Monday, May 14, 2007

Paul Krugman's Embarrassing 1990s Self

So today I'm breaking my own self-imposed rule of not commenting on opinion columnists. The reason I imposed this rule on myself is because I fail to see the point in writing about the commentariat--it only encourages them (not that my own contribution, or lack thereof, is likely to make much difference) to continue prattling on about unimportant matters. After all, you can roughly divide columnists into two categories: the ones you agree with, and the ones you don't. Both are really just preaching to the choir. That is, I've spilled too much virtual ink taking David Brooks more seriously than he deserves, yet while I enjoy Frank Rich's tendency to list out the litany of complaints we all share against the Bush administration, it both speaks for itself while offering nothing in the way of cause for further discussion, further discussion being the one thing our nation most desperately needs.

However, sometimes--today being such an occasion--some liberal columnist I normally read with half-waning interest brings up something that reminds me of how objectionable and ineffectual the Clinton-era Democrats were. (I fully expect more of this as we return to power after six long years of complete Republican misrule.) Today, the offender was Paul Krugman, and the dark secret from the past was free trade.

"Nothing divides Democrats like international trade policy," Krugman wrote in his May 14 New York Times column.

That became clear last week, when the announcement of a deal on trade between Democratic leaders and the Bush administration caused many party activists to accuse the leadership of selling out...[T]he Democrats remain sharply divided between those who believe that globalization is driving down the wages of many U.S. workers, and those who believe that making and honoring international trade agreements is an essential part of governing responsibly.

What makes this divide so agonizing is that both sides are right.

Now, when I first read this, I was tempted to give Krugman the point. In a sense, I appreciate what he's saying: Anyone who is at all concerned about global poverty shouldn't get all protectionist about trade, since--despite the proclivity for abuse of workers in poorer countries that comes with globalization--trade creates opportunities that didn't previously exist in developing countries. Moreover, like Krugman, I favor the carrot-and-stick approach of free trade agreements tied to labor reforms, which helps workers organize and protect their rights while creating new job opportunities. The downside, of course, is the loss of jobs at home to cheaper foreign labor, which is precisely the source of Krugman's--and everyone else's--ambivalence on the issue.

However, as I read on, several things became apparent. First, it's stupid to start from the perspective of ambivalence regarding the issue. Like any real problem, globalization can't be easily snarked by a columnist, so Krugman deserves no credit for acknowledging that it's complicated. His job, one would assume, is to offer some sort of solution, or at least some original ideas drawn from a lifetime of economic research, which he does not do. Second, he goes on to engage in the selective choice of information I regularly accuse other columnists of using to set up a straw-man. Which brings me back to the unpleasant Clinton years.

Before arising from the ashes of the failed New Economy as a Bush-hater par excellence, Krugman was a booster of the market populism of the 1990s. His solution then, which he returns to here, to the problem of lost jobs is to argue that the issue is overstated and anyway, a rising tide lifts all boats. Minimize, then dismiss. In other words, Krugman is of the school that holds that the loss of certain blue collar jobs is acceptable so long as the growing economy makes up for it by providing new opportunities. And in the 1990s, the market populists argued that with sustained growth, stock ownership, and so on, the market would do just that.

Unfortunately, since 2000, Krugman himself has (occasionally) done excellent work showing how the rising tide did not lift all boats equally, and certainly how in the new century there's not even a sense that it might. He's now legitimately concerned with the growing income inequality and concentration of wealth in America. Which makes this particular column so disappointing.

So imports from the third world, although they make the United States as a whole richer, make tens of millions of Americans poorer. How much poorer? In the mid-1990s a number of economists, myself included, crunched the numbers and concluded that the depressing effects of imports on the wages of less-educated Americans were modest, not more than a few percent.

But that may have changed. We’re buying a lot more from third-world countries today than we did a dozen years ago, and the largest increases have come in imports from Mexico, where wages are only about 11 percent of the U.S. level, and China, where wages are only 3 percent of the U.S. level. Trade still isn’t the main source of rising economic inequality, but it’s a bigger factor than it was.

Now, here's the rub. While I am not familiar with the research he refers to himself and others conducting, my guess is that by a combination of selective date ranges and other criteria, his research minimized the problem in the 1990s.

First, what date range is he referring to? Even wage change over a ten-year period, say 1985-1995, would miss substantial impacts on American wages. The real wage has remained stagnant or fallen since 1974. In other words, the '85-'95 time frame would ignore some of the massive changes wrought in the late 1970s (stagflation) and early 1980s (Reagan's union-busting).

Second, what does Krugman mean when he refers to "the wages of less-educated Americans"? It's an important question. Does "less-educated" include job training or no? Because if it doesn't, it inherently skews the results. A union sheet metal worker in the mid-70s didn't need a high school education (my grandfather, in fact, had only a fifth grade education), yet made around $25 an hour (in 1970s dollars). By contrast, a McDonald's crew member would only have been making minimum wage (what, around $3 an hour?). So if formal education is your only criterion, you wind up lumping my grandfather in with a McDonald's employee. By 1975 and certainly 1980, there were way more service-sector employees than journeymen sheet metal workers, which means that the loss of wages in well-paid minority are minimized across the large number of lower paid workers.

Third, if the second is (as I suspect) an accurate criticism, then you also are comparing apples and oranges. Well-paid skilled labor should not be lumped in with dead-end service sector work. They're not the same damn thing. One route--skilled labor--offered Americans without access to higher education a real chance to raise their circumstances and enter the middle class. To lump those workers in with lower paid workers makes the picture rosier because it ignores the fact that the jobs we've lost were the ones enabling social mobility, while the crap jobs at McDonald's remain safe from the scourge of outsourcing by the glorious lack of opportunities available to McDonald's workers.

In other words, I think Krugman remains committed to some ideas from the 1990s best left to decay in the dustbin of history. The rapaciousness of George W. Bush's presidency, with its marked disregard for the pocketbooks of most Americans, has tended to make us forget that the Democrats under Clinton--the party that was supposed to watch out for the average folk and proles--turned its back on a commitment to economic democracy. Now, with Democrats taking back power, an unpleasant debate is taking place within the party between the neoliberals committed to Clintonian third-way policies and the insurgent red-state Dems elected on anti-immigrant and protectionist populist backlash. Neither one serves the country nor the world well. We can pin our hopes on a charismatic candidate like John Edwards or Barack Obama, both of whom talk a good talk about doing right by the rest of the world and the folks back home, but then you're relying not on building a progressive political consensus but rather on the ability of one politician to have some good ideas and the will to carry them out. And I just can't get behind that sort of personality-driven politics.

So what do I--having already admitted appreciation for Krugman's quandary--propose for the benefit of the commonweal?

First, we have to acknowledge that economies are dynamic. As much as old-school laborites would have us believe, the likelihood that manufacturing has a big future in America is unlikely. Moreover, with intelligent trade policies geared less towards curbing domestic power in our poorer trading partners and more towards giving workers serious rights, we can achieve some good on the world stage. From a policy perspective, America needs to realize that the promise of globalism--creating wealth and ending poverty--is predicated on a contradictory notion--companies go to poorer nations for cheaper labor. In other words, countries can only acquire wealth if wages increase, which will be vehemently opposed by the companies taking their business there. A laissez-faire approach won't overcome this contradiction; it requires the US government use its regulatory powers to encourage behaviors it wants to see, which, God willing, are easing global poverty.

Second, on the domestic front, having acknowledged that a global system is here to stay, we need to figure out how to respond. Free markets won't make everyone in America richer, they have proven in the past 20 years to do nothing but concentrate wealth. The response needs to be a rededication to a progressive tax schedule which helps mitigate massive concentration of wealth among a small group.

Third, we need to instigate universal healthcare. The employer-based healthcare model is a failure; even while globalism demands worker flexibility, the employer-based model ties workers to one job since, if they leave that job, they and their families lose healthcare. That's crap, as is the faith-based "health savings account" solution which doesn't address the skyrocketing costs of healthcare. We need a single-payer system.

Fourth, we also need welfare reform that doesn't treat the unemployed like freeloaders. Again, increased flexibility requires that at a social level we work to lessen the blow to losing a job if for no other reason than a more dynamic, globalized economies means a lot more people are going to go through more frequent periods of joblessness. Better welfare benefits are needed to provide some sort of economic stability to the workforce as more workers are required to change jobs more frequently.

Fifth, crucial education reforms are required. At the university level, we need to lower the cost. Currently, the $15,000-plus yearly tuition for public universities is prohibitively high. It either limits access to those with well-off parents, thus discriminating by social class, or requires a student to accumulate massive debt. And again, that massive debt discourages worker flexibility since servicing it requires relatively higher payments to earnings when workers are in their twenties, precisely the career-stage that the most flexibility is required as workers try to position themselves for higher-paid future jobs.

Conversely, at the secondary education level it seems clear that we need to change the focus from college prep and rededicate ourselves to teaching high-schoolers marketable skills. Today, a minority of high school graduates will complete a bachelor's degree. So while a strong liberal arts education with a university future in mind appeals to the sensibilities of many parents, in reality, what we've done is to create a wealth-transference program via school funding. So long as school funding is used for college-prep, that funding primarily benefits the minority who will actually complete a college education, who are demographically more likely to have parents who completed college themselves. At the same time, all the other students who will not benefit from a college education are left at the age of 18 with few marketable skills and extremely poor job options unless they pursue additional job training--typically at out-of-pocket expense--which is in the long run is of less value than a formal college education.

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Blogger Kasia said...

Sadly, Krugman's analysis is just further evidence that few academics have real-life experience with "uneducated" and "unskilled" workers...seeing as they cannot seem to differentiate between the two and erroneously use education as a proxy for skill. Achieving prominence in the field is hardly a rags-to-riches story, is it?

The kind of shoddy estimation cited by Krugman and others should be relegated to the NYT Business section with the rest of the ill informed. (Happened upon this today--more of the same--and was moved to come back and comment here. My kingdom for a good econometrician!)

11:02 AM  
Blogger Kasia said...

Brad DeLong from Berkeley, however, makes me laugh in a good way.

11:30 AM  

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