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May 09, 2007


Gregory Parker

"the net gains created by trade (and outsourcing) are the very result of the restructuring that globalization's critics fret about..."

Don't the ratio of gains to costs also depend on how much more productive the country becomes. If trade makes the country far more productive, then gains to trade could be rather high. If the increased productivity is minimal, then the tradeoff is lower. Why is it the case that the trade-off would be additive irrespective of what the productivity gain is? So, couldn't you have lots of gains but a costs at a third of what gains are b/c productivity increased dramatically?


It may be that efficiency gains and dislocation go hand in hand, but it seems to me you could have real disagreements about the cost of dislocations. One can imagine a world in which it's just not that painful to go from being an assembly-line worker to being a plumber. Of course, one can also imagine a world in which the dislocations are truly wrenching - for instance, they might require people to move to Florida.


I have taken apart a lot of stuff in my time, but I can't say that I got all of it back together correctly.

It's not clear to me that large job losses imply eventual efficiency gains equal or close in value.

I think a lot of executives are rewarded one year for taking things apart, and then their replacement is rewarded two years later for trying to put things back together.


Dawdling when I should be working:

If a company closes factories and eliminates teams of workers trained to work together and understanding of the engineering and logistics of their business to outsource that to China for lower labor costs, and then they decide five years later they made a mistake, will that company rebuild that factory in the United States and reassemble that team? Can they do that?

I think there are too many path dependencies for anyone to make a reasonable claim that jobs losses and the destruction of assets they entail must equal gains in efficiency.


if you think job "losses" will be large (as Blinder thinks), you must face up to the implication that the eventual efficiency gains must be large

I don't agree. I think the issue is that if job losses are large, well, job losses are large. Irrespective of efficiency. Efficiency 'gains' don't require the addition of any jobs at all. Efficiency 'gains' don't address the fundamental social problem of job loss.

Free trade has run into trouble because regular people understand that despite our economic growth, good jobs are harder to find and harder to keep.

Bruce Wilder

Is the central issue a theory of production (and factor productivity)?

I can tell various trade stories. I can tell a story, where labor productivity rises, because increasing specialization coincides with increasing capital investment and the adoption of advanced technologies.

I can tell a story, where labor productivity falls, because increasing specialization coincides with capital investment spread thin by increasingly abundant labor.
A rise in factor productivity logically increases factor cost. But, if a coincidental increase in factor supply decreases factor cost, instead?

In the absence of honest math, I think this can be very tricky to track.

Greg Mankiw, in other contexts, believes fervently in the power and beneficence of holding down factor costs, questions the minimum wage, argues for the social optimality of $8/hr security guards over $10/hr security guards, etc. Excuse me, if I remain skeptical about whether he would even recognize that trade had cost a sufficiently low-status worker.

Blinder, at least instinctively recognizes that most of the gains from increasing productivity do not accrue to those, who do the reorganizing to increase productivity. The big gains from trade can accrue to "middle" factors trading only in local markets. High-productivity growth sectors typically shed their gains pretty fast, while well-situated landlords and lawyers do especially well. Meanwhile, the losers must often bear adjustment costs in addition to a loss of rents. Why Blinder is so worried about these "middle" factors is not given a completely logical framework, but he's not completely crazy, even if he seems, in his first attempt to express himself, a bit stupid.


'down' is doubled in the third paragraph.

Nicholas Gruen

I'm really surprised at this post. The most obvious objection is 'swings and roundabouts'. A factory making underpants closes down, you lose your job and go get one driving a tourist bus - the tourist industry has expanded because of trade and some of it happens in your neck of the woods. Is this mechanism unlikely to absorb a lot of sacked workers? Well it often happens over a reasonable period of time and certainly over a reasonable geographical space. Workers have the option of moving to where jobs are - something they tend to do in America. Is this a complete answer? Obviously not - perhaps far from it. There will be skill mismatches also so they add to the costs on workers. But it seems to me it's enough to warrant a big caveat to the propositions being put forward in the post.

And where are the caveats about intra-industry trade. People expected big disruption with the European common market - on the basis of the kinds of arguments you put forward. But they just didn't happen. VW made more VWs and Fiat made more Fiats. Now there are good reasons for expecting that trade between China and the US will be much more disruptive than that. But I still expect it's easy to overestimate.

There's a stronger point, which I agree was not directly raised in your post. To matter these concerns need to be operationalized it seems to me. Yet if you operationaize them - presumably by slowing the rate of, or reversing globalization then you are picking favourites.

The fact is that people get sacked every day. But if they get sacked for working for a dud company that is out-competed from the other side of the country, then all the workers sacked have got to go on is the social safety net such as it is.

Now if this was a small part of the picture of sackings and 'adjustment costs' then perhaps the argument for slowing globalization remains to some extent. But 'normal sackings' that have nothing to do with trade generally dominate trade driven sackings.

Michael Greinecker

It is actually possible to get production side efficiency changes by trade without hurting anyone. Specialication can be on the level of tasks, it doesn't have to be on the level of jobs. In that case workers whose tasks have been outsourced can actuall be netbeneficians.

There´s a readable paper by Grossman and Rossi-Hansberg on the issue:

It´s not Wine for Cloth anymore


"Regardless of the model or the evidence you believe in, you either think the net gains and the distributional "costs" are both small potatoes, or you think they are both a big deal."

You cannot compare the costs and benefits of trade and not say anything about the costs of not trading. I am not sure in today’s environment the “switching costs” can be avoided.

In a competitive world with more than two countries you really have no choice but to adapt. There are some spillover effects of tariffs: if the US imposes larger tariffs on Chinese goods its producers are less competitive and less able to trade with other (third party) countries. As trade with other countries is necessarily scaled back, the US still must go through structural changes/reshuffling of workers.

PS: love your work on growth diagnostics, but continue to be puzzled by your views on trade.


"There are some spillover effects of tariffs: if the US imposes larger tariffs on Chinese goods its producers are less competitive and less able to trade with other (third party) countries."

If the US imposed tariffs to compensate for the effects of currency manipulation (for any pegged currency), then you would have competition not predation. What we have now is not competition.


Irrelevant. My point was simply that we are now in a situation WITH trade. Lower competitiveness for the domestic industry caused by tariffs means less trade with many more countries. At this point in time, for a relatively open economy, change in the status quo is inevitable, one way or the other. It is an illusion to think change can be avoided.


"It is an illusion to think change can be avoided."

You should take your own point more seriously. The effect of globalization and free trade on American workers has been so laden with false promises, as well as increased insecurity, falling wages and benefits that it is foolish of you to think that change in this regime can be avoided.

Scott Ferguson

We already have a free-trade model. We call it the 50 states of the United States of America. Within this 220 year old trade zone, we have discovered that regional and sectoral variations can cause disruptions in the lives of those employed in those locations and industries. We have witnessed the devastation that can result during especially strong cycles in say, the transportation industry. Because of this experience we have developed a social safety net funded in part by contemporary healthier economic sectors and past healthier periods. It is not perfect but it is the best we have been able to manage.

Now, with global trade, we are told that entire countries will specialize in certain industries in the same way geographical regions and local corporations have in the past. These regions and industries operated with a common government and national budget capable of emergency wealth during economic difficulties. But under the new regime the entire population of a country will be affected when the economic sector it chose as its area of specialization experiences a downturn. There will be fewer, healthy industries in that country to even out tax revenues and soften the blow to the economy and citizens. There will be fewer healthy provinces from which wealth can be transferred for temporary relief or permanent reinvestment and infrastructure. Let’s face it, the government of Canada is not going to bail out 9,981,334 Hungarian widget makers.
It seems to me that this claim that specialization will make everything work out is based on some naive thinking – namely that free-trade on a massive scale can work outside a society instilled with a concept of the Common Good. Is Greg Mankiw really advocating a World Government to go along with his global Free Trade?

My final comment expresses my suspicion concerning exactly who will benefit by the average $4,000 - $12,000 dollars. As we have seen in the past decade and more, the ever rising aggregate economic indices hide the fact that real wages have not budged while the wealth of the capital class has soared along with the stock market. It’s like the old joke about Bill Gates walking into a bar and causing the average wealth of the patrons to top a million dollars.

Taggert Brooks

If trade simply increases the size of the market the income gains then come from economies of scale and there need not be massive worker displacement.

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The web of losses that you describe in NC are offset by a web of gains in Boston. Restrict trade, and I pay more for my socks, do not eat dinner in Boston, and the web of losses you described in NC happens in Boston

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What about the differences in skill intensities across industries? The job losses in the relatively unskilled-labor intensive battery industry should have little effect on the relatively skilled-labor intensive machinery
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