Number of words: 2,614<\/p>\n\n\n\n
Paul Krugman, Nobel-prize winning economist and avowed champion of free trade, admits he and his colleagues got a few things seriously wrong about globalization<\/a>, in particular around its downside impact on local labor markets.<\/p>\n\n\n\n \u201cWe missed a crucial part of the story,\u201d Krugman wrote in a Bloomberg article<\/a> in October, referring to members of the so-called \u201c1990s consensus,\u201d mainstream economists who worshipped at the altar of free trade.<\/p>\n\n\n\n According to his article, the consensus economists failed to measure adequately and properly account for the impact of globalization on specific communities, some of which were disproportionately hit hard. This despite the fact that models predicted, and figures later showed, that free trade was a net gain in terms of both jobs and wages in the broader American economy. Generalized gain but localized pain.<\/p>\n\n\n\n \u201cOpening to trade increases the size of the economic pie by a few percent and yet shrinks some slices by 10 or 20 or 30 percent,\u201d said David Autor<\/a>, an MIT economics professor who wrote a groundbreaking paper on the disruptive impact of integrating China into the global economy and whom Krugman cites in his article.<\/p>\n\n\n\n \u201cThe benefits, in general, will be small and diffuse and broadly shared,\u201d Autor said in an interview for the Institute for Fiscal Studies. \u201cSo lower prices of consumer goods, more variety of goods, perhaps a faster rate of product innovation.\u201d<\/p>\n\n\n\n \u201cHowever, the individuals who are in the sectors that become directly exposed to competition, they\u2019re almost necessarily going to shrink,\u201d he continued. \u201cThose impacts tend to stay localized. Instead of wages falling just a little bit for people who have manual-dextrous skills, we see big job losses for individuals at those plants. Then the whole communities that surround them kind of\u2014I don\u2019t want to say implode, but they go into something of a state of decay.\u201d<\/p>\n\n\n\n Aware of the pain of the working man and distressed by the backlash against globalization, Krugman, who now pens op-eds with tart titles like \u201cThe Roots of Regulation Rage,\u201d is on a sojourn of shame.<\/p>\n\n\n\n Pit stops along the route include a February lecture<\/a> in Australia headlined \u201cWhat Did We Miss About Globalization?\u201d and the October article mentioned above in Bloomberg titled \u201cWhat Economists (Including Me) Got Wrong About Globalization.\u201d<\/p>\n\n\n\n Those tuning in to Krugman\u2019s proclamations of penitence will certainly hear mea culpa, but also caveats.<\/p>\n\n\n\n While admitting to errors, Krugman remains fundamentally pro-free trade and is loath to be seen as throwing the baby out with the bathwater.<\/p>\n\n\n\n \u201cI frequently encounter people who have a story they\u2019ve heard,\u201d Krugman said in Australia. \u201cThey sorta kinda think they know what happened to economics. The story is \u2018Well, economists used to think that trade is good for everybody and now they\u2019ve learned that it actually has downsides and is much more problematic.\u2019 It\u2019s a good story, and it fits people\u2019s desire to see the orthodoxy and the establishment receive its comeuppance. But it\u2019s almost exactly wrong.\u201d<\/p>\n\n\n\n The correct way to think about the issue, Krugman argues, is that the problem was less with globalization as with something far more nefarious that he calls \u201chyper globalization.\u201d<\/p>\n\n\n\n Krugman says the out-sized downside impact of globalization-turned-hyper globalization is to regard the phenomenon as factors sparking a perfect storm.<\/p>\n\n\n\n The first factor: a paradigm shift of the international trading profile from \u201cintra-industry trade among similar countries\u201d to importing goods from countries with a massive labor-cost advantage.<\/p>\n\n\n\n The second factor was the acceleration of the process via technology, especially containerization. That coupled with an eager embrace of free trade by policymakers egged on by overconfident intellectuals who hadn\u2019t thoroughly done their impact assessment homework.<\/p>\n\n\n\n Factor three, lack of policies in place to help people cope with massive displacement as entire industries disappeared, and whole communities were devastated.<\/p>\n\n\n\n \u201cThe hyper globalization is this changing environment that in some ways set the stage for the turmoil we\u2019re now experiencing,\u201d he explained during his lecture in Melbourne.<\/p>\n\n\n\n \u201cConsensus economists didn\u2019t turn much to analytic methods that focus on workers in particular industries and communities, which would have given a better picture of short-run trends,\u201d Krugman wrote.<\/p>\n\n\n\n \u201cThis was, I now believe, a major mistake\u2014one in which I shared a hand.\u201d<\/p>\n\n\n\n Former labor secretary Richard Reich praised Krugman\u2019s newfound humility, saying it\u2019s high time the celebrated economist ate some crow.<\/p>\n\n\n\n \u201cI\u2019m glad he\u2019s finally seen the light on trade,\u201d Reich told Michael Hirsh of Foreign Policy<\/a>.<\/p>\n\n\n\n \u201cHow rare is that?!\u201d Autor echoed Reich\u2019s praise of Krugman\u2019s contrition.<\/p>\n\n\n\n \u201cIt\u2019s clear that the impact of developing-country exports grew much more between 1995 and 2010 than the 1990s consensus imagined possible,\u201d Krugman wrote.<\/p>\n\n\n\n The consensus economists Krugman talks about posited in lockstep that when it comes to international trade, the freer the better.<\/p>\n\n\n\n This attitude is exemplified in his 1997 article in the Journal of Economic Literature, in which Krugman stated, \u201cIf economists ruled the world, there would be no need for a World Trade Organization. The economist\u2019s case for free trade is essentially a unilateral case: a country serves its own interests by pursuing free trade regardless of what other countries may do.\u201d<\/p>\n\n\n\n International trade redistributes incomes. It is a game with winners and losers, but\u2014according to that consensus belief\u2014the gains that accrue to the winners more than offset the losses borne by the losers. The idea is that the rising tide lifts all ships except for the least adaptive, which sink.<\/p>\n\n\n\n \u201cThis is a hugely good thing from a global perspective,\u201d Krugman said at the Melbourne lecture, referring to the overall effects of free trade across the globe, \u201cbut not from the point of view of everybody.\u201d<\/p>\n\n\n\n Low-skilled workers are hit hardest, and some stay down for the count.<\/p>\n\n\n\n In a 2005 college textbook on economics, Krugman and co-author Maurice Obstfeld wrote, \u201cOwners of a country\u2019s abundant factors gain from trade, but owners of a country\u2019s scarce factors lose \u2026 [C]ompared with the rest of the world, the United States is abundantly endowed with highly skilled labor and \u2026 low-skilled labor is correspondingly scarce. Meaning international trade tends to make low-skilled workers in the United States worse off not just temporarily, but on a sustained basis.\u201d<\/p>\n\n\n\n In his lecture, Krugman explains that bouts of globalization before \u201chyper globalization\u201d were characterized by an exchange of similar goods between similar countries, with comparative advantage based on a range of factors, including specialized know-how and availability of primary inputs.<\/p>\n\n\n\n But the very nature of international trade underwent a sea change when low-labor cost countries like Bangladesh, China, and Mexico began to export manufactured goods to the West en masse.<\/p>\n\n\n\n David Autor\u2019s paper \u201cChina Shock\u201d (pdf<\/a>) is widely hailed as having enlightened consensus economists to how egregiously disruptive aspects of globalization have been, both in terms of jobs lost and wages depressed.<\/p>\n\n\n\n \u201cChina Shock is a shorthand term for the very disruptive integration of China into Western trade,\u201d Autor told the Institute for Fiscal Studies. \u201cSpecifically, in the context of the United States, it refers to China\u2019s joining the World Trade Organization in 2001, and the surge of Chinese exports that this catalyzed. One way to see this is in 1991, about a quarter of one percent of all U.S. goods consumption was produced in China. By 2007, that was about 5 percent. So that\u2019s a twenty-fold increase.\u201d<\/p>\n\n\n\n Krugman said the explosion of trade between rich and emerging countries pulled down the wages of specific categories of workers.<\/p>\n\n\n\n \u201cIt\u2019s clear that that kind of trade is a depressing factor on the wages of workers without lots of formal education,\u201d Krugman said. \u201cIt\u2019s just bad economics to deny that that\u2019s a factor. The question has always been how important is it. And in the 1990s, many people, myself included, tried to estimate the impact of North-South trade on income distribution and came up with significant but modest numbers. Something like maybe a 3 percent decline in real wages of non-college educated workers caused by growth of international trade.\u201d<\/p>\n\n\n\n Without specifying a number, he added that this figure later turned out to be higher, though not by much.<\/p>\n\n\n\n In regard to jobs lost, Krugman cited \u201cChina Shock,\u201d saying that imports from China from the late 90s to the eve of the 2007 financial crisis, \u201cdisplaced about a million jobs in the United States.\u201d<\/p>\n\n\n\n He argued that over a million jobs were created over the same period, and the net effect on the economy in terms of employment was positive.<\/p>\n\n\n\n \u201cNo doubt a million jobs were created elsewhere,\u201d Krugman said, \u201cbut they weren\u2019t the same million jobs.\u201d<\/p>\n\n\n\n \u201cI keep on running into people who believe that economists think that free trade is good for everybody. That\u2019s never been what models say. That\u2019s never been what economic analysis says.\u201d<\/p>\n\n\n\n He added that people in import-competing industries will be the hardest hit and that \u201cif you have large imports of labor-intensive products, then workers without college degrees are likely to be hurt.\u201d<\/p>\n\n\n\n \u201cGrowth in trade typically produces losers, perhaps substantial groups of losers.\u201d<\/p>\n\n\n\n Autor said the pain to American communities from China-related trade came not just from slashed manufacturing jobs, but difficulty adapting and finding employment in different sectors.<\/p>\n\n\n\n \u201cIt turned out to have been much more disruptive than people had anticipated, both in terms of the amount of job loss in manufacturing; but also the difficulty people have had adjusting to that in terms of re-employment\u2014in terms of re-employment and re-gaining jobs and prior earnings levels.\u201d<\/p>\n\n\n\n Autor said when China joined the World Trade Organization in 2001, \u201cwe saw very rapid decline in manufacturing in sectors in which China had rising comparative advantage, mostly labor-intensive production like shoes, textiles and other goods.\u201d<\/p>\n\n\n\n He said workers who lost their jobs at the time not only were unable to find other work quickly, they \u201csuffered sustained earnings losses.\u201d<\/p>\n\n\n\n \u201cIn general, areas where manufacturing was going on, saw overall economic decline and malaise.\u201d<\/p>\n\n\n\n While economists often resort to sterile-sounding terms like \u201cdisruption\u201d and \u201cmalaise\u201d to describe the impact on communities, it often takes politicians to give \u201chyper globalization\u201d a human face.<\/p>\n\n\n\n President Donald Trump, in his inaugural address<\/a>, translated malaise into a searing buzzword.<\/p>\n\n\n\n \u201cThis American carnage stops right here and stops right now,\u201d Trump said on July 20. \u201cMothers and children trapped in poverty in our inner cities; rusted-out factories scattered like tombstones across the landscape of our nation.\u201d<\/p>\n\n\n\n Former White House chief strategist Steve Bannon, who had a hand in drafting Trump\u2019s inaugural speech, used still another buzzword to refer to those Krugman labeled \u201closers.\u201d<\/p>\n\n\n\n \u201cIt\u2019s the Deplorables, who said \u2018I don\u2019t understand all this high finance, and I don\u2019t understand all this mumbo jumbo, but here\u2019s what I do understand,\u2019\u201d Bannon said in a speech at a meeting<\/a> of the Committee on Clear and Present Danger. \u201cThe factories left, the jobs left with them, and the opioids came.\u201d<\/p>\n\n\n\n \u201cBut the Deplorables found an instrument\u2014Donald Trump. And that instrument,\u201d Bannon argued, \u201cin all its imperfections\u2014is an armor-piecing shell.\u201d<\/p>\n\n\n\n \u201cWe are one nation\u2014and their pain is our pain,\u201d Trump said at his inauguration. \u201cTheir dreams are our dreams, and their success will be our success. We share one heart, one home, and one glorious destiny.\u201d<\/p>\n\n\n\n Steven Moore, a former White House pick for the Federal Reserve Board and author of \u201cTrumponomics: Inside the America First Plan to Revive Our Economy,\u201d told the Epoch Times of specific policy propositions that are meant to reforge the pain of those most hurt by hyper globalization into success.<\/p>\n\n\n\n \u201cI believe we\u2019re in a very abusive relationship with China right now,\u201d Moore told The Epoch Times<\/a>, adding that while the United States opened its market to China decades ago, China keeps its market closed.<\/p>\n\n\n\n He said Trump sought to correct that relationship by enacting a trade deal that would bring more balance. Still, China reneged on commitments made during the negotiations, and the process degenerated into tit-for-tat tariffs and, in effect, a trade war.<\/p>\n\n\n\n \u201cI\u2019m a free-trade guy,\u201d Moore said, \u201cI hate tariffs, I love free trade. But it\u2019s hard to have free trade, frankly, with a country that is stealing, cheating, lying, involved in cyber-espionage against the United States, hacking into our computer systems.\u201d<\/p>\n\n\n\n Moore called China \u201can increasingly menacing power,\u201d and he hopes Trump\u2019s policies will force them into a good and fair trading relationship with the United States.<\/p>\n\n\n\n \u201cI do think China\u2019s playing a dangerous game here. It\u2019s going to hurt both of our countries,\u201d Moore said, adding that consumers would be affected.<\/p>\n\n\n\n \u201cChina will be hit three or four times harder than we will, but it\u2019s a mutually assured destruction strategy,\u201d he said. \u201cI do think Trump is using leverage. And I think at the end of the day, I\u2019m actually fairly confident that Trump is going to get a victory here.\u201d<\/p>\n\n\n\n Besides negotiating and renegotiating international trade deals, the domestic dimension of Trump\u2019s policies has been to stimulate growth through tax cuts and deregulation.<\/p>\n\n\n\n Lawrence Kudlow, former financial analyst and current head of the National Economic Council under Trump, wrote in the foreword to Trumponomics that while he and the President don\u2019t always see eye to eye, \u201cTrump says we can get to 3, 4, or even 5 percent growth through tax reduction, deregulation, American energy production, and fairer trade deals, and he is exactly right.\u201d<\/p>\n\n\n\n \u201cHe wanted tax cuts. He wanted to deregulate, he wanted to get the government out of the way,\u201d is how Kudlow described Trump\u2019s aims.<\/p>\n\n\n\n \u201cWhat a contrast with the left\u2014which was full of negativity,\u201d Kudlow continued. \u201cWe can\u2019t grow faster than 2 percent. We can\u2019t get wages up. We have to live with secular stagnation. We can\u2019t rebuild our coal industry. Climate change is going to bring the end of civilization. The inner cities cannot be hopeful and prosperous places again.\u201d<\/p>\n\n\n\n Historian Victor Davis Hanson wrote the book \u201cThe Case for Trump.\u201d He echoes Kudlow\u2019s perspective that, at the core of Trumponomics, are policies that seek to unlock the stifled potential of an under-performing U.S. economy.<\/p>\n\n\n\n Hanson told The Epoch Times<\/a> that the results of Trump\u2019s economic policies had defied the assumptions of naysayers.<\/p>\n\n\n\n \u201cThey said \u2018the economy is stagnant: No 3 percent annualized GDP in ten years. No gain in real wages. They\u2019ve written off the middle of the country. They\u2019re losers. They\u2019re not part of the globalized elite on the coast. They need to learn coding,\u201d Hanson said of Obama-era policymakers and mainstream economists.<\/p>\n\n\n\n Trumponomics, Hanson said, accomplished \u201c3 percent GDP, record-low unemployment, record-low minority unemployment, record energy production, the Iran deal is gone, those crazy Paris Accords finalized, Keystone, ANWAR.\u201d<\/p>\n\n\n\n \u201cSome of the best economic numbers our country has ever experienced are happening right now,\u201d Trump tweeted earlier this month.<\/p>\n\n\n\n Wage growth is one of the standouts.<\/p>\n\n\n\n \u201cDonald Trump is not an ideological conservative,\u201d Moore explains in the book Trumponomics.<\/p>\n\n\n\n \u201cReagan was far more schooled in conservative thought and was more dedicated to the principles of limited government. Trump is for common sense. He is an economic populist in many ways\u2014he believes in addressing the plight of ordinary people.\u201d<\/p>\n\n\n\n \u201cHe\u2019s authentic,\u201d Hansen says of Trump. \u201cHe doesn\u2019t play the game. If he goes to the Indiana State Fair, or he goes to Tulare, California, or the South, it\u2019s the same Queens accent, same suit.\u201d<\/p>\n\n\n\n \u201cHilary doesn\u2019t do that,\u201d Hansen says. \u201cShe\u2019s got a Southern accent here and an inner-city accent here. John Kerry, when he ran, he had flannel at the State Fair. Trump is authentic; he is who he is. Unapologetic.\u201d<\/p>\n\n\n\n \u201cHilary goes to West Virginia, and she says, \u2018I\u2019m sorry, you guys have to basically learn solar skills or something, I\u2019m going to put you out of business.\u2019<\/p>\n\n\n\n \u201cTrump goes and says \u2018I love big, beautiful coal.’\u201dExcerpted from<\/em>https:\/\/www.theepochtimes.com\/krugman-admits-he-and-mainstream-economists-got-globalization-wrong_3128925.html<\/em><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"