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January 26, 2017



The U.S. went from 30% of its nonfarm employees in manufacturing to 12% because of rapid growth in manufacturing productivity and limited demand, yes? The U.S. went from 12% to 9% because of stupid and destructive macro policies--the Reagan deficits, the strong-dollar policy pushed well past its sell-by date, too-tight monetary policy--that diverted it from its proper role as a net exporter of capital and finance to economies that need to be net sinks rather than net sources of the global flow of funds for investment, yes? The U.S. went from 9% to 8.7% because of the extraordinarily rapid rise of China, yes? The U.S. went from 8.7% to 8.6% because of NAFTA, yes?

And yet the American political system right now is blaming all, 100%, every piece of that decline from 30% to 8.6% and every problem that can be laid its door on brown people from Mexico.

By not making it clear that you are talking about 0.1%-points of a 21.4%-point phenomenon, I think you are enabling that. I don't think this is a good thing to do...

F.F. Wiley

Thanks for the post.

I had a few objections to Economics Rules, but IMO Globalization Paradox offers the best framework for understanding Trump and Trumponomics, and especially your "fundamental political trilemma." You might even say it predicted Trump.

The intelligentsia (and media) should take a fresh look at your work.


A good counter argument however I noticed two things:

1. You left out actual numbers. OK some workers were hit hard by NAFTA. How many? Best estimates are a few hundred thousand but keep in mind:
---There's about 100K dog groomers in the US
----In 79 or so there were maybe 200K coal miners, in 1990 that was down to 100K. Reagan was more or less economic genocide for coal miners.

Yet no one thinks the economy or even elections hinges upon the economic state of dog groomers.

2. DeLong noted that auto manufacturing jobs were helped by NAFTA. By being able to move low value added labor to Mexico, concentrate high value added labor here and Canada automakers got lower costs than Japan and Europe and outsold them thereby producing more jobs for everyone. But you cite the jobs hardest it as "apparel, textiles, footwear or structural clay products like brick and tile."

Let's be real here. Making bricks is never going to be a well paying career that will put any number of Americans in even the lower middle class. No amount of 'smart deals' or protectionism is going to bring back brick making jobs.

But the irony is that when people cheer at Trump bringing back manufacturing they aren't thinking of min. wage workers breaking their backs making tiles and bricks, they think of high value added auto workers building cars with good benefits, a 401K and health coverage. NAFTA was more helpful towards that end than not!

Cassian Young

This provides the basis for a very strong case against NAFTA.

Its easy (and lazy) to equate human welfare with financial aggregates. Experimental evidence proves that this relationship doesn't hold.

Rising GDP doesn't increase our welfare once GDP passes $20K per head. Most developed nations have shown flat lining levels of welfare since the 1950s.

But falling incomes and job security do effect welfare - strongly and negatively.

Ergo a policy which is very mildly positive for all with pockets of very negative impact is almost certainly net negative on human welfare.

Adair Turner's book Economics After the Crisis provides the background. Twin his results with this article and it looks like Trump's right about NAFTA.


It seems to me your own logic and summary of the empirics makes the strong case for NAFTA. A wealthy country, maybe then 5 times wealthier than its southern neighbor, generated very large welfare increases in its southern neighbor with limited, though concentrated, negative effects at home. (The abstract of the study you cite finds that agggregate welfare gains in Mexico were about 16 times greater than those in the US, and I assume they meant per capita.) The U.S. for decades has been subsidizing livelihoods in mid-size towns in rural America (did they pay the full cost of their electrification? postal service? air services? Internet? public libraries?), and this is not so different. Presumably you would be very supportive of trade deals like NAFTA if TAA were, say, tripled. Again, a fairly modest cost, for a large world welfare benefit, no? And when you consider the political economy implications (destabilized political economy in Mexico if no deal, increased migration) it seems like a bargain that no citizen thinking about the common good (or even thinking about America First! but taking into account that a stable neighbor is always better than an unstable one with a very large wall separating the two). Of course, the counterfactuals about political economy are just opinions, who knows what would have happened in Mexico without NAFTA and maquiladoras etc. And the investor protection clauses and IP clauses etc are not even the subject of the analysis, because in Trump's world only manufacturing, TV shows, and hospitality are "real" economic activities.


Does anyone around here know?


Sean Matthews

For this point to have any weight, surely you would need to show that the consequences of NAFTA on the communities where it had bad effects was untypical and material compared to the consequences of non-trade-related technological change on other similar communities, and that those bad consequences represented a material proportion of all such bad consequences?

Denis Drew

Lost in all the fine and refined analyses ...

... see http://angrybearblog.com/2017/01/trade-agreements-have-harmed-manufacturing-employment.html ...

seemingly forever lost (!), is that most all today's $10/hr US jobs (e.g., Walmart cashier) could plausibly be paying more like $20/hr -- with German level union density. Given that 45% of today's US workforce is earning $15/hr or less this seems to make debating about a few percent more or fewer manufacturing jobs far from the most relevant show.

And don't forget health care looks like the next manufacturing -- even spread everywhere and eventually government funded.


You can't get something from nothing but, believe it or not, the money is there, somewhere to make $10 jobs into $20. Bottom 45% of earners take 10% of overall income; down from 20% since 1980 (roughly -- worst be from 1973 but nobody seems to use that); top 1% take 20%; double the 10% from 1980.

Top 1% share doubled -- of 50% larger pie!

One of many remedies: majority run politics wont hesitate to transfer a lot of that lately added 10% from the 1% back to the 54% who now take 70% -- who can transfer it on down to the 45% by paying higher retail prices -- with Eisenhower level income tax. In any case per capita income grows more than 10% over one decade to cover 55%-to-45% income shifting.

Not to mention other ways -- multiple efficiencies -- to get multiple-10%'s back:
squeezing out financialization;
sniffing out things like for-profit edus (unions providing the personnel quantity necessary to keep up with society's many schemers;
snuffing out $100,000 Hep C treatments that cost $150 to make (unions supplying the necessary volume of lobbying and political financing;
less (mostly gone) poverty = mostly gone crime and its criminal justice expenses.

IOW, labor unions = a normal country.

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