[sprafa]

Also, this is very good. This is what I come to HN for. Good to awesome discussions between smart people. I wouldn't say subsidies are a good thing, that's not what I'm saying at all. I do believe that market forces exist and that they have good effects. The limits of my language and economics knowledge fail me here, but I agree that competition is a good thing and that "state picks the winners" is a bad thing. Bad and good being defined in terms of efficiency and higher productivity.

But the idea that free trade is "awesomely good for everyone" which is pushed or that markets can exist without governments or that a "perfect market" would have no government intervention seems to have no basis in reality, as far as I've read. Markets and governments exist in a symbiosis that can have good or bad effects, and there's increasing knowledge on how to manage the relationship so that most people in most places benefit. The arguments towards Total Free Trade with No Protectionism and Free Movement of Capital (capitalized because those are the ideas that I have qualms about) seems to ignore, in my opinion, the following things:

On No Protectionism: Masses of workers might lose their jobs and be unable to retrain, creating a huge structural unemployment problem.

On Free Capital: Quoting Jonathan Goldsmith talks about in his segment on Charlie Rose, if you allow for capital to move freely, you brake the contract between labor and capital that's been made through tremendous conflict and compromise in the West. Capital can manufacture goods outside of the country and reimport it, breaking the fundamental agreement of sharing of profits that allowed the West to become so good to live in during the 20th century.

And that is the recipe for tremendous income inequality and the destruction of local manufacturing.

On the Loss of Manufacturing: Vaclav Smil has said that "without manufacturing you have no middle-class"

Basically Free Trade with No Protectionism seems to mean the destruction the local population's wellbeing in exchange for "economic growth" that benefits very few people at the top. The pieces are there if you want to connect them.

[snrplfth]

Of course, I would agree that free trade and no protectionism is not good for every single person all the time - just in the same way that people whose jobs are automated, or simply do not exist any more due to changing demand, often find it difficult and hazardous to adjust. Sometimes people do get a bit carried away in presenting free trade as a winning proposition for all individuals all the time.

But the primary counterargument is that attempts to restrain free trade generally a) reduce overall output and productivity b) give domestic producers a captive market and no incentive to improve c) incentivize smuggling and corruption in getting around barriers and d) cause local industry to fall behind and inevitably be overtaken in global markets even with domestic supports.

On the free movement of capital, one notes that the US, for example, has a large "trade deficit". But what does this mean? Essentially, that US consumers are net exporters of dollars in trade for foreign goods. But where do these dollars go? Well, they come to the US as part of "capital account surplus" - that is, the movement of capital investment into the US. While the immediate impression is of "industry moving overseas", the US is in fact an enormous net destination of capital investment. ( http://3.bp.blogspot.com/_otfwl2zc6Qc/TMybFmTdp1I/AAAAAAAAOm...) If they restricted the movement of capital, it would mean shutting out incoming capital investment, not keeping it from leaving.

So what happened to manufacturing? In a word: automation. The US manufacturing sector is at an all-time high in terms of value produced, but it's quite true that it employs fewer people than it did during its heyday. Manufacturing didn't decline, it's just that people don't work there like they used to. ( https://www.aei.org/wp-content/uploads/2015/10/mfg1.jpg ) This is what's felt as being "without manufacturing", but really it's just the automation of manufacturing, just like the automation of farming. This is overall a positive process, increasing productivity, but in the short-to-medium term it can be painful.

[sprafa]

I'm familiar the automation argument. Still the latest studies have placed the loss of jobs to outsourcing in the millions.

I also think the automation argument has another flaw and a very simple one. By tracking jobs that have been outsourced you are tracking old jobs in some factory that put people out of work. But what about the factories that don't get built, or the labour Forces that don't get trained to make new goods ?

By removing trade barriers and allowing capital to reimport manufactured goods you have removed the incentives to invest and maintain a workforce.

If trade barriers were still up, my guess is there would be huge training programs for people to go into certain professions that would be needed to manufacture goods locally. I.e. The IPhone is produced in China, and Steve Jobs once told Obama the reason was he couldn't find the 5 millions engineers or so he needed in America to build it.

If the trade barriers were still up that would make manufacturing in China uneconomical, then Apple would start a massive training program to train those engineers in America. Apple didn't do that program because it didn't need to, it could find them in China at a cost of 20-to-1. Compare that to Intel, a company that keeps their production in the US, which has invested in programs to train engineers in America.

If capital can move freely it will choose the cheapest available workforce, and it can't find that workforce it will train it in the cheapest possible location. It will then reimport goods manufactured with the lowest-investment workforce into the highest-profitable markets to sell it. Because free trade.

So even though automation is part of the story the destruction of trade barriers also has another effect, which is the removal of incentives for capital to invest in labour training. And that's the origin of the barista economy that people keep complaining about - businesses have no reason to invest in America anymore to manufacture their goods. They absorb the highly educated workforce paid for with a lot of public money, and they benefits from it, while reinvesting as little as possible in the economy and dodging as many taxes as they can.

[snrplfth]

Yes, the question of the "unbuilt factory" and the "untrained worker" is a good one. But also consider the unmade good and the unproduced service - things not created because they were not part of the smaller set of goods producible in a world with restricted trade.

Personally I think Steve Jobs was talking guff, if that's what he said. Most of the actual engineers and designers are in high-income countries - it's just the assembly and components that come from low-income places. Which is what you'd expect - the more labour-intensive a component or task is, the more you strive to minimize labour cost. And most of the cost of the iPhone is in components, research/overhead, and profit (things which mostly do not go to Chinese wage-earners!). The actual assembly is generally estimated at between 5% - 8% of the final cost, and done largely by 'semi-skilled' rote-task workers. Not the kind of jobs that pay high wages even in the US.

The idea of moving goods from the place where it's cheapest to make them (including extra investment), and moving it to the markets where it's most profitable to sell them, is indeed most of the point. It is sort of the idea of the best supply meeting the highest demand - the idea that we grow corn in a sunny field, not an arctic greenhouse, and ship it to the mill quoting the highest price. To require this to not occur is to require that the cost of making it is increased, or the demand for it is decreased.

I would argue generally that the 'barista economy' is not a case of a lack of investment in labour training, but rather a mis-investment. There are huge incentives - especially through federal and state grant and loan programs, and supports for state schools - for students to go into four-year universities and take some degree, any degree, regardless of how useful it actually is. So this results in a large amount of money being spent on a lot of "training" which never actually gets used. This takes up the time that would be spent on other, more relevant training, and causes dissatisfaction among "over-educated" people who feel that their expense of time and money was pointless. That's one of the big problems with a system that promises people lots of money for taking a degree, no matter what it is - it detaches people from the need to look at what jobs are actually available, and it suppresses other training that could have been more usefully done. It also does subsidize those companies which do use the training that has occurred, at the expense of everyone who's paid taxes and doesn't need the training that's offered. Arguably, the fact that tax money is taken off everybody and spent on bachelors of arts degrees is a disincentive to manufacturing and other industrial sectors.

[sprafa]

Ok you bring up a whole bunch of things and I agree with most of it. Our conclusions are different in the sense that it seems like you've accepted the human costs of this system. Is it really worth having millions of people in unemployment and the majority of the population in a situation where they are losing their purchasing power? I don't think so, and I think I've advanced arguments why free trade plays a big role in it.

Is there really that much tax money being spent on Bachelors of Arts ? That seems like a myth to me, the cost of Bachelors of Arts in America must be tiny at this point.

I'm not sure how to carry on with this, as much as it is enjoyable to talk to someone about these issues, It seems like you have all the knowledge and have decided the human costs of this calculus are acceptable. I don't agree it is, particularly not if, as we are now seeing with Trump, Le Pen and AfD in Germany, the cost of globalised capitalism includes the unraveling of democracy.

[snrplfth]

The cost of the educational system is a complex thing, but generally speaking, if a) competition in a sector is tightly restricted and b) large amounts of subsidies are available for consuming that good, then c) prices will climb sharply, and quality will not improve.

I suggest that this is true of much of the US educational/training system. The government keeps pumping more and more money into the educational system, especially via loans. But the number and size of universities are still limited by accreditation and other restrictions (especially in qualifying for those loans) so competition can't drive the price down. Indeed, the price climbs precipitously because students have ever-more amounts of money to spend (often as debt) on a limited number of spots. But you have to pursue a degree to get the money, so rather than pursue what seems best in the job market, pursue what's easier to get into and succeed in. Hence, the phenomenon of a big mis-allocation - a huge number of expensively-educated people carrying lots of debt who can't find commensurate jobs.

I think a lot of the problem is just the suddenness and visibility of a lot of it now. US unemployment is now getting quite low, but a lot of it consists of the chronically unemployed who were accustomed to a solid, long-term job. (I would disagree that purchasing power is falling for a majority - though it did during the recession.) Hence it is more visible. But can the US close itself to large sectors of trade indefinitely to maintain this workforce, especially as automation advances anyways?

It's not so much that I have "accepted the human costs" or "have all the knowledge" - but rather that I don't, and don't really imagine that somehow a system can be designed that provides all the benefits of free trade without actually instituting it. To balance and tweak tariffs and quotas and supports seems to be just as high, or higher, a claim to having all the knowledge. The trouble of Trumpian or Le Pen populists is a real one - but do we just say: whoever has the loudest, weirdest political base gets to set the economic agenda, because we're scared if they get angry? I dunno. If so, we should be honest about that - that we're avoiding free trade not because it's bad economically, but because we're worried about fierce populist backlash.

[sprafa]

I am absolutely honest about that. Those weird vocal people weren't born that way - they became disenchanted with a system that has failed them and failed to make their lives better. If political radicals are the only ones who propose solutions that make sense they will vote for political radicals.

economists and experts keep telling them that they're "wrong" to blame free trade or immigration (just like the linked article). Even though most competent economists would actually say, like you said, that free trade is not beneficial to everyone everywhere.

To answer your question directly yes I think the economics of the system must include the "externality" of the discontent it generates in populations.

It seems like you're saying that although some people might lose their jobs and see their earning potential collapse, free trade is "more efficient" for some majority (+50%) of the population therefore it is good. I would say whatever benefits that come to the majority doesnt really balance out with the suffering of those left with their wellbeing destroyed. Their backlash against the system that destroyed their livelihoods is only natural.

markets are supposed to serve us, and our societal wellbeing. If they fail do that, in my view, they are a failure.

[sprafa]

I also would never defend the current educational system in America (clearly a case of poor government and excessive intervention). What I was saying is that American businesses used to see investment in education of American citizens as essential for their future profits. Therefore they invested in American workers. I think this is no longer true, but to be honest this is conjecture as I don't have the data to back it up ( outside of the Intel program which is anecdotal).

[sprafa]

Also, have you seen Pickety ? My understanding of his work is that the majority of the population is seeing their real earning power collapse while the top 10% or so of the population in developed countries is reaping most of the growth.

So yes people are losing purchasing power in developed economies, and from my understanding it's been that way since the 70s.