>I'm not sure what your argument is. The standard argument you see in
>the business press is that the lower import prices "allowed" the Fed
>to refrain from raising interest rates, and therefore let the
>economy grow faster than it otherwise would have. But this takes Fed
>policy as fixed and necessary; I can't believe this is what you are
>saying.
It is in part. But what I really want to challenge is the idea, common on the left, that trade is a zero-sum game.
>Or are you referring to the efficiency gains from trade-- i.e.,
>neoclassical, comparative advantage? These are tiny for the US--
>e.g., maybe three-hundredths of one percent of GDP, at most, for the
>reduction of tariff and non-tariff barriers in the Uruguay Round of
>GATT. I think it is not misleading in the least to ignore these--
>they are certainly trivial compared to the loss of wages for most of
>the labor force over the last 26 years.
>
>For most of the last 26 years, we have had a declining real median
>wage-- by definition this means that the downward pressures on wages
>had more influence than the gains from trade. I would measure the
>decline relative to what, in the absence of such pressures, the real
>wage gains would have been-- so even the current expansion has been
>pretty bad. Even if only a fraction of this loss is attributable to
>trade, it is still enormous, especially when compared to the very
>small efficiency gains from trade.
I'll say again that real wages have been rising for the last 5 years - that the decline in the real wage ended, at least temporarily, in 1995. Certainly there's a long way to go - we're back at 1986 levels now - but this has happened despite NAFTA, the creation of the WTO, and many other lamented trade phenomena. Employment has also grown vigorously. This history makes it a bit harder to believe the standard anti-free trade line, but anti-free traders never acknowledge it, much less answer it.
Trade volume has increased pretty markedly, far more than suggested by the 0.03% of GDP kick from tariff reductions you cite. Surely there are some gains from this trade - I don't see how you can just take the gap between X and M, divide by some cost per job figure, and come up with an estimate of employment loss. Surely imports provide positive economic advantages - lower prices, more variety - that you just can't bracket out of your model. Yes, some people may lose their jobs because of this competition, but if imports keep prices down then most people have more money left over to spend on other things. And certainly exports create jobs - that's not controversial is it? To do this sort of analysis right, you've got to take all these factors into account, or state explicitly that you're assuming there are no gains at all from trade. Just because neoclassicals say there is, doesn't mean it isn't true. Or you have to explain why U.S. employment is up 18.8 million jobs, and the average real hourly wage is up 5.6% (7.0% in services) since NAFTA took effect.
Seems to me the focus should be on keeping the labor market tight and boosting the minimum wage rather than worrying so much about China.
Doug