course the unwillingness of motels and restaurants to serve blacks was just the tip of the iceberg.

Obamacare is also redistributing liberty. Millions of Americans once shut out of the health insurance market (who could otherwise pay) are now able to gain coverage, which is a huge deal. Of course, there was no way to do that other than to force insurers to accept them, which requires the other two legs of the stool.

The first piece above also confronts libertarians for not seeing the world as it is, by embracing a view that racism has abated to the point where it doesn’t affect the daily lives of black Americans. Unfortunately this view is in no way limited to libertarians and couldn’t be more wrong. When people think that government interference in markets or taxation are the major things that blacks have to fear, they’re going to propose policies that are hopelessly out of touch with the real world.

Related: Ta-Nehisi Coates talks about the damage done by housing discrimination:

Elegant racism is invisible, supple, and enduring. It disguises itself in the national vocabulary, avoids epithets and didacticism. Grace is the singular marker of elegant racism. One should never underestimate the touch needed to, say, injure the voting rights of black people without ever saying their names. Elegant racism lives at the border of white shame. Elegant racism was the poll tax. Elegant racism is voter-ID laws.

…If you sought to advantage one group of Americans and disadvantage another, you could scarcely choose a more graceful method than housing discrimination. Housing determines access to transportation, green spaces, decent schools, decent food, decent jobs, and decent services. Housing affects your chances of being robbed and shot as well as your chances of being stopped and frisked. And housing discrimination is as quiet as it is deadly. It can be pursued through violence and terrorism, but it doesn’t need it. Housing discrimination is hard to detect, hard to prove, and hard to prosecute. Even today most people believe that Chicago is the work of organic sorting, as opposed segregationist social engineering. Housing segregation is the weapon that mortally injures, but does not bruise.

On Michael Brown and Darren Wilson

Dumping my thoughts here.

Brown and his family and community obviously got a rotten deal here. It seems very unlikely that Wilson’s behavior was completely appropriate; that Brown would simply attack him for no reason a few days away from starting school. I could imagine a scenario in which Brown was rushing Wilson as a form of self protection. That Wilson did not use a taser or some other method of de-escalation was also a very unfortunate error that he should pay for.

Cameras need to be rolling. Any officer with lethal weapons should be wearing one, and it should auto-activate whenever the officer touches a weapon or moves quickly; better to accidentally capture unneeded footage. Funding is going to be a problem here because—it’s my impression that—high crime areas also tend to be underfunded. We should fix that.

Wilson, and probably any officer left in such a situation (having killed an unarmed citizen with no immediate video evidence) should be arrested to show seriousness in delivering justice. Police unions will obviously fight such a policy, but hopefully this will show how failing to do so can make an officer’s life much worse and reduce the credibility of the entire profession. Wilson will be known by many as a murderer of an unarmed teen regardless of what really happened, and that’s not how justice should work.

When he goes to trial it’s hard to imagine anyone being happy with the outcome. Brown was big, tall and could clearly intimidate, and the type of individuals who make it into juries I suspect will very much believe a uniformed officer. A video of Wilson pacing after the shooting won’t prove wrongdoing. Brown’s family would be wise to bring a civil suit against the PD and I’m sure they will. Lots of Ferguson’s citizens and press agencies should sue them. Payoffs change behavior.

The St. Louis Police have, through their incompetence at crowd-handling and arresting of press members, done the country a great service in raising public awareness of the problem of police militarization. Hopefully this will change policies that currently help local police dress like soldiers and bring warfare tactics to U.S. streets.

It’s sad that people will use a peaceful protest as an excuse to loot local businesses and attack officers. Protesters that deny this stuff is happening lose credibility.

I’m conflicted about the wisdom of protesting in the middle of the night. On one hand this will give cover to miscreants and increase the danger to everyone. On the other hand this undoubtedly is helping keep Ferguson and the issues its facing in the public eye. It’s hard to change policies via polite daytime picketing.

Change happens when journalists are chased, shot in the back with rubber bullets, and arrested.

San Francisco, do you want to be Manhattan?

Another day, another article on S.F.’s crazy real estate market. Except it’s perfectly rational behavior: The secret is out that S.F. is an awesome place to live with plenty of very high-paying jobs, but also land is scarce and there are lots of development restrictions.

If no policies change, prices—both housing and general commodities—will continue to go up until S.F. is basically another Manhattan; if you want to live there you either must be in the upper class or able to live in a shoebox. The good news is that California is wonderful and people can live happily outside S.F. The city would just need to beef up its transportation infrastructure for an enormous commuting class, and the Bay Area will suffer the environmental implications of that.

If, however, you think there’s value in having residents from a wider range of incomes, you have to be willing to build a ton of new, and very dense, housing, including bulldozing some old areas—not every inch of the city can be treated as a historic artifact. Unfortunately plenty of lefties think that anything that’s good for rich developers must be bad for everyone else, and it just ain’t so. I highly recommend reading Matt Yglesias’s bite-sized ebook The Rent Is Too Damn High, which makes very convincing arguments that loosening development restrictions is a great idea for everyone. Lots of people want to live in S.F., and we should let them. Density is great for the economy and for decreasing the environmental impact of cars and commutes.

Renters are already living very densely packed in “single family” homes, so it’s pretty clear there would be plenty of demand for new apartments in a variety of sizes. The natural opposition to this is going to be existing owners that benefit from rising prices, but certainly a motivated majority (renters) could successfully push for expanded development. But until they realize it’s in their interest, they’ll keep complaining about a variety of things that don’t matter while being slowly forced out of the city.

Gainesville has been increasing the density of housing around the university and it seems to be pretty great to me. Until a few years ago it seemed inevitable that there would be ever increasing sprawl and student traffic, but now a lot more students can live in walking distance.

We should probably replace the minimum wage with a wage subsidy.

With the recent discussions of hiking the federal minimum wage, I came across a plan that might solve three MW-related problems:

  1. The MW is rarely enough to get by on.
  2. The MW eliminates (from the regulated market at least) all positions that create less value than the MW. Do you have a great idea for a job that someone might happily do for $7.00/hour? Sorry, that job can’t exist legally.
  3. Inexperienced workers or those with criminal records present more risks to employers, and the MW makes it impossible to offset that risk by reducing the starting wage a bit. This makes it hard for these folks to get a foot in the door.

Because of problem 1 (and because we make a value judgment on the individual and project that value onto our expectations of wages), we tend to only push the MW up, which just exacerbates problems 2 and 3. Then we paper over those failures by paying the unemployed to remain idle, which is bad for their health, their skills, and their community’s productivity. So if there never were a MW, it would sure seem like a bad idea compared to Morgan Warstler’s plan of just having the government pay the difference between the market wage and what society feels individuals need to get by on ($280/wk in his outline).

A particular flavor of wage subsidy, this plan would set up a second labor market where qualifying employers (almost any small business) would have access to workers for as low as $40/wk—low enough to create almost infinite demand for labor—but these employees would take home at least $280/wk (the “Guaranteed Income”), with the government picking up the difference.

The exciting thing here is this could instantly produce almost full employment, giving workers lots of choice of jobs and forcing employers to compete for even low-wage workers in pay and work conditions. The evidence seems to suggest that Germany’s wage subsidies (in the form of shorter work weeks) allowed Germany to have one of the lowest unemployment rates of the OECD countries during the recession and it probably cost less than the equivalent unemployment benefits, too. It certainly reduced the extremely damaging effects that unemployment has on individuals and families.

Warstler also suggests having employees and employers use an eBay-like ratings platform to improve information flow (the value of employees, the conditions/benefits of jobs, bad behavior of parties) within the market. This seems like a good idea, and sites like Glassdoor show there’s demand for it at the higher end of the payscale, but I have some doubts that it will make such a huge difference; I think it will still be weird and a bit dangerous to your working relationship to publicly rate your boss. Anyway, I don’t see why we can’t roll this out independently of GI.

Ultimately I think this plan—and all the other wage subsidy schemes—sound much better for workers than the current “if-you-can-find-work-at” minimum wage system, which seems as hopelessly flawed as every other attempt to artificially dictate prices.

A few other concerns with the plan:

  • Not all employers qualify for GI workers and I think the question of which can/can’t will be difficult to pin down. E.g. If I hire my neighbor to do all my chores and vice versa, we each end up pocketing $240/wk in subsidies. Rooting out these schemes would be tough. Warstler seems to think we don’t necessarily need to and that we might get valuable information from seeing how these pan out.
  • GI employers get workers for significantly less than non-GI employers, and I wonder what kind of market distortions that would create. The answer may be none.
  • The transition into GI could be chaotic, as overnight there’d be countless jobs to choose from and non-GI employers would have to react to this serious competition. We just have no idea what kind of jobs people will come up with, but every additional job would seem to improve the situation for workers.
  • How do GI workers get stable healthcare? Do they get access to a group plan? This could cause problems for workers wishing to move between the GI/non-GI markets.

If we’re stuck with a minimum wage, it would seem best to keep it as low as possible and boost/widen availability of tax credits like the EITC. Essentially this also works as a wage subsidy if by another name.

And can we just get rid of the awful “tipping” system/reduced wage for food workers, as if they’re for some reason especially deserving of having every night’s pay be at the whim of customers and dozens of other elements out of their control.

Capitalism has failed as a brand

The word needs to be retired. It gets evoked by some to mean a type of dog eat dog libertarianism and by others as a shorthand for the abuses of corporations and unjust outcomes of markets.

I see the idea as the simple preference that people be free to participate in voluntary markets, not be forced into labor, and be allowed to own property and build wealth. This is real basic stuff that almost everyone agrees on because history showed all the competing ideas led to mass poverty and starvation.

The real important questions of today are how a government deals with the fact that people don’t live in bubbles, they don’t agree on things, they can become physically or mentally ill, they can misbehave under the influence of substances, they can make poor decisions and have bad luck, they take advantage of others, they can use their wealth to buy advantages and monopolies, and they can be born into bad situations by no fault of their own.

Destroying the Venezuelan Economy

It’s sad to watch Venezuela’s economy being crushed by its president, Nicolás Maduro. Venezuela’s real inflation is 280% a year, but the government is trying to deny that by imposing price ceilings and artificially limiting access to foreign currency. The result is massive shortages made even worse by the fact that it’s more profitable to smuggle the rationed goods back out of the country.

But the scariest is that Maduro recently ordered a military-backed looting of one of its big box chains. Those stores certainly won’t be able to re-stock at the government-set prices, so basically Maduro just directly destroyed that business, and all other retailers know they could be next.

Normally this inflation would make Venezuela’s products and labor force more competitive and spur foreign investment to stabilize the economy, but the Venezuelan government can no longer be trusted. If Maduro is re-elected, Venezuela will continue sinking towards a completely government-controlled state, like Cuba. But at least it will be easier to escape from.