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Kimberly Clausing on Open and the Progressive Case for Free Trade


Welcome to contact part of the Library of economic liberty. I'm your host Russ Roberts of Stanford University's Hoover Institution our website is ECON- Talk Dot Org or you can subscribe comment on this podcast and find links and other information related to today's conversation station but also find archives. We listened to every episode. We've ever done going back to two thousand and six our email addresses melody contact dot org. We'd love to here for today's number. Fifteenth Twenty Nine Thousand Nine is my guest economist. Author Kimberly closing. She is the third day Miller and Walter minutes professor of economics at Reed College. She's the author open the Progressive Case for free trade immigration global capital. which is the subject of today's episode? Kim Welcome to Econ Talk. Thank you for having. It's a pleasure to be here. What's fun about your book is that I agree with almost entirely on trade issues but disagree about policy policy that you advocate in the book? So I think we're getting a great conversation. One of the things we disagree on is how the average Americans been doing over the last Thirty or forty forty years during a time of rising globalization. Want you summarize your perspective on that. Sure Yeah I guess I would preface it by saying that I think American living standards thirds are quite high particularly in comparison to a lot of countries but one of the Key features of recent economic history is that what's been going on with the macro academy is a whole isn't always mirrored and what's happening to typical workers so a few compare to recent periods if you look at the period after World War Two that ended about nineteen seventy and if you compare that to the period from nineteen eighty two presence. You'll notice in that earlier period there were big gains in GDP and output but also rising living standards did Kept pace with what was happening with the macro economy as a whole so the bottom. Some ninety percent of the population actually had income growth that matched if not exceeded kind of what was happening with. GDP growth at the very top of the distribution. Bution was actually Slower in most cases than the bottom. And what we've seen in this more. Recent era is still substantial gains she DP and GDP per capita and increased sort of access to all kinds of goods but the living standards for those in the bottom. You know four fifths or so of the population haven't kept pace with what they'd come to expect from the earlier era so for the bottom half of the population living standards are relatively Stagnant for those in the fiftieth to ninetieth percentile you see increases but increases that thought fall short of expectations. So I think a lot of workers have looked at the sort of gains in the whole economy and and felt somewhat disappointed with their own personal economic situation. And and that disappointment has some bearing in reality if you look at the data since the increase in GDP hasn't always Benefited everybody And and in particular the increasing income inequality he has made the gains much higher for some groups than for others his. I'm very skeptical. That evidence and as I can see earlier. It's I'm in the minority on this. I think most economists agree with your assessment at the same time Most economists would agree that are measures of inflation are not very accurate Which of course is crucial to determining whether the bottom fifty percent say is making much progress and I guess I also feel? It doesn't even pass the sniff test to suggest that that the standard of living of the bottom fifty percent today is roughly the same as it was thirty forty years ago. So the other issue I think that is often a almost always. Ignored is demographic change in so many of these measures are household measures. And of course. There's a lot more a single person households and so the left hand tail and it's particularly true of people's luggage -cation so the people in the left hand tail are more likely to be single whereas before they used to be married married so I feel that a lot of the pessimism about the state of the economy is a statistical artifact. I just WanNa put it on the table. It's not the focus of our conversation. We have a lot of other other things to talk about. But I want to mention that Because I do think there's an important question as to whether we have a crisis in terms of how the economy treats the people in the rich versus just well we could. It could be a lot better there. Plenty of things. I think should be improved. But it's really a very different picture. I believe when you correct for for the challenges of the measuring inflation demographics. Yeah so I guess what I would add to. That is that I think it's really a question of debris and we probably early agree on this. You know the the household demographic changes are important changes in how we measure inflation are important and there's a lot of new products and there's some controversy about how the best sort of account for their gains So those are real issues. I think even if you control for both of those things you still get an increase increase income inequality it's just less dramatic one So that's that's one thing to point to and another thing that I look at when I sort of think about the well. Being of the middle class is some other symptoms that we might Take a look at such is the rise in consumer indebtedness as we see much more household debt than we we saw in earlier periods a surveys about people on their economic security. How do they do? They feel like they have enough money to sort of cover. You know a a three months period without wages. Those types of measures of income insecurity are on the rise in this era relative to the earlier area. And and and finally this sort of rise in political polarization which I think isn't solely Outcome of media but also an outcome of of discontent right so it does seem to be some theme of economic discontent. That has both the far left and the far-right kind of searching different solutions to that disconnect content but the discontent this content seems to really palpably be there. Well I certainly I certainly agree with that I do think some of it's been Encouraged by the media media. And I don't mean that in a strategic way I mean the fact that the way the media reports on this has created some of that feeling but I don't want to deny I think it's what we can focus on that we agree on. Is that both geographically. Certain regions have struggled terribly with economic changes in the last few decades and also certain groups of people particularly people. ooh Did not go to college or who didn't finish college or people who didn't finish high school or only went to high school and I think Those are the folks we ought to be worried about who are struggling line to To get ahead or to just just to thrive in have dignity so I do think that's important. Yes I agree with you there And the geographic concentration point is is an important one because it does appear that some regions of the country are much more susceptible absolutely sort of economic shocks and in some regions of the country are much more thriving. So Yeah I you know a separate issue that comes up a lot in the program is the the region's I'll just pick obvious ones like west. Virginia that are struggling In in their cities that are thriving and doing very well. And it's hard for people. I think today to move to those city's For a lot of reasons land policy as one community is other than other ties that people have to where they grew up. So all those things I think part of the story But it's also clear to me that a number of people are having a really tough time and regardless of how big that group is it sizeable enough that we ought to be concerned about. It sounds good so one of the things that I struggle with and I I the I learned from your book in an interesting way is let me let me read a quote from the book you say the following. Meanwhile while plenty of economists study the economic inequality job loss and disruption that caused by the forces of globalization and technological technical change. The shied away from the difficult questions of how to address these problems in a politically feasible way it is a quite common affliction of the economists to smugly pronounced what an optimal optimal policy would look like acknowledge that cetera policy may prove politically contentious are impossible then pass off resulting problems wanNA politics a field too dirty dirty for clean hands expand on that because I think what would expand on that. Yeah so I noticed this allot in an economic and and I'm definitely Subject to the same you know tendencies because we are told from the time that we first start learning economics that you know it's a really powerful tool to just sort of describe the world as it is and to sort of think about how. Wow One my you know move towards more efficient solutions rather than less efficient solutions of often struck by how often is when I demonstrate demonstrate something and in class like the optimally of free trade for a small country or like a carbon tax would make sense for internalizing extra analogy That I'm down. Left to sort of reckon with the fact that the policies that seems so obvious to the economists are often not the the ones that are chosen by policy makers and so I think sometimes it's useful to sort of step back a moment and ask why that might be and it's true. Some of this is outside the purview of things that economists can do well But sometimes you know you really have to sort of ask. Some of the secondary questions like let's say There there are both winners and losers from trade. But we don't think the the ultimately the Paredo improving that the winners will compensate the losers through some sort of redistributive distributive mechanism. You know then. Should we still be in favor of free trade and if and if so what does that imply about other policies that might compliment that rather than just sort of saying okay. Well trade is good. Let's move onto the next question. You know so I I. This book is sort of a departure from my more academic work work McBride just kind of focus on you know determining this or that elasticity and looking at things in a more scientific way In in that it does recommend particular policy responses. Not just sort of looking at at the story of what economists say about something yes. I think that's really important and I want to talk about that for a few minutes. That's because even though you don't dwell on the book. I just think it's really interesting to try to think about it. I I may vary hardcore unilateral free-trader. Raider I I would like to see the United States Have No free. Trade agreements just open borders for products and more or less open borders for people That's of course a radical view both those views. But if you know if you asked me well won't that cause some winners and losers I say absolutely and I used to make the argument that you critique the book which we were taught you were taught start and I used to teach my students which is the gains outweigh the losses from these policies. They're a net positive and I started to come to believe that that Utilitarian Calculus which underlies efficiency that the technical term that economists use for basically the pike getting bigger is is morally problematic Despite my belief in the power of trade eight to transform our lives in a positive way and despite the fact that I believe that the net gains are positive the fact that there are large groups of people who struggle at any point in time with the consequence to trade trade. I find troubling and so I have come to argue and maybe this is just a weird form of psychological adaption adaptation and. I've come to argued that that's efficiencies not the reason. I'm a free trader. The real reason. I'm a free traders. For other reasons. I think that over time each generation gets chance to mold it skills to the dynamism of an economy that has trade at otherwise People get into stagnant situations that encourages innovation that encourages kerchief human flourishing. And that point in time someone may struggle. Their children are going to do better so I so I I am. That's the way I solve that problem. I WANNA come back to the a political problem but before I do which direction to them. I think that's a good reaction. I I take a slightly different but fundamentally similar view which is Zayn. I'm a free trader as well I do worry about the losers as well. I think my arguments about why we should nonetheless have free trade even if we can't do some of the redistribution that we'd like is the thought that if we didn't have pre-trade ultimately would be even worse is so the thought is Let's say we tried to protect workers from these potential losses and we identify some workers. Perhaps the ones making coal or steel that we think are particularly damaged. And we're like okay we're GONNA put on tariffs to help them The argument I make in the book is that that actually kind of adds insult to injury to what's happening to the typical Worker who has similar skills as those coal and steel workers. It's true you might might save a few steel jobs with steel tariffs. But YOU'RE PROBABLY GONNA lose auto jobs some jobs in the cutlery industry you know and elsewhere right you introduce new types of shocks. I mean you make things more expensive for all the workers regardless of what it is that they're producing because when they go to the store or anything that has steel embedded in it is is more more expensive and and also there. These studies that suggest that per steel jobs saved the tariffs cost the economy about six hundred fifty thousand dollars. So I I guess my argument is that you know even if we can't do the redistribution and You know and it's nice. Of course you point out that over generations we'll have a more efficient economy. Let me but but I also think it's important to sort of look at the counterfactual policies and say like we'll do we actually think that. There's a way to protect workers from this churn of of the world economy or do we just ultimately kind of set back the United States relative to other countries if we if we try to protect them from these winds of change so this is where politics comes in and I really really liked that quote that you had because it forced me to confront my own Imperfections there so I don't I don't like just saying it's politics but I think I probably do say that so I'll give you my example. I think we are similar here but maybe maybe not So we both agree that some workers are made worse off by trade at least in the short run an extra room might be fairly long or another way to say it. As we'd like to soften the blow well without giving up the benefits that accrue to lots of other people and and the crew to them as well by the way in other parts of the economy the former lower prices and and and so on so you would give a bunch of examples of things that we should be doing to help mitigate that so you say we should spend more on infrastructure. We should spend more in education and I say similar things except my policies that would make I that I think would help. Workers workers are different from yours. Right so I might say I think we need more competition in the school system. We need less government That government expenditures don't always always lead to more education just more more schooling. You don't get smarter on the workers side and I have to accept the fact that my preferred policies to help aren't going to happen. Probably I mean they could but it might just hand waving or you just hand waving you know you say we should spend more on infrastructure. We spent a ton on infrastructure. Maybe we should spend a lot more but the political process which has four point four trillion dollars at the federal level at its disposal. Oh doesn't seem so keen on it so when you and I advocate for it. Are we doing anything other than just sort of making ourselves. Feel good about the fact that this policy was like is We can we can sleep at night. Yeah I I think you have a nice point there but I would point out that there are some areas of bipartisan consensus. We're a nonetheless. It appears that Congress has been able to act but where we might imagine you know eventual success if if we push on it so one example would be Expanding the earned income tax credit so people on both the right and the left at least over time you can find major figures. Here's who supported that policy It's a nice policy. It creates negative tax rates for those at the bottom those that we might think are particularly likely likely to be hurt by the forces of trade and technological change and other things Encourages work right by increasing the real wages again kind of those lower in the income distribution. And it's you know a much less costly solution than some of the alternatives. That have been suggested like a universal basic income which is which just far less targeted to low. Income workers. Just hands everybody money in his quite expensive so If you look at that policy and we could sort of asked why haven't Congress people on both sides of the aisle just agreed to do that. You know we can actually find instances where they have their moments where Ah that has been successfully expanded and I can imagine a world you know even Right now where people could agree on that. You know so I I do think if we focus on some of those policies that that that's probably A useful area to focus on I think expanding Research and Development Funding is another area where we could sort of imagine People coming together on both sides of the aisle to suggest you know and then and then there's some things that are of course harder harder and more contentious rate What I try to focus on in the book is things that I could sort of imagine happening? Rather than things that I would think our Our ideal right. So it's it's sort of a full imagination process right it and it's just my perspective on what I think is politically feasible. But it's it's pretty far art from the wishlist that you would see on campaigns for instance you know which are often you get people proposing things that they know? There's just no chance of having happen. been you know but they but they think that they sound nice to people you know whether it's pro asking another country to pay for an infrastructure investments or whether it's saying that you're going to provide something for free to everybody without really specifying how those types of policies I think are even more fanciful Foale than than anything in economist with jazz very well said On the flip side of this is we'll get to trade details at Domin- but I I it's just such an interesting topic. The flip side of this is that some people have suggested to me that you should always argue for the the ideal policy. Don't argue for what's politically feasible. Because then at least you'll get something close to the ideal and you might even get the ideal if if all goes really swimmingly You can look at capitalism and freedom By Milton Friedman the every idea in that book at the time almost every idea it was incredibly radical. The idea that we would actually have a volunteer here. Army of a paid army read draft is absurd when he wrote it and we got it So you could argue that we hadn't done that It would it wouldn't have happened so I think there's a it is a question of political strategy It is something that I think we have to say. We don't you and I as well you and I nobody. Nobody fully understands it. That's a silly thing to add but did it's uncertain and you're right it you know. Great ideas can and can be adopted. Even when they're initially seen as is unattractive so yes I agree with that too and I do think thinks it You know there are different things that we try to do with our professional lives and one is to sort of move the conversation by having a big insights or big ideas that may take time to adopt. And you know I. I've been working for decades on issues of taxing multinational companies. And and you know for a long time there's absolutely no Policy work that seems to be happening in any country on this issue. And now we've got you know the CD and the G.. Twenty twenty countries sort of agreeing on on a lot of measures. That would you know maybe not be. My ideal better certainly addressed at as some of these policy questions that I've spent decades working on so I do think you know progress does happen over time and sometimes it's a lot slower than we'd like it to be so you know you don't have to do just one or the other you can sort of push for grand things in the long run while suggesting pragmatic things in the short run. That's again that's that's very well said let's turn into the details of trade the economics of trade which in the background of many episodes of economic we haven't talked about much explicitly at the fundamental level in a long time. And it's in the news so I think it's very useful. Let's start with trade deficits. Should we be worried about those. That's a great question And I wish you know it's it's actually the one lesson of economics that you can teach an intro student Really very clearly in a matter of minutes but somehow it seems to never of the media or you know like so But but basically what is true is just a truth. It's not even a theory Is that trade deficits happen all those countries that Spend end more than they earn and trade surpluses happened in all the countries that earn more than they spend right so these macroeconomic influences that determine determine countries savings rates their investment rates and what the government is doing with the budget deficit. Those those fundamentals are driving how much the country borrows or lens right so in a country like Germany. Where were they have very responsible budgeting and where people save a lot And they save enough that it exceeds the investment assessment countries like Germany tend to run a trade surpluses and countries like the United States where the government frequently runs large deficits were individuals. Individuals and companies are often as a group saved less than they invest. Those countries run trade deficits and no matter how much you new tinkerer with the terms of trade agreements or threatened trading partners with tariffs or implement tariffs even That's not going to change those fundamental Factors that determine how much a population and its government wants to save and borrow and that borrowing and saving is really what's driving inch and every trade deficit and surplus that we see in the world And that's something that you can sort of show an interest student with three or four equations really quickly but if somehow when when the media announced the latest trade deficit they do it in this sort of breathless fashion. That indicates at some sort of like outcome of a global struggle. Duggal about competitiveness. You know and you can have very competitive companies and very competitive workforce and very strong fundamentals in your economy and still run a really large trade deficit if people want to spend more than they're earning as as a whole in in that counts. Both government actors were borrowing. But also you know the personal on in the corporate sector so to summarize of a trade deficit is is almost perfect mirror of capital surplus that that is the gap between what is invested in saved in a country in the United States. We're very attractive. Place to invest for a bunch of reasons. We have a low savings rate for a bunch of reasons so we run a surplus. We invest less on the capital side. We run and we we We invest less abroad than foreigners. Invest here that's glorious for us In a certain level means that that our productivity and capital growing despite our our low savings rate at the same time we run a trade deficit meaning we consume the more goods and services than we produce which seems like magic And it is magic and it's exactly what's going on. The only problem with that is. Potentially there might come a day. When countries don't want to invest here and don't want to buy our bonds and finance our government budget deficit different thing than the trade deficit easily confused because they have the word deficit but if that day came and it came suddenly there might be some adjustments that would be traumatic and hard to deal with But there's nothing you can run a trade deficit for a century. I think England did So so it's not a it's not a crisis. The word I my theory by the way is besides the fact that the media likes to likes to wave around because it sells newspapers. We're deficit is It sounds negative if we ran instead the story said once again America's run a capital surplus and and found ways to attract capital into the United States greater than how much capital leaves the United States could go in America to be different store. Maybe yeah absolutely So you know. I think the adjustments that you describe in the event that people don't WanNa buy US assets. We do have the benefit of a floating exchange rate. That should help with that. So what that means is that if people lose their appetite for. US Treasury Bonds Abroad or if they don't WanNA buy invest in. US stocks walks right And then there'll be a lower demand for US dollars with which to buy those US assets that will depreciate the dollar right and and that dollar loyd appreciation basically puts every asset in the United States on sale from a foreign perspective and helps us finance whatever deficit we want to run right so There's no reason it in our case for that adjustment to be particularly Shocking or burdensome especially the levels that we I see now where we've got like a three percent of of GDP trade deficit. That's not really large enough to to generate big shocks in a floating leading exchange rate system. And if you're not careful you might say well let's just borrow even more money. The risk is is that at some point that that shock will come and even though it could be mitigated by out exchange rate change. It's it's still going to be a challenge to to cope with that. Transformation I was I would suggest yeah and you know what tends to happen often in the US cases we'll have a recession for some other reason. Unlike so if you look at the two thousand seven to nine downturn and great recession that dramatically reduce the size of our trade deficit. It wasn't the the you know. Suddenly people lost their appetite for you. Just assets I mean in fact there was actually the dollar strengthen during that period because US assets were considered sittard safe in a time of economic hardship but What happened is people bought fewer imports because the US economy was contracting? Write 'em and you know and savings rates went up to because of the sort of the shock associated with that whole Financial Crisis in the United States. So you know. Sometimes other factors will enter in that changed the sort of path of these imbalances. And that's one thing that we saw in. The great recession is not so much that the great recession was caused by the imbalanced but that it sort of some of the imbalances as being sorted out. And you have dark humor in your book which I've used as well where you say well if we're really worried about the deficit just have a big recession or a depression. And you'll fix it and it really. It highlights the fact that it's really a a result not a cause of things I think people people assume that if we could get rid of it we'd have more jobs but that isn't true at least I don't think so and you don't either so explain why. Yeah so basically Getting rid of it. It's would entail You know some other macroeconomic change would be needed to to do that. So for instance you imagine if the US government got. I'm in the mood to run a more balanced budget. For instance that would definitely reduce the size of the trade deficit And the government would presumably be collecting more oren taxes or spending less or both to make that happen. And that's going to change those variables but we don't really think that it's going to change the number of jobs We tend to think that that's an outcome of the overall level of demand in the economy. Compared to what's what's produced. So if for instance. The government decided added to reduce the size of its budget deficit. Probably at the same time. The Central Bank with would say okay. Well that's GonNa be that's GONNA reduce aggregate demand so we're going to lower or interest rates to try to offset that you know in that will hopefully keep the number of jobs if that's done skillfully You know relatively constant but we think that number of jobs is really dependent on the overall state of the macro-economy not on any particular trade balance. And if you look across countries you don't see it. Countries with bigger trade deficits. We have a different sort of employment outcomes than than countries with smaller ones That's not a major variable striving job growth in similar league over the last fifty sixty years as we run a trade deficit I think every year and sometimes large ones. Most most of that time period jobs are growing steadily as people enter the labor force. Your Women's labor force participation up traders. That didn't stop them from finding work they did a great. What about China There are two aspects of China. I think that are worrisome. Even t- to you and me Who are generally free-trader? Generally are we not worried about deficits and I just say footnote I. I don't know how old you are. I'm old enough to remember when Japan was destroying the America supposedly supposedly. That's somehow got. We still run. I think we start running big trade deficit with Japan but somehow they were not worried about any more than it was Mexico and now China and I think though despite our agreement on this that trade deficits are not worrisome A lot of people argue that trade with China between two thousand and the president when China became part of the World Trade Organization and expanded its experts say United States. That was very hard on a piece of the economy That even though the number may be unchanged certain types of jobs change and that can be very hard on people and example that people worry about a lot as manufacturing and the second second issue people would talk about. Is that China acts unfairly. They steal intellectual property They don't let our goods in. How do you buy response to that? Autumn curious quarters are now so there's several things to keep in mind with respect to China very large economy over a billion people An enormous amount of economic growth there so so as they entered the world economy it was really inevitable evitable that that they would Be producing more of the world's manufactured goods that they would be affected by doing that You know and so we have just sort of asked from a US policy perspective. Is there a way that we could have made that easier on. US workers you know that entry of China into the world economy economy. I don't think it sensible response would be to try to stop them for instance from joining the WTO. I it was very useful for them to enter a world rule based sorry a rules based world trading system and I think the WTO is the perfect tool for handling Disputes that we might have with China about particular practices that we might deem unfair right and the fact that they're very good at making manufactured products is not an unfair and seeing. It's just the the fact of of the matter. They have a lot of people they have. A you know a lot of economic growth. We expect them to be good at making a lot of manufactured products But you know there are practices where you require technological sorry to technology transfer where peace asked might be involved or things along those lines where you know we might have legitimate grievances but we have a a nice forum for dealing with those grievances which is the WTO and we successfully successfully resolved a lot of disputes including disputes with China there. And so I I think that that's kind of a much more effective way of dealing with some of the the trade disputes there than than the alternative which seems to be putting on a tariffs in the hopes that they will change their behavior but then of course they retaliate. With tariffs is their own and we generate a new set of of shocks that American workers have to deal with so. I think that's a less effective policy and this isn't into say the. US workers didn't lose something from this extra trade with China they did. I mean there's a there's some really nice research that I think you had David Otter actually on your program and he and he goes through this research which documents that you know it probably did cost about two million workers. If you kind of include the fullest estimate job loss due to that Chinese Ascendancy in manufacturing. But I also point out in the book and I think it's really important for us all to remember the we live in a very dynamic economy Capitalist economy generates job loss all the time and in fact the the typical quarter in the US Aziz over six million jobs lost over six million jobs created right so that's an incredible amount of job. Churn that happens each and every year. So it's true room you know. There's there's some additional job churn because of China's entry into the economy but I think we delude ourselves if we think that we can you know somehow protect workers from that one source of job. Churn without creating a lot of clairol damage. The I'm very skeptical. The author and his Co authors. There's quite a people work those those studies but to to point to China and say that they are responsible responsible for lost to two million jobs without accounting for the increases in jobs that you can't count right because they're harder to identify from lower prices which freed up resources for people people and capital to do other things strikes me as actually. I want to see more than that. It's a general equilibrium problem. Right in the sense that it's is true. There may be some jobs. Lost one place but their jobs created elsewhere right and and that's one thing that we think a general with trade is the you know you're going to lose some jobs in the import-competing scenic sector and you're going to expand some jobs in other sectors and we also need to account for the fact that if there is a little bit more job loss the Fed and others aren't sort of standing there silent while things happen. They look at the overall picture of the economy. So so I think saying that that's an aggregate job losses probably not True I just want to expand span on your point by the way about the quarterly data. which is I think extremely Educational every quarter. Maybe it's every month you can you tell me. Millions of jobs are created in. Millions of jobs are lost when it's healthy for the economy. There might be a six point. Two million jobs created in six million jobs lost that that quarter When it's not healthy it's six million jobs? Lost the only five point eight million created in that's hardship but there's a Lotta dynamism even in in our somewhat sclerotic economy and and I think to ignore that is. It's actually I think is just wrong. Yeah I agree and I also think it has enormous policy implications right. Because if you're saying that this is loss of two million jobs. Over a decade justifies tariffs for instance. which isn't the argument? That automates by the way they don't suggest tariffs but but other people using that work work you'll have left to the conclusion that oh well this maybe this means we should protect You know American workers from foreign competition you know one. You're only only gonNA get at a tiny bit of the churn that's in the economy and and to I think you know you're really distracting people for much more effective solutions solutions to you. Know workers troubles so if we have concentrated areas of job loss in a way. It doesn't matter what's causing that whether it's trade or technological logical change or domestic competition right. I mean the question we have to answer is how to most effectively deal with that resulting problem and and I think the problem with trade remedies. They often exacerbate this sort of shocks and difficulties that workers days. It just use a metaphor which I think is helpful all. I think often people think that the job market's came musical chairs. So if there's a Lotta chairs but if two million two million of them get pulled away there's all these people looking around cam find him and that's not what happens is a bunch of chairs being taken away and there's a bunch char chairs being added having said that and often more chairs being added than are being taken away having said that it can be hard to find which is open and for some people. The chairs are in a different room and they can't literally can't get there so I think the thing we have have to confront in our side of the argument is that well. It's true. There's a lot of churn and it's true. There's a lot of jobs created from from Chinese trade with China but for some of the workers who were are lost their jobs. They can't get those jobs that are created there. They don't have the skills they're far away they don't know about that many did but but many of them stroke did were able to find them and get there but many didn't and that I think is the is the moral issues that that we have to confront. Yeah Yeah I agree with that and I do think that there are policy steps that people to take that would sort of make some of these transitions easier. I'll just mention to really quickly. One is sort in expanding access and affordability of community college right and community colleges very inexpensive compared to your traditional four year degree. It's often geared towards towards a skill acquisition later in people's lives so that they can kind of retool to suit the local labor market needs. And that can be a really really cost effective in helpful. Way To help workers retool another thing to think about is reformed zoning laws in high high growth areas right because some of our most successful economies in the United States places like Silicon Valley are extremely expensive places places to live. So if you lose your job in you know West Virginia and you want to move to the bay area forget it like it's going to be way too expensive to live there and I think that People need to take a hard look at zoning. Laws have done to prices in some of these thriving communities because it it's making those us those locations inaccessible to all the well off. I said common theme on this program couldn't agree more. I just wanted to put to it. I've been looking at Some work by Kevin Herdman and he makes the point which I think is. I'm ashamed to say I didn't think of which is not only so make it hard for people to move to these places New York City. You can being one for that West. Virginia worker probably close in Silicon Valley and it may be a lot more comfortable for the skills that that person has more realistic that they could find something useful there but more expensive in and you're going to face a unpleasantly long commute if you want to work in a thriving metropolitan area like New York Work San Francisco Boston Los Angeles is a hand handful of these cities that are doing. They have high wages. Lots of Opportunity Eh and are also incredibly expensive. Live because I think mainly policy not just because a lot of people wanna live in them and that that's an important Footnote but not only is it hard for people to move there but the people already lived. There can't afford to stay there so they end up having to leave. And this is urban point and moved to places where where it's not thriving not as good and make it even harder on the people who already are there. But that's the best that they can do and that's just a just did. I think it's just a terrible mistake. So here's the question I have for. You is the following. Let's imagine you or your dictator between in two thousand and two thousand twenty love. What you said about China and it's always important to add? I think that AH forgotten that hundreds of millions of human beings who live in China have much better lives because of the transformation. You can argue that we're Americans. You can argue. They don't count the count for something so I I wouldn't I wouldn't one hundred million people. I mean that's a lot of people that used to be below the World Bank poverty line which is two dollars a day and now we're well above it and that's an enormous human success. The need to pay attention to and and as has been pointed out by listener. Who who I don't know if he wants to be mentioned name but pointed out to me that It happened once it ain't happening again. It's not happening again. It's going to be another eight hundred million people flooding into the cities from the Chinese countryside manufacturing. Stuff it's over but historically we can learn something from it my question in his if you're a dictator You could be in charge of policy. What should we have done between two thousand and two thousand twenty Two Thousand Nineteen the president to soften that blow on the people who were in the places. You take the skills that didn't fit in and so on. Would you have done anything differently than we did did I. Yes I wouldn't done several things differently. Up One is that expansion of the earned income tax credit that I mentioned earlier right now. That credit is generous. If if you have children but really not generous. If you don't so if you're childless at MAX's out at about five hundred dollars if you have children you can get up closer to six thousand so I don't see any reason that you know childless low income workers. Don't also need a boost so you could make that much more generous Across the board and also by linking it from from children. You actually make it much easier to sort of it enforced administer and comply with And then to help those those with children you can expand and make refundable the child tax credit right which is something that was actually done is part of the tax cuts and jobs. Act was more generous. Child Child. Tax Credit That one was a little less effective because it wasn't fully refundable and it was also accompanied by getting rid of exemptions in the tax system. But you could could imagine a more generous package the through the tax code of kind of helping those workers who may end up lower wage jobs than they would like A second they could do is sort of a consider a program of wage insurance where basically for a limited time if you say had it had a manufacturing job that paid really well and you were earning fifty thousand dollars a year and then you had to transition to some job that was that was lower wage right. You could basically have a government. Subsidy I believe for the for half the different say effort for a limited time to sort of help people Transition and have a little extra resources when they're undergoing these economic hammock shocks that we do have actually tiny program of wage insurance already. That's administered through. Through trade adjustments program that only applies to workers of certain ages and certain qualifications but I can imagine a broader version of that that might be effective You know a little indifferent about whether we do that rather than just do a much more generous earned income tax credit which I would have a lot of the same implications and probably be a simpler way to do it but I think that there are ways to kind of get some income down the Income distribution to help those who are most hurt by those shocks in addition You know those trade shocks that you mentioned Shen are really geographically concentrated so I do think that there are ways that we can kind of help support communities mobility and it's things like that community colleges I just think like zoning reform but it's also You know at times public investments can be quite helpful so if we look at Pittsburgh for instance which is example I use in the book They used to be a big sort of steel town but now Pittsburgh is actually a much more of vital city than it was in decades past because in response to this rankings. Steel Sector They made useful investments in in housing in an infrastructure in higher education and there were sort of partnerships between the business community and local universities Carnegie Mellon University of Pittsburgh and and now they they have a very successful sort of medical tax sector as well as health services sector and You know the the set of industries that Pittsburgh is is attracting. In and flourishing. There is very different from what it had in the past but it but it was partly because they had these strengths that they built Coltan in in higher education and providing infrastructure that that Pittsburgh was able to sort of rise from the ashes like that and so I think the other cities could use that as it's sort of a model. They're suffering similar concentrated decline in a particular sector. I get to play progressive now which. I don't get to do very often Kim. So this is exciting for Try to put on my progressive hat. So those steel workers aren't gonNA struggle to work in that high tech medical sacks sector so that's I I think part of the challenge that these policies face you agree yes you know and I I I don't minimize the pain sort of caused by Job Loss when you're sector is facing gene fierce foreign competition and it certainly an issue in the steel sector. But but I do think in a way we don't have a lot of compelling alternative into Just trying to do our best to sort of help. Those workers with transition assistance with Unemployment benefits when those supply with with community college type retooling because if we instead tried to insulate them from that shocked by making the US steel sector uncompetitive and protecting it from foreign competition. It's true we can. We can save a handful of workers from pain but we're going to create pain elsewhere in the system. The Pasture General Motors paid over a billion dollars in extra tariffs associated with mostly with protecting the metal sector right and and we look at the cost of of being General Motors. That's a significant amount of money. They estimated the strike cost them. You know about three three times that but that was a strike for forty days. Justin terrace the other point. I would make which is so hidden but I think so important in. Is that once you open up the possibility of protecting your sector your industry your company from that foreign competition he changed the incentives. Lives to where you spend your energy as an executive in that company for making a better product to making sure you have influence in Washington Pan. I find that to be An under appreciated Cost of an activist trade policy. Yes the political dysfunction associated with kind of encouraging encouraging rent-seeking basically of companies are trying to compete on the world market and more curry favor with some bureaucrats so that they can get Protection from world competition. That's a big problem. You make the point your book and I make this point also often when I talk about this because I think it focuses the mind the Technological change globalization it really a very similar phenomenon. They're both ways. We can get more from the same amount of resources that's that analogy. Parallelism is unappreciated. My view. Yes you know. And it's it's you sort of have to imagine so you know the the same sort of difficulties associated with going back in time right if we wanted to undo the China Shock. That's a very hard thing to undo And and similarly clearly we wouldn't all throw away our computers like we lose a lot of things when we kind of go back in time. There's a there's a reason that we we like using computers. Even if those computers ended up displacing you know a lot of labor. It's hard to. It's hard to address that by undoing. It you have to find other ways is to address it so I want to sort of summarize this I would summarize your your view which is similar to mine is the following following. There are a lot of things about technological change innovation and globalization that we don't like as a country so when when politicians talk about this and I think a lot of policy advocates as well including economists. They act as if there's a lever or Knob that we could dial and say well you know I don't want ten on the globalization seven and a half five Of course I don't want no technological change. I want to make the country better but sometimes it's hard on people so I want less of it a little less not too much just a little want to soften it WanNa reduce the speed of it and those knobs turn available so what I like about your to our with summer as you approach is saying well. That's not realistic. Those jobs don't exist. We're better off letting the pie grow ro and just trying other policies instead of trying to slow down the growth of the high which is prone to rent-seeking cronyism and so on because the that smooth KNOB doesn't exist. It has to be sector-specific rhetoric trying to soften the blow to the people who don't share in those in those benefits benefits from economic growth to come from a logical change innovation globalization fair summary. I think that is a fair summary and I think one thing we lose sight of is actually how how easy in a way it is to soften the blow like we have really powerful tools through the tax system to make sure that when GDP goes up everyone's income goes up right. It's you can make tax rates negative at the bottom. It's not that hard to do right so I think the more we can look at these pie. Expanding things is really positive features of the economy. But then try to make sure that they really do benefit everybody by working through the tax system to make sure progressive tax code. I mean that's that's the policy. I would really pair it with and that's something that we know how to use. His feasible effective demonstrated successful in the past are are are besides that piece of it. What other tax policy would you think would be a good idea? You have a number of ideas in the book. Yeah so I suggest in the book sort of a grand bargain on tax reform. That would do a bunch of things at the same time so the the first priority is the one I just discussed which is making sure that the bottom and part of the population is seen rising incomes on that that's expensive that costs money right to create negative tax rate. So you have to have some revenue raisers elsewhere in the in the tax system to pay for that So I don't think extra deficit finances is a great idea For that goal like there might be some things that are worth deficit financing. They're sort of far sighted but So I also suggest collecting more from those who've been successful and what I I think the good way to do that is to Pick a modest tax rate. It doesn't have to be a super high one. Perhaps APPs is slightly higher On the capital side what we've had before but tax all types of income the same cut down on sheltering opportunities across tax bases by basically making a person sorted indifferent about which forum they earn their income whether it's pass through income or corporate income or labour are income Try to unify the tax treatment across types of income so that when you do collect taxes from those at the top you can pick a reasonable rate and still get a lot of revenue. A new. I think part of the difficulty associated with our current tax system is is We've got this pretty big discrepancy between how we tax some types of income and others others and so when people are like. Oh we really need to crank up the rate on those on the top. They don't always pay attention to that discrepancy. And so if you increase say the Labor income tax rate to even seventy percent which some people have suggested but you're not dealing with some of these other income form options trade them people are just gonNA move their income into into a different form. And it's GonNa be really distortionary and a lot of ways so I think you can get away with much lower rates if you actually collect the tax and if you make them uniform across types of income come and the corporate side I suggest similar which is having a uniform treatment of of income regardless of where it's earned right so so it's sort of like saying that even if you WANNA put it in a tax haven light Bermuda where the tax rate is zero. WE'RE STILL GONNA tax it in the United States and of course avoiding double taxation accusation with the tax credit. So that's another big feature is sort of collecting a little more from those who succeeded by sort of reducing those loopholes in the final element that I suggest which is also oh a big revenue raiser is a carbon tax The great thing about the carbon tax is almost every tax that we use today of discouraging. Something that we wanna encourage who are discouraging labor discouraging entrepreneurship or discouraging saving but a carbon tax is discouraging. Something that we think is really bad for the planet the carbon And so it's really a beautiful economic policy as far as I'm concerned Because you raise money to finance the government or to pay for this earned income tax credit expansion or or how are you going to use it but at the same time you're incentivizing each and every actor in the economy to use less carbon right so when you make a decision about were to fly or whether to build green building or or how far to live from your work right. The carbon price is going to influence all of those decisions So I I. I think that there are other countries like Canada for instance who have tried this successfully At the British Columbia's had one Ashley for Awhile. It's worked quite well. I think I think it's long overdue policy change in the United States that I think we could actually build some political momentum for. I know that people are often like well. It's impossible to make energy. You were expensive. People were revolt. But you can imagine a system for instance where you collected that carbon tax than us just sort of divided by the number of people and Senate back as a check check. And if you did that actually the bottom half of the population probably more more like seventy percent. I think. Come out ahead With that policy because the carbon footprint of the top is higher than those the bottom so when you just collect all that carbon tax and send it back still changing all the incentives people still want to reduce their carbon footprint. But they're not made worse off in most cases from that policy and that's because their rebate is not related to their activity. That's the key the key it's called the jargon that is a lump sum tax. They don't really exist. Close meaning not not distortionary. I'M GONNA go back back to your other types taxes. I want to raise a political point which often I mentioned thing that what bothers me and then I would say and what I think. Is maybe problematic about some of your suggestions about this. Is that We have enormous tax on workers. Which is the payroll tax that is couched and sold as a savings program for your future? But it's not that's not true true. It's money that goes out. The door to pay. Current recipients of social security and off and on other programs are in pastures But but don't worry your when you get older you'll get your money to now. People start are starting to wonder whether that'll be true. We're going to have to obviously just some aspects of the program to make is that most people feel like the payroll tax which is also split off usually if you're employed by a regular employers post self-employed split between you and your employer. A lot of people believe that much of that employer part is actually paid by the worker and the lower wages. So here's this tax. That doesn't feel like attacks or at least we've done everything we can to make could not feel like a DAX remained part of it paid by the employer and we've made This claim that Oh yeah you'll get it back later and then some don't worry But that means that the income tax which is not paid by an enormous number people partly because of the negative part you talked about that. Does negative tax rates are are just a fancy way of saying people get money. Is that paying money It means that enormous sums of people feel like government doesn't cost them anything and that has political implications the flip side of that is when when an enormous sum of your revenue comes from a very small group of people. Positives have an incentive to take care of those folks. Keep the goodies coming in. That's like a really bad Political Economy Centers yes I'd point out the payroll taxes the tax rate so when we think bet bet. LOW INCOME PEOPLE AREN'T PAYING TAX. You have to be much more specific. They're not paying one particular tax like they're not paying now because they're going to get it back well. I don't think that people don't feel the payroll tax. I would disagree with you there like I feel it. I know my daughter felt when she got her. First job. You can see in your paycheck gray gray led. That money is coming out. I think a lot of young people don't even think that they'll get social security students like do you think you're going to have have social security on Sunday like you're not sure that they're gonNA have it so for them. This really looks a lot like attacks. It acts like attacks right. They're getting paid less. It's funding the government They you think funding the government. I I would disagree. I heartily with that idea because I do think it new ask a low income person like do you look at your pay stub. They do. Do they see that And there's also sales taxes at the end a taxes on income at the state level. That are that are funding ending an awful lot of government services to right so if you here in Oregon we have an income tax But not a sales tax but the income tax isn't very progressive. You're sort of in the top breed once you get it to ten thousand dollars or something you know. So it's I'm not sure the exact cutoff but but almost everybody has skin in the game in the income tax here Or if you're in the state of Washington which has no income have to have a sales tax and everybody who buys anything it has been in the game there too so I so I I disagree with this idea. That people don't feel that their funding government at the lower levels. I guess looking at the policymaker incentives. I agree with that part. I think policymakers are particularly sensitive to the needs of those at the top of the the income distribution Part because those people are more politically active in salient for a whole host reason including social ones. The you know they're you're in the same social circles and and the light spray toy so I do think that there's a connection there between sort of your income and being listened to in a policy context taxed but I I think that's true independent of what the tax code is doing and I think we raised rates on those the bottom. That would still be the case right. I don't think suddenly policymakers makers would be like. Oh now I'm really worried about you. Know the typical person more than this rich donor so The only I can only agree with all that the only footnote I would add. I certainly agree that that that I pay stab is an eye opener for most my children. Your children children everywhere but I do. I think that that if we decided say to Expand our military operations in the Middle East. or You name it The payroll tax doesn't go up so there is still. There is something of a disconnect now of course the income tax doesn't go up either practice optus now is to just bonds. We want to do things so I'm not sure. That policymakers are thinking carefully about these trade offs. It to the extent that there are trade-offs they tend to be the more political type. I don't think that's ideal by the way I think that's the that road good road to go down. I think we're GONNA. It's one of these roads where it's fine. I'm traveling and then all of a sudden there's a precipice and you're over it. You didn't look. I mean there are some serious as budget issues to keep in mind especially because of the demographic situation that we've already alluded to but but the baby boomer generation is is expensive. You know like and so that's GONNA cost a lot of money in the years ahead. Yeah although I would point out that if we means test that it the way we use suggest we should means test the earned income tax credit rather than having universal basic income. We could fix that really quickly. And that's a whole another conversation but it fascinates me that I'm going to get social security when I it's unplanned sixty five but at some point I think I'll get something back I don't need it. I don't believe the word need but certainly my economic wellbeing is not counting on that And it's weird that I get it back. It's not getting it back. It's taking it from my kids and I it's weird anyway. Yeah I agree I. I think there's a good argument there. So let's close with With a slightly personal issue which Che's your book's got the word progressive in. Its title The policy examples that you advocate for are generally on the left or associated with political ideas or politicians on the left. I'm curious what kind of reaction your book has received Steve So far so as I said I love most of it People on the left. Does it bother them. Do People on the left. Are they upset at at your advocacy for free trade. Just curious what kind of what you're hearing. Yeah yeah so I think there's two types of discontent about the book and that from I would say this sort of left quarter in the end. The right quarter of the population of the the folks is on the left particularly on the far left. I think sort of stopped reading when they get to the point where I mentioned that Sanders is also You know someone who one might think of as being sort of antitrade and he had a lot of ads for instance in two thousand sixteen. The blame Nafta for things and that group of people tend to think of the book as being too Market oriented in. Its thinking. Sort of saying that it's okay okay. To sort of let markets do a bunch of things and then and then sort of ask. Where are they failing? And what can we do to help those. Who Have you've been left behind I think some of the people on the far left would prefer more sort of systemic changes in in how we organize the economy meet and so they view this as sort of band-aid type solutions rather than than something that would more seriously help those at the bottom And I guess I I disagree with them of course because I am skeptical. That some of these more transformative policies would actually Help those at the bottom. I think some of them you. Yeah I mean some of the I have nothing against the idea of empowering Labor more I I do think that this sort of bargaining dynamic between Labor and capital has changed in important ways and should be reversed. I but you know I would be very reluctant to sort of say that capitalism itself is is a problem. You know I think even in the country's de it's sort of the the far left hold up his models the means of production are all owned privately. You know and things like that so I screamed Navia. Right you know like they just take a lot more in taxes right and you know and I think that that doesn't mean that it's not a capitalist economy. It's just it's a very successful Capitani that happens to have different weights. You know in their social welfare punctured on things like childcare and education and healthcare Different ways of providing those so You know I think it. The book was disappointing to people who wanted on the left and more sort of transformative like less market oriented solutions. On the right. I think people tend to agree he with the Many of the views on globalization but were skeptical about using the tax system to fix it or a little more content with outcomes. uh-huh that arrived you know by the market. All by themselves didn't want to do some of the intervention prevention that. I suggest things like free community college or or Moving more income down the distribution through the tax system and so I think they thought of that is sort of like a liberal fantasy. Let's see Although the stuff about trade being good was still right That didn't mean that you had to do all those extra things. So those are the two main sort of bodies critiques. I've seen both of those. I mean I do think that the book really calls for sort of a radical moderation in a way sort of saying like. Let's recognize all the things the economy's really doing well but let's take seriously those who are left behind and think really carefully about effective efficient ways to solve those social problems because we we have. We have some pretty big problems that were turning our back on now and I think climate change is one that that I would put it the very top of the agenda but I also think a dealing with does economic discontent in a way. That's that's less polarizing that sort of can bring people together so that we can govern and make tough decisions. I think that's something that we really really need to do. I I am dissatisfied with this idea that that people are are becoming increasingly tribal in the United States. It sort of seems to be kind of like two camps that don't WanNa talk to each other You know and I think that that's that's sort of environment is a lot easier to do that. Sort of environment is is much more likely outcome. Oh come of economy that isn't Generating really inclusive economic growth and I think inclusive economic growth makes political polarization. A less attractive because people are doing better. And they're feeling that and they're more willing to sorta reach across the aisle and do things that are collaborative contest. Today has been kimberly causing book is Open Kim. Thanks for being part of become talk. Thanks so much for having me talking to you doc this Z.. Contact part of the Library of economic liberty for Maury contact. ECON Talk Dot Org where you can also comment on. Today's podcast and find links and readings related. Today's conversation the sound engineer. RECON talk is rich go yet. I'm your host Russ Roberts. Thanks for listening talk to you on Monday.

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