Russ Roberts

Symposium: David Autor on Trade

EconTalk Extra
by Russ Roberts
Nations Gain When They Trade..... Marina Krakovsky on the Middle...

This week's episode with David Autor did not go as I planned. I thought we would spend most of the time on the empirical estimates he and his co-authors have made of the impact of US trade with China. Eventually, we got to those estimates along with how reliable they are and the possible implications for public policy. But along we way, we had a lengthy discussion of the fundamentals of trade, trade deficits, and the complexity of labor markets. Because this was such a lively conversation and because it is such a timely issue, I invited four blogging economists--Don Boudreaux, Arnold Kling, Adam Ozimek, and Noah Smith to respond to the conversation. You'll find their reactions below the fold. And you have a chance to respond to those reactions in the comment section.

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Noah Smith
[originally published March 16, 2016 at "Autor on EconTalk" at Noahpinion.]

David Autor recently went on Russ Roberts' EconTalk podcast to talk about his new paper about China trade. The Autor paper, co-authored with Dorn and Hanson, has been a real bombshell in the econ world, since it seems to challenge the "consensus" on free trade. Economists have long asserted confidently - in public, though not always in private - that free trade is always good, and now some top economists have shown that maybe it's not always good. That's a big deal.

Roberts and Autor do a very good job of zeroing in on why free trade might not be good, and why it might not have been good in the case of China. The reason is distribution - trade can hurt some people, especially if the government is not perfectly efficient in using redistribution to cancel out the distributional effects of trade (which of course it never is). This has been known for a long time, but economists often wave their hands and ignore distribution.

Autor et al. have basically made a splash by failing to ignore this very important thing. They treat distribution as important by assumption, and then they check that assumption by showing that govt efforts to cancel out the distributionary effects of trade have been woefully inadequate. Roberts, to his great credit, does not do the "annoying online libertarian" thing, and simply wave away distributionary concerns (as, say, Bryan Caplan might do if he were doing podcasts). In fact, Russ once again comes off as a very pragmatic, situationalist, intuition-driven sort of fellow - the kind of thinker I believe we need more of (and that Brad DeLong says have made America great).

One very interesting point in the discussion is when Autor says that trade between rich countries is basically all upside. I think that this is a hugely important point that gets completely ignored in today's trade policy discussions, including by some of my favorite writers like Paul Krugman. Unfortunately, Russ doesn't follow up on this point, but it matters a lot, since the trade agreements we're now considering - the TPP and TTIP - are almost entirely agreements with rich countries. Some people seem to be treating the Autor paper like it applies to TPP and TTIP, but it just doesn't, and I wish this were talked about more.

Autor also mentions a couple of other potential downsides of trade. He mentions trade diversion from multilateral agreements - unfortunately this doesn't get followed up on. He also mentions trade deficits, correctly pointing out that in real terms, trade deficits are a loan, not a gift. This means that running trade deficits today is, at the country level, an impatient thing to do - it sacrifices the consumption of future generations to allow our current generation to consume more. Sadly, this point is not pursued much, but I guess podcasts have time constraints, and this one was already a bit long.

Anyway, a very good episode. I think I will do more reviews of EconTalk episodes! One thing I think Russ needs to get better at is critiquing empirical papers. In this episode, he brings up the possibility of multiple comparisons (which of course Autor accounted for, Autor being Autor). A better critique might have been to question the structural assumptions of the linkage model that allowed Autor et al. to conclude that the China trade shock reduced employment in aggregate. Now that econ is becoming more empirical, being able to get into the empirical weeds like that is going to be more and more important.

Arnold Kling:
[also published March 17, 2016 at "The Plunge in Manufacturing Jobs in the U.S." at askblog.]

David Autor's work on the adjustment problems for American workers caused by China's rapid export growth is very interesting. I believe that these sorts of adjustment problems, rather than "aggregate demand," are the main source of unemployment in the economy. I have discussed this way of thinking about unemployment as the problem of discovering patterns of sustainable specialization and trade.

I was intrigued that the podcast with David Autor and Russ Roberts discussed structural unemployment and corkball. One of my late father's favorite expressions was, "We are going to have to pay people to play corkball." More than thirty years ago, he foresaw a future in which society would have to deal with widespread unemployment by finding it socially acceptable to pay people to engage in leisure. Some additional points:

  • 1. The rules of corkball in St. Louis, where my I grew up, evidently differed from those in Memphis, where Roberts grew up.
  • 2. My father thought in terms of workers displaced by technology, and Autor talks about workers being displaced by trade, and in particular by rapid growth in manufacturing in China.
  • 3. My father thought that once low-skilled workers were displaced, it would not be long before what we would today call non-STEM college majors would find themselves displaced as well.
  • 4. My father was not an economist. In my view, he seemed to be committing the "lump of output" fallacy. That is, imagine that the world is one big factory, producing a fixed amount of output. If the factory "foreman" (meaning the impersonal forces of the market) finds some Chinese welders who can perform welding at less cost than American welders, then American welders will be out of a job. The fallacy is in treating the amount of output as fixed. In a dynamic economy, the factory "foreman" should be able to find another use for the American workers that serves to increase output. Since we teach that the economic problem consists of unlimited wants and limited resources, the unemployment of American workers should be of limited duration.
  • 5. In the podcast, it sometimes sounds as though Roberts wants to defend what we teach against what he sees as "lump of output" thinking. However, one way to characterize the dispute between Roberts and Autor is that what they really disagree about is the meaning of "limited duration" for structural unemployment. For Roberts, it might mean a few months or at most a couple of years. For Autor it might mean a decade, or perhaps from now until the worker reaches the legal retirement age.
  • 6. I believe that this is the most useful way to think about unemployment in general. That is, I do not think that very much unemployment is "cylical," meaning that factories are shut down until unwanted inventories have been worked off, at which point they are re-opened and the same workers are rehired. Rather, I think that most unemployment is structural. The factory "foreman" finds millions of new jobs for workers each month (see the JOLTS survey), but the "foreman" cannot find a fit for everyone. Even a small increase in the rate of displacement and/or a small decline in the rate of fit-finding gives rise to what we call a recession.
  • 7. Both trade and technological innovation constitute progress. Displaced workers are the victims of that progress. The policy issue raised at the end of the podcast is how best to deal with the victims. I would lean against trying to slow the pace of progress by restricting trade or by making it difficult to introduce technological innovation. I would lean instead in the direction of cutting payroll taxes and decoupling employment from health insurance. Those steps would reduce the cost of labor and thereby make it more likely that the "foreman" will find a use for displaced workers.
  • Adam Ozimek:
    [also published March 17, 2016 at "What to Do About Losses From Trade" at The Dismal Scientist Blog.]

    The work of David Autor and his co-authors on trade and labor markets has caused many economists, including me, to adjust their beliefs. I would like to address some issues that have been raised by the research and by Autor's interview with Russ, and also to focus on policy implications.

    The first point I'd like to make is about the robustness of these results. Scott Sumner has raised a skeptical eyebrow and claimed this is "just one paper," but that vastly understates the strength of the research. There have been several papers from Autor and coauthors that take broadly different approaches: looking at industries, looking at local labor markets, and looking at individuals. The last approach, used in Autor, Dorn, Hanson, and Song is notable in its granularity as it tracks hundreds of thousands of individual workers from 1992 to 2007 using Social Security Administration data. And other studies found similar effects for European firms, for Norway, for Denmark, and for U.S. industries using a different instrument. It's also true that there are many benefits of trade, but it seems clear that the many people and places have faced large and long-lasting adjustment costs.

    So if we believe the results—and I think we should—an important question is why trade with China appears to generate more job losses than trade has in the past? One likely factor is that the recent losses from trade are concentrated in low-skilled workers who have a harder time adjusting. This was a point brought out in Autor's interview but it bears repeating: trade shocks did not harm the top third of manufacturing workers by pay.

    Why have low-skilled workers fared worse? One reason is they are less likely to pack up and move someplace with better job opportunities. Indeed, other research has shown that mobility for low-skilled workers is below that of skilled workers and has also fallen over time. There is no single explanation for this, but Ganong and Shoag found that rising house prices have reduced the incentives for moving to more productive parts of the country for low-skilled workers.

    Another factor that likely contributes to the large job losses is that labor market dynamism has fallen in general, which makes finding a new job harder. This helps explain why low-skilled workers have been hit hardest by trade, as Davis and Haltiwanger found they disproportionately hurt by falling dynamism.

    One issue that remains under-discussed is what the appropriate policy response is to the losses from trade. A common suggestion is to subsidize manufacturers, either directly or with higher tariffs. But given the ongoing mechanization in manufacturing, these subsidies could end up simply supporting factories filled with robots and few jobs. In addition, trade increases productivity and innovation, and propping up unproductive manufacturers risks reducing those positive effects.

    A better policy response would address the core problem, which is that low-skilled workers are not finding good jobs to replace the ones they lost. The Earned Income Tax Credit remains the best policy to address this by making low-skilled employment a more profitable option for workers and firms.

    One criticism of this approach is that the task of increasing employment is hopeless given the weak demand for labor in the U.S. economy. But high-skilled workers who have been hit by trade shocks have managed to find other jobs that pay as well.

    A benefit of the EITC over subsidizing manufacturing is that it boosts labor demand for firms that have the most profitable use for low-skilled workers rather than just manufacturers. This is important given that many high-skilled workers have survived trade shocks by moving to entirely new sectors and out of manufacturing. Subsidizing manufacturing does nothing to improve this channel of adjustment for low-skilled workers.

    In short, the work of Autor and his co-authors is extremely important, but economists are still digesting it. On the policy front, what is needed is more demand for low-skilled labor, not more demand for manufacturing output.

    Don Boudreaux
    [originally published March 17, 2016 at "Russ Talks with David Autor" at Cafe Hayek.]

    I just listened to Russ’s most-recent excellent podcast with M.I.T. economist David Autor. The subject is the effects of increased U.S. trade with China on the U.S. economy – in particular, on certain American manufacturing workers. Autor’s new paper on this topic, written with David Dorn and Gordon Hanson, is getting a lot of attention, mostly quite favorable.

    I have not yet read this paper, so all that I say in this post is based upon the podcast.

    In (very) short summary, Autor argues that Americans’ increased trade with the Chinese over the past few decades, while it unquestionably increased the size of America’s and China’s economic ‘pie,’ has left some American workers worse off over the long-run. Further, the extent of this harm to these U.S. workers is larger than what Autor believes economists’ priors would have predicted. The implication seems to be that freer trade is no longer as overwhelmingly positive as economists once believed: the costs are larger both in size and duration; economists’ theoretical case for a policy of free(r) trade is, therefore, weaker than even economist once believed.

    Here are some reactions; I’ll likely have more later, especially after I read the paper carefully.

    First (on the reasonable assumption that the podcast supplies a sound description of the main points of the paper) I agree with Scott Sumner that (a) one piece of empirical research in economics does not justify rejection of a long-standing conclusion among economists, and (2) much more importantly, it’s unclear that the findings of this paper reveal anything new or that should have been unexpected by those of us who accept the standard economic case for free trade.

    The economic case for free trade

    (1) has never denied that some workers (and other input suppliers), as well as some business owners and creditors, suffer reductions in their economic well-being as a result of changes in the patterns of trade – reductions, that is, from what that well-being would have been had trade patterns not changed;

    (2) says nothing about how much time it takes those who are ‘harmed’ by changes in trade patterns to optimally adjust to those changes;


    (3) was never premised on the argument or belief that the particular flesh-and-blood people who are ‘harmed’ by changes in trade patterns will themselves eventually adjust to these changes in ways that ensure that none of these people remain worse off than they were before trade patterns changed.

    Autor would not dispute (1), but he seems to dispute (2) and (3).

    He says at least twice in the podcast that during the “Bretton Woods era” – roughly mid-1940s through early 1970s – we in America saw no significant or long-lasting harm caused by changing trade patterns. That might be – and, if it be, it was indeed good. But I am unaware of any theoretical case for a policy of free trade that rests on the prediction that adjustment costs will be small, that adjustment times will be short, and that, in the end, literally everyone will be better off than he or she would have been had the particular change in trade patterns not occurred.

    On this point, see Russ’s truly spectacular book The Choice.

    Second, I disagree with Autor’s quick dismissal of Russ’s point that the greater availability today (compared to in the Bretton Woods era) of government cash assistance for displaced or otherwise unemployed workers might explain the lengthening of time that Autor et al. find that it takes workers today to adjust to changes in the patterns of trade. It’s true that no one wants to be unemployed, but incentives operate on the margin. With tens of millions of workers affected by changes in trade patterns, relatively small responses to even relatively small increases in government assistance – and, also, to increased wealth in society – can plausibly have detectable effects on the ways that workers respond to losing their jobs to changes in trade patterns.

    Third, Autor is mistaken to equate the trade deficit with debt. A U.S. trade deficit might become American debt (as when, for example, non-Americans lend some dollars to Uncle Sam), but a trade deficit is not necessarily debt (as when, for example, non-Americans use their dollars to buy shares of stock on Wall Street). Russ rightly pressed Autor on this point, but I don’t think Autor adequately responded, for he (Autor) kept talking about the trade deficit as if it necessarily represents a drain of demand today from the American economy.

    Comments and Sharing

    CATEGORIES: Extras (199)

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    COMMENTS (23 to date)
    Scott Sumner writes:

    I see many big problems with the Autor studies, which others are not adequately addressing. The fact that X number of workers are directly hurt by Chinese trade does not imply that X fewer workers have jobs because of China trade. Indeed Autor does not demonstrate ANY net loss of jobs. He claims there is, but doesn't provide any persuasive evidence.

    Even worse, he suggests that Germany did not suffer from the sort of labor market distress that the US went through, during the 1990-2007 period, because Germany has run a trade surplus. (BTW, Don and right and Noah is wrong about equating trade deficits with debt.) In fact, during the period studied by Autor, the US labor market did far better than the German labor market. Now admittedly, without China trade the US advantage over Germany might have been even greater, but no evidence is provided for that claim.

    So Autor relies on a theoretically suspect hypothesis that a trade surplus would have made the adjustment to China trade less costly, and then cites an empirical example that points in exactly the opposite direction from his claim.

    In my view it's entirely plausible that China trade cost 1.5 million specific workers their jobs, even while not reducing the total level of employment (in the US). And of course China benefited hugely from trade, a point noted by Autor, who did not view their paper as undercutting the argument for free trade.

    Ryan L writes:

    A question I had, both during the podcast and from Boudreaux's response, was "is equity debt?"

    From the link Boudreaux posted, he bought a Sony computer. He has a computer, Sony has dollars. Sony's dollars can either be transformed into goods or in dollar denominated property (e.g., equity).

    If Sony purchases equity, they have purchased a stream of future payments, which can either be turned into more equity or into goods.

    I think Autor's point was that the trade deficit, whether financed by equity or debt, ultimately exchanges present consumption for future consumption (among those in the dollar denominated economy).

    And I think the counter to that is that the pattern of investment and consumption matters, and with international trade the pattern will be more productive than had international trade not occurred.

    However, I don't think Boudreaux's third point addresses Autor's point. The demand in certain industries and for low skilled labor can irreversibly decrease. The trade deficit itself isn't what matters, but how the trade deficit affects the pattern of employment.

    DJD writes:

    I find the dollar-centric discussion beside the point. Let's say China and the US used the same currency. What's the proper analysis of the harm/benefits of asymmetrical bilateral trade in that case?

    I'm sure that Colorado, where I live, has a trade deficit with California. Does that harm me?

    Does it even make sense to talk about intra-nation trade deficits or surpluses? Most trade occurs among private concerns. How does the discussion about trade between nations, as opposed to trade bewteen citizens of different nations, illuminate anything?

    Ryan L writes:

    This symposium is a great idea, by the way. Serious value added. Kudos to Russ, Amy, and those who wrote responses.

    There is no real difference between inter and intranational trade in the stylized example I gave. Currency barriers make for a useful demonstration of the export/invest option, however.

    In real life migration and relative value of currency, in addition to political, linguistic, and cultural effects (and that all of the downside of changes in trade patterns inside the nation happens to 'one of us' is politically relevant).

    Intranational trade would have a similar effect to international trade. If China adopted the dollar in 1971, the effect on low skilled workers and specific American industries would be similar. As would be the large gains from trade.

    Ryan L. writes:

    One final thought.

    Are we seeing the failure, not of a set of skills, but a set of cities?

    Jane Jacobs argued that cities with industrially diverse economies were a lot more adaptable and innovative. Is the problem of labor mobility for low skilled workers a problem everywhere, or just in too-specialized cities?

    Similarly, is labor immobility a feature of poor governance at the city and local level?

    Charlie writes:
    I see many big problems with the Autor studies, which others are not adequately addressing. The fact that X number of workers are directly hurt by Chinese trade does not imply that X fewer workers have jobs because of China trade

    I find this comment very strange since Autor addressed this directly in the podcast.

    "I think other economists would say, 'Well, you know, you are measuring the losses but you are not measuring the gains equally well.' Russ: Yeah. They are easier to identify. Guest: That's right. So, you are measuring kind of a relative effect but you are calling it an absolute effect. So, maybe there's all these millions of jobs being created in Silicon Valley that, you know, are an indirect result of China; but you don't have a strategy to see that. So, it's true that there are relative losses in Raleigh, in Cleveland, and so on. But they are not absolute numbers because you are not accounting for the gains elsewhere. And I think that's a more trenchant criticism. It's not that I think our estimates are cooked or even that sensitive. It's that they might miss other important margins. And I'm happy to concede that point. I mean--we've tried. It's not that we've sort of agreed to just sort of punt on that question. There's probably a lot of ways to look for those missing margins. We really haven't found them. But they are much harder to measure. I think what we can say--even if you found them, right--you would still have to say, 'Look, this was very redistributive.' Okay. Creating a lot of jobs in Silicon Valley, that's great. But it's definitely not the same people. And so, again, you come down to the same bottom line about trade, which is: It's raising GDP--and we don't dispute that question. And look, you and I benefit from a lot. But it's definitely making some people have much more challenging livelihoods. And they are not going to be compensated simply by having lower prices on, you know, stuff at Walmart. That's not going to make up that ground. So, we ought to at least--recognizing that, that doesn't mean we shouldn't trade."

    Charlie writes:

    I don't understand the point Don and Scott are trying to make about debt vs equity.

    When Autor calls the trade deficit debt, he is clearly speaking in the contingent claims sense. Americans give up a claim to future consumption in return for more consumption today. Don and Scott seem to want to make a big deal out of whether that claim is a bond or a stock. Why does that matter? If a trading partner buys a share of IBM stock and gets a contingent claim on future dividends, as opposed to a an IBM bond and gets a contingent claim on future interest payments, why should that matter for the discussion? In either case, America is consuming more today in exchange for a "wealth" or equivalently a claim on future consumption.

    DWAnderson writes:

    Perhaps I'm mistaken, but it seemed like there is general agreement that:

    -- In the aggregate trade is beneficial to both parties.

    -- In the case of China, displaced workers did not adjust as well/fast as many had assumed would happen.

    Given these it would seem like the logical policy question, is: "What changes can we make to help workers adjust to such changes?". Rather than "How should we limit trade?" After all these changes came from trade in this instance, but as Arnold points out, they can just as easily come from technological (or other) change.

    Walter Clark writes:

    Please get Tyler Cowen's view on this.

    PSwinson writes:

    An issue referenced too lightly in the podcast is the effect of lower skilled populations, in the tens of millions, from Central America. They have the same displacement effect on the low skilled workers.

    It is more easily measured than the effects of intra-national labor displacement. Also it is an effect that we can more easily correct.

    FredC writes:

    The logical guest to have on about this subject is George Borjas, particularly considering his new book coming out soon.

    The inverted double intellectual back-flips done by smart people to justify continuing trade and immigration policies that have so obviously hurt so many in the US (with questionable benefit to any beyond a teeny tiny percentage), as evidenced by stagnant wages, increased welfare reliance and poor labor participation rates, among other measures, needs examination by the psychology profession.

    Haberman writes:

    What was avoided in the podcast was, is trade with China not free. Is Russ Roberts or anyone else ready to argue that barriers to US exports to China are equal to the barriers for Chinese products entering the US. We do not have free trade and what Autor has done is show the damage this unfree trade has caused. At least Trump understands this
    Even if Russ is so blinded by his idology that he can not even state the root of the problem.

    Haberman writes:

    It is unfortunate that some offer no solution and just repeat that free trade is good. 
    The solutions offered tend to focus on government hand outs.

    What is needed is fair trade/real free trade, lower corporate tax rates and an end to the US tax on coporate over seas profits.

    Tom Trochlil writes:

    As manufacturing jobs were displaced by China, low skilled workers should have been able to find jobs in areas that could not be exported, such as jobs in vacation spots, like Wisconsin Dells, and Ocean City Beach. Instead, low skilled immigrant workers filled those jobs, keeping wages low, adding to the employment disruption.

    And if free trade between countries is inherently good, why did the USA not also experience an explosion in GDP growth at the same time as China?

    Thanks for the podcast on China and its impact on the global economy. Would like to hear more.

    jw writes:

    Acknowledging that there is some repetition from the first Autor thread:

    Even if one were to stipulate that locally, there were displaced workers as a result of trade with China and that these workers had a difficult time finding work afterwards, that does nothing to disprove the theory that globally, trade is a net gain for all involved.

    We can also stipulate that there may be resultant velocity of money issues that affect the local economy as well. This is not surprising.

    But, even with that stipulated, concluding that the affect is long lasting only due to the affected industries and China as a new market does not hold up. This claim, that over 16 years, roughly 1% of the US workforce was unable to find new employment due to trade with China does not take into account the confounding variables of:

    - Automation – Again, acknowledged and then ignored in the paper.
    - Corporate tax policy - As above, disincentivizing capital investment in the US vs overseas is a well known “unintended” consequence of our political choices, but anti-corporate tax break demagoguery triumphs, no matter the cost in jobs.
    - Deficits – Many economists think that government debt displaces private debt. In the 16 years covered, federal debt more than doubled (and has doubled again in the last 9 years). This may have driven out private capital that may have created jobs.
    - Pensions – Unionized workers typically received generous pension packages that did not take into account long term shifts in productivity. Although not as much of a factor in NC furniture and textiles, it was a major factor in steel.
    - Regulations – As before, tens of thousands of pages of new regulations during the study period and their associated costs certainly reduced opportunities for new jobs.
    - Illegal immigration - 10-20M illegal immigrants displace jobs, period.

    I don’t have a crystal ball that can show a counterfactual reality where these confounding variables are quantifiably proven to affect the workers in question, but they should cast a lot of doubt on Autor’s conclusions.

    In yesterday’s NYT (here), they state that the Carrier employees in IN made about $22/hr while their Mexican replacements will make $19/DAY. Along with a much looser regulatory state, their benefits will be significantly lower as well, as will their unemployment insurance, plant property taxes, plant insurance, energy costs, etc. Carrier’s parent, UTC, has $29B in cash offshore, able to be invested in Mexico, but not able to be invested in the US without a 40% hit. Carrier NOT moving to Mexico would be fiducially irresponsible.

    Autor is quoted in the article rightly saying that Trump’s tariff ideas would not be a solution. However, he did not say anything about his ideas in the podcast to extend new government benefits to the displaced workers, which would also be an anti-trade program. If the same thinking applied to farming, we would still be supporting 48% of the population that has been displaced by automation in farming (while, like manufacturing, output is at record highs).

    Carrier is simply responding to the government policies and disincentives already in place. As an electorate, our choices are responsible for those lost jobs (especially the unionized workers), not Mexico. That does not mean that we are responsible for compensating anyone, those jobs were willingly sacrificed upon the altar of a larger state. To claim that more government programs would fix this problem is nonsense.

    In the article, Autor claims that we “do not have a silver bullet”. But we do: MORE free trade (not 2,000 pages of cronyism like the TPP), lower corporate taxes, lower government spending, and greatly reduced regulations and executive orders.

    rhhardin writes:

    I have a question: don't the gains from trade saturate, once the market is big enough?

    That is, you get more people but the same distribution of talents and tastes, so the same gains would happen in cut-off large markets.

    The biggest gains resource then would be good versus bad government policies across nations.

    Might that not be happening to the US? Bad policies cost jobs especially when a trading partner has good policies.

    Robert Swan writes:

    Like many of the commenters, I think this is a terrific addition to the podcast. In a certain light it could be viewed as the judging panel for the latest contestant in "Russ's Guests Got Talent".

    Maybe it can becoma a fixture for all professional economist guests. Mike Munger might be a worthy addition as the blunt and cruel judge, but who'd get that role when he's the guest?

    Glen writes:

    A future episode should explore the outsourcing of the jobs that require a high degree of education. The obvious cases of such outsourcing are call centers and medical care. A more recent case that's probably less obvious is the outsourcing of engineering and computer programming positions. My employer is actively engaged in some of this activity because we can hire STEM talent in a country like India where the kids have attended top notch universities and yet we can pay them half of what a starting STEM graduate would expect here in the US.

    jw writes:


    A few years ago, an old friend of mine who managed 600 software engineers did a comprehensive study on the effectiveness of outsourcing his staff. At the time, his staff was about 1/3 US and 2/3 Chinese/Indian.

    He found that the issues of turnover, wage inflation (back then, going from 10%-33% of US wages), quality of education and training, communication and management issues and overall output and quality of code greatly favored more US hiring, even at Silicon Valley wages, than more offshoring.

    His management politely told him that it didn't matter, that in order to do business in India and China, they had to continue with offshore hiring.

    So, as traditional free trade theory tells us, this particular protectionist policy by India and China was actually globally damaging to their economies and advantageous to the US.

    But just as in the podcast, that does not mean that there isn't an adverse local effect on programmers in the US, but due to their opportunity and mobility, it would be very hard to measure.

    Michael Lyu writes:

    Hi professor.

    This is a great discussion, and a very timely one. I think aggregate demand can be hurt by trade because of 2 things: 1) redistributive effect of trade, and 2) demand is capped at individual level.

    Here's how I would respond to the argument "if China comes gives American free stuff, Americans now they have more money to spend on other things. This creates other jobs so there's no aggregate job loss over time":

    First - I think "aggregate demand " could decreased because 1) income inequality and 2) demand is not unlimited at the individual level. If you categorize people into 2 groups, the rich and the poor. Demand is capped out for the rich because the rich can only consume so much before they recycle the excess into paper assets. On the other hand we have demand destruction from the poor - who lost their job and are now incurring credit card/auto debt just to survive

    Second - This is not free stuff from China. Americans get stuff and China get's a claim on future American production. Yes, it's also "investment", but most of this is debt investment, not equity. The distinction matters because debt, unlike equity, can result in net negative equity and end up hurting demand at the individual household level

    I'm not an academic and don't have the skills to procure empirical evidence to back this up. I'm sure there are other factors like technology advances, labor force friction..etc like others have mentioned. Still - I would love to see someone respond to my point of limited demand.


    John K writes:

    Russ thanks for the podcast on trade with Autor; It was another in along line of thought provoking episodes you have shared over the years and I am sure this will make the top 10 next year's poll. I have a couple of question from the podcast.
    Has anyone taken the effects of minimum wage and tried to relate them to effects on manufacturing in the US?
    How is the competition from other parts of Southeast Asia and Latin America that China is facing being looked at by Autor? In my field(Supply Chain Management) there is an influx of Korean companies and Japanese companies moving to Mexico. I believe that manufacturing will move over time to maximize total cost, in this case moving closer to the consumer to reduce cost.

    Policy piece at the end I recall a previous podcast where a discussion of bias and how it effect the "science" came to mind. My first thought was similar to what you questioned earlier about government program might reduce the low skill workers motivation which he seem to dismiss. Friedman ideas regarding negative income or even todays EITC seem like better jumping off points, I would even argue a relocation program may have merit.

    Thanks again for the podcast

    Scott Campbell writes:

    Progress is made by standing on the shoulders of giants and the bones of the common man. This podcast verifies that.

    mtipton writes:

    [Comment removed. Please consult our comment policies and check your email for explanation.--Econlib Ed.]

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