Thursday, June 09, 2011

Sacrificing Economic Growth and Job Creation

George Will's column today is about how "President Obama is sacrificing economic growth and job creation in order to placate organized labor.... and enlarge the entitlement system and exacerbate the entitlement mentality."

MP: The issue here is the Free Trade Agreements (FTAs) with Colombia, Panama and S. Korea which are being held up for approval until "Congress expands an entitlement program favored by unions" - the Trade Adjustment Assistance (TAA) program, which provides financial aid (welfare payments) to American workers who lose their jobs due to foreign competition. 

George Will raises another very important issue about how competition and economic dynamism affect the labor market:

"There is this problem with TAA at any level: It is unjust to treat some workers as more entitled than others to protection from the vicissitudes of economic dynamism.

Consider a hypothetical Ralph, who operated Ralph's Diner until an Applebee's and Olive Garden opened in the neighborhood. With economies of scale and national advertising budgets, those two franchises could offer more choices at better prices, so Ralph's Diner went out of business. Should he and his employees be entitled to extra taxpayer subventions because they are casualties of competition? "Why should someone be entitled to such welfare just because he is affected negatively by competition that comes from abroad rather than down the street?

MP: Keep in mind that the Colombian FTA was signed 1,661 days ago in November 2006, and has been languishing ever since awaiting Congressional approval.  Also consider that all three FTAs will provide greater access for American manufacturers to sell manufactured goods overseas, which translates into more jobs in the U.S.  So the real story here is about the power of organized labor to use its political muscle to create a drag on U.S. economic growth and job creation.  

17 Comments:

At 6/09/2011 10:00 AM, Blogger Walt G. said...

I wrote a 28-page research paper on the TAA program three years ago for a public administration class. I came to the same conclusion as Will that the program unfairly only applied to a few people; however, the performance data showed that the ones who were approved did very well in becoming re-employed in a new field. I have a dozen students that are currently in this federal program and many more that are in various other federal and state re-training programs. Here's a relevant paragraph from my report below.

"Critical Analysis of the TAA Program

Due to partisan politics, or possibly in spite of partisan politics, the TAA program has been a success when judged against its performance measurements. That success, however, has been achieved by a limited number of workers whose jobs have been deemed lost to foreign trade by a capricious and arbitrary system. Moreover, the program was designed using past economic models that predicts a return to a semblance of the cyclical job markets of the past. Conversely, new economic forecasts predict a permanently changed business climate where workers who are hired are those who present demonstrable and marketable skills. Federal job training programs and compensation systems must be designed using a 21st century vision that recognizes that the current employment conditions are not just a business “down” cycle. In addition, the program must be made available to all workers and not just a selected few picked solely for partisan political reasons."

 
At 6/09/2011 10:25 AM, Blogger Buddy R Pacifico said...

First, people should not get years of benefits and training, that others don't get when they lose their jobs. Second, Free Trade Agreements are being negociated to eliminate non-tariff barriers, that have been the bulwork of export nations building economies at the expense of the U.S., rather than mutually beneficial.

From the US Trade Representative's 2010 National Trade Estimate Report on Trade Barriers.

Colombia: "The CTPA also includes important disciplines relating to: customs administration and trade facilitation, technical barriers to trade, government procurement, investment, telecommunications,
electronic commerce, intellectual property rights, transparency, and labor and environmental
protection. Under the CTPA, U.S. firms will have better access to Colombia’s services serices than
other World Trade Organization (WTO) Members have under the General Agreement on Trade in Services (GATS).

Korea: "The FTA would address nontariff barriers in a wide range of sectors and includes strong provisions on competition policy, labor and environment, and transparency and regulatory due process."

China and Japan will stay away from signing Free Trade Agreements with the U.S. as long as possible -- because FTAs would eliminate their built in wide moats of non-tariff barriers. Free Trade Agreements offer Americans the opportunities that global trade should provide, and not the managed trade by some of the biggest trading partners.

 
At 6/10/2011 6:38 AM, Blogger geoih said...

Why would you need any treaty to establish free trade? Every country has the power to unilaterally establish free trade by simply eliminating their tariffs. If another country choses to keep their tariffs, that's their business. They are simply punishing their own citizens by making them pay higher prices. This true for any tariff, including our own.

All this free trade talk is just a diversion from what is really going on: state largesse and monopoly protection.

 
At 6/10/2011 7:35 AM, Blogger morganovich said...

geo-

well said.

all these notions of needing reciprocal trade and compensating the "losers" from trade are just political cronyism.

funny how you never hear about protecting the losers (of which there are always more than from trade) of protectionism.

i never seem to get my check for enduring high sugar prices...

 
At 6/10/2011 9:59 AM, Blogger Walt G. said...

geoih and morganovich,

Wars can be averted through trade negotiations/treaties. If you can't talk, you might have to shoot. Are you sure you want to eliminate the bargaining chips?

 
At 6/10/2011 10:55 AM, Blogger Whiskey Jim said...

No measure will ever be taken of how many jobs were outsourced because employers are watching Obama.

Jobs are sticky. Once they are gone, they are likely gone forever unless a calamity occurs at the new location.

 
At 6/10/2011 11:09 AM, Blogger Whiskey Jim said...

Let us take an example:

Before the recession I manage 100 product managers. Now I am down to 50.

Business picks up. Instead of rehiring 50 people, I ask my foreign suppliers to provide the work as part of their product price. In exchange, they can charge me 5% more on the invoice for the product.

Now I avoid administration and regulatory and management headaches in the USA, while enjoying perfectly variable labor cost with no American exposure to legal gibberish.

The win is huge for me and my organization. I did not do it before the recession because I did not want to lay people off.

Notice that economists will never track this transaction. In fact, to the extent it is common practice, import prices will appear to be rising, which is not true.

BTW, this is becoming a more common practice.

In analyzing economic data, I see that it is common to compare time lines and historical rates. A significant issue with this practice is that it ignores the fact that regulation has an incremental effect as it is piled on decade after decade.

It could be argued that low priced debt has substituted for real growth for decades now, because freedom and risk and entrepreneurship for Main St. has been smothered. BTW, venture capital deals are not a proxy measurement.

How many data analyses over time have regression variables in them to account for regulatory burdens at the time of enactment?

 
At 6/10/2011 12:17 PM, Blogger Ron H. said...

Walt G.

"Wars can be averted through trade..."

That much of it is true.

"Are you sure you want to eliminate the bargaining chips?"

The bargaining chips are held by individual actors, not government agents pretending to speak for them.

 
At 6/10/2011 3:09 PM, Blogger Buddy R Pacifico said...

Is it not interesting that some libertarians are not positive about market opening agreements?

 
At 6/10/2011 3:43 PM, Blogger geoih said...

Quote from Buddy R Pacifico: "Is it not interesting that some libertarians are not positive about market opening agreements?"

I'm all for opening more markets, but it has nothing to do with free trade. We can open our market without talking to anybody, and the longer we restrict our own market, the more everybody pays to the special interests that want our market restricted.

 
At 6/10/2011 6:26 PM, Blogger Buddy R Pacifico said...

Is it not interesting, that some libertarians are negative about Free Trade between countries, that is a result of negotiations.

 
At 6/10/2011 8:41 PM, Blogger Ron H. said...

"Is it not interesting, that some libertarians are negative about Free Trade between countries, that is a result of negotiations."

Buddy, countries don't trade, individuals and companies do. Negotiations between countries generally describe how those individuals and companies will be allowed to trade. That isn't really free trade. Elimination of all barriers to trade is free trade, even if it's unilateral.

 
At 6/11/2011 2:13 PM, Blogger Buddy R Pacifico said...

"Elimination of all barriers to trade is free trade, even if it's unilateral."

No, that is a country without trade barriers. Trade between individuals in different countries, without trade barriers, is Free Trade.

 
At 6/11/2011 5:06 PM, Blogger Ron H. said...

"No, that is a country without trade barriers. Trade between individuals in different countries, without trade barriers, is Free Trade."

And that is typically not what you get when so called "free trade agreements" are negotiated between political entities, and that is why libertarians are not positive about them.

Unless both political entities merely agree to keep completely out of any and all transactions between individuals, they are not negotiating free trade.

If I am free to trade or not trade with anyone I wish, for anything I wish, on whatever terms I wish, I am experiencing completely free trade. Conditions imposed ON my counter-party don't change that, any more than conditions imposed BY my counter-party would.

His level of freedom, or lack of it, doesn't limit MY level of freedom. It may limit my opportunities, but not my freedom to pursue them.

If I am free to buy or not buy whatever I wish from a Chinese seller, at a price I agree to, I am engaging in free trade. The fact that the seller may be subsidizing my purchase, due to currency manipulation, doesn't make my experience any less a free trade than if the seller engaged in the transaction without any interference.

Certainly, it might be better if both parties were unrestricted, but it isn't necessary.

Is that any better? Are we just differing on definitions?

 
At 6/12/2011 11:12 AM, Blogger Buddy R Pacifico said...

" Are we just differing on definitions?

Yes, you are assigning Free Trade to your own personal circumstance and not to two parties. Your personal purchase freedom is not Free Trade but rather a manifestation of your freedom. The opening of markets, for more opportunities of free exchange, between between individuals, is Free Trade. What is the result? Even more freedom for you and for your counter-party.

 
At 6/12/2011 8:39 PM, Blogger Ron H. said...

"The opening of markets, for more opportunities of free exchange, between between individuals, is Free Trade. What is the result? Even more freedom for you and for your counter-party."

OK, Buddy, Next time I'll remember that your definition of free trade requires completely bi-lateral free trade, so I won't spend any time figuring out what you mean.

But, do you agree that negotiations between countries don't necessarily result in free trade, unless they are removing all barriers to trade? Perhaps what you describe as "free trade agreements", might more accurately be called "conditional freer trade agreements".

 
At 6/13/2011 1:15 PM, Blogger Buddy R Pacifico said...

"Perhaps what you describe as "free trade agreements", might more accurately be called "conditional freer trade agreements".

Ok, yes, but compared to the managed trade agreements (by export oriented) that exist with some of the biggest trading partners, this is a vast improvement. I think I've just entered a logic cul-de-sac, but I'll bite in the interest of intellectual honesty.

BTW, an example of greater market freedom for you and a counter-party in the pending South Korea Free Trade agreement is:

Your ability to sell a U.S. nameplate and produced vehicle to sn individual in Korea without triggering a gov't audit for that buyer. More markets, more freedom as a result of yes, "freer trade" agreements.

 

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