
How Economic Gobbledygook Divides Us - kawera
http://www.nytimes.com/2016/11/06/magazine/how-economic-gobbledygook-divides-us.html
======
michaelt

      “It’s not free trade, it’s stupid trade,” Donald Trump
      has said during his presidential campaign — a slogan
      that contradicts every tenet of mainstream economics, as
      well as a quarter of a millennium of accumulated
      economic data. [...] if you live in a one-industry town
      and the main workplace has closed, you are unlikely to
      agree with the professional consensus instead of your
      own lived reality of loss and decline.
    

I'm going to be honest: When it comes to economics, I've read several popular
books, and I know what consensus to parrot to sound well informed (Free trade
is a net benefit! Ricardian comparative advantage!) but the truth is I don't
really /understand/ any of that. Not enough to honestly claim I'm convinced by
it.

I'm basically going with what the experts seem to say. If I was living in the
Soviet Union I'm sure I'd be parroting the views of a different set of experts
and saying completely different things with exactly the same conviction.

~~~
conanbatt
I like Milton Friedman's explanation or ideas behind supporting free trade.

[https://www.youtube.com/watch?v=zk3ruapRQZk](https://www.youtube.com/watch?v=zk3ruapRQZk)

Of course, reality and practicality can change the implementation or
feasibility of an idea, but the mere concept of restricted trade being more
economically efficient is non-sensical to me.

As an example, if restricting trade were positive, would you say that it would
be a good policy to restrict trade between states in the US? And then withing
cities? I like one of MF's arguments that restricted trade is what you do to
your enemies in war, or to yourself in peace.

What does happen is that the profits of such movement are globalized, so even
though at world-level its more efficient, there could be locals that dont
profit from it. Free trade increases economic efficiency, but it represents
different people, and it doesnt distribute that wealth in a controlled manner.
Bear in mind that world-wide poverty has decreased at an unprecedented pace
and theres little doubt that it was globalization that catalyzed that.

I also relate this to what Varoufakis speaks about with Greece and Germany:
Greece will never have trade surplus because it's not a productive country
like Germany, and reducing taxes and salaries don't necesarily fix the
problem: but Germany investing in Greece in products and services that serve
Germans can compensate the deficit and maintain economic efficiencies.

That is, what I think the failed promise of free trade is that the gains of
globalization did not benefit a huge part of the population, but if some of
that did then the situation would stabilize.

~~~
RyanZAG
> but the mere concept of restricted trade being more economically efficient
> is non-sensical to me.

If everyone is free trade, and nobody tries to cheat, then free trade is
better for everyone.

However, when you add in state actors, taxation, arbitrage, high speed
trading, and many other real world issues, then non-free trade can be more
efficient if it distributes economic output better.

This is really simple if you stop and look at the individual pieces: if you
have free trade, but your trading partner uses the money they get from
taxation to subsidize weak parts of their economy that you would normally have
an advantage in, then you're going to lose that advantage when businesses in
that area go bankrupt as they can no longer compete. Your trading partner can
then move the subsidy to other businesses and repeat the process until they
have destroyed all of your local business.

Free trade doesn't work if others are cheating and you're doing nothing to
stop them. There are many other cases besides subsidies where free trade can
be easily abused by actors in your own country as well - such as moving their
tax debt to other countries while continuing to operate in your country. Free
trade is a two way street that has to be managed to prevent selfish actions.
Not to say that free trade isn't still the best option, but you have to make
sure both partners in the free trade agreement are working to the benefit of
both partners.

EDIT: Ah, I'm from South Africa so I forgot it's the USA election and this
website is liberal, which means you'll all lose your regular sense and
downvote this post because it appears to support Trump or something. Carry on
then, I'll be back in a few weeks when you guys have calmed down!

~~~
conanbatt
> This is really simple if you stop and look at the individual pieces: if you
> have free trade, but your trading partner uses the money they get from
> taxation to subsidize weak parts of their economy that you would normally
> have an advantage in, then you're going to lose that advantage when
> businesses in that area go bankrupt as they can no longer compete. Your
> trading partner can then move the subsidy to other businesses and repeat the
> process until they have destroyed all of your local business

I think this is one of those fearful arguments that doesnt really represent
reality.

In argentina we export a lot to Brasil, and one thing we export is cars. Lets
suppose that Brasil takes a protective policy and then uses heavy subsidizing
to make car factories and then outcompete argentinian automotors, lets say the
subsidy is so large that cars in Brazil cost half in every single aspect, in
every niche and ever smaller car element(something impossible to cover in
reality).

Yes, the car industry in argentina is toast, but now argentinians can get cars
at _half the price_ thanks to the generosity of the brazilian taxpayer. The
argentinians have become enormously wealthier by such a measure at large.

Not only that but now argentinians as a whole have half a car extra in money
to spend in other services and products, which means that a bunch of other
industries will grow! Argentinians would become much richer.

Lets say that Brasil loved that result (i dont know why, because they
hemorraged money like hell) and repeat that with every single product
argentina builds. IF every single product in argentina ,imported from brasil
costed half, and it effectly replaces everything, it really means that Brasil
is now giving argentina half the PBI of Argentina in subsidy. That is so
unreasonable that it will never happen.

Theres another thought around this topic: that you can destroy an industry,
and then increase your profits later on as a sort of monopoly power to recoupe
the initial investment. IT would never happen that way: the moment prices rise
up, investors would flock again to the argentinian automotive industry and
take those profits away.

What is clear is that brasil would be using its tax payers to give products to
other countries!

~~~
crdoconnor
>Yes, the car industry in argentina is toast, but now argentinians can get
cars at half the price thanks to the generosity of the brazilian taxpayer. The
argentinians have become enormously wealthier by such a measure at large.

Temporarily they do. Once the Argentinian car industry is gone, however, they
can safely jack up prices again knowing that bringing it back will be very,
very hard. That money will leak out of the country, driving down the Argentine
peso, making Argentines poorer overall.

>Theres another thought around this topic: that you can destroy an industry,
and then increase your profits later on as a sort of monopoly power to recoupe
the initial investment. IT would never happen that way: the moment prices rise
up, investors would flock again to the argentinian automotive industry and
take those profits away.

The flagrant gaping hole in your argument is the presumption that you can
build a car industry overnight. It takes decades and requires a _lot_ of
investment. The Japanese government threw a not insignificant portion of its
GDP at its car industry before it even started showing promise.

~~~
conanbatt
Do you have real life examples of a country subsidizing an export to a country
damaging is industry, and then jacking up the prices and get that so called
monopoly profits?

I dont think you will find a subsidy that ended up being a net monetary gain
for the tax payers, let alone a good investment option.

~~~
crdoconnor
US subsidized grain flooded into Mexico after NAFTA driving farmers out of
business. Later the price of grain skyrocketed.

~~~
conanbatt
Grain has international prices, there are lots of grain producing countries. I
doubt it Mexico farming less grain affects prices.

------
crdoconnor
Though he doesn't address it in the article, this story illustrates one reason
why financial language is intentionally obfuscated:

"The traders negotiated a new trade with OCM. It reached a new plane of
creativity. Under the transaction, the offending transaction was canceled at
no cost to OCM. In its place was a new swap. The new transaction was for $600
million. Under the swap, for the next three years, OCM would pay a fixed
dollar amount. The amount was $4 million a month. In return the dealer would
pay OCM an amount calculated according to a complicated formula:

Maximum of [0; NP x {7 x [(LIBOR2 x 1/ LIBOR) – (LIBOR4 x LIBOR-3)]} x days in
the month / 360]

Where

NP = $600 million

LIBOR = 6 month Dollar LIBOR rates

The financial engineering was dazzling. There was just one problem. The
complex equation, if you did the algebra, always equaled zero. The dealer
would never pay OCM anything. OCM would be paying the dealer $4 million each
month for three years. This was the intended effect."

[http://www.minyanville.com/businessmarkets/articles/traders-...](http://www.minyanville.com/businessmarkets/articles/traders-
guns-and-money-libor-satyajit/9/10/2010/id/30021?page=full)

~~~
arethuza
Surely the client in such a deal should be sophisticated enough to do the
calculation themselves and realise that the trade was never going to make them
any money?

~~~
neffy
From the article, the client was facing bankruptcy and would probably have
signed anything that - I´m guessing Goldman Sachs, since apparently none of
the big legal firms was prepared to touch the case - put in front of them.

But even if that wasn´t the case, a lot of finance is essentially "robbery by
math", by people who can do complicated calculations and figure out ways to
route things around the financial system with weird financial instruments,
from people who can´t, and who also have the Donald Duck $ sign in front of
their eyes blinding them.

~~~
maxerickson
For that example the premise would then be that an organization large enough
to throw away $48 million a year is incapable of seeking a sophisticated agent
that will act in the interest of the organization.

Maybe the problem is that such an agent doesn't exist. But if such deals are
really commonplace it's a pretty sweet opportunity for there to be no one
taking advantage of it.

~~~
neffy
Blatant cancelling issues, one would certainly hope so - but the original
structure that got them into trouble was much more problematic. (Similar to
some of the shenanigans within the US btw. that got a few counties into
trouble.)

fwiw - the ability to think through that kind of structure appears to be a lot
commoner in computer scientists and similarly trained engineers, than it does
in economist/finance types - but even there, it´s not exactly common. You have
to be able to juggle inverse foreign exchange relationships against some
knowledge of trading and banking relationships within and between countries,
and project over time. It´s a distributed systems problem if you think it
through - and we all know how easy those are to troubleshoot.

------
soVeryTired
I think I can sympathise with people being distrustful of economics and
finance (I say this as someone who works in the industry). When I read what
economists have to say about free trade, for example, it makes me incredibly
skeptical.

I admit I'm not up to date with the latest graduate-level economic models. But
I have read about Ricardian comparative advantage. When I looked into the
assumptions behind that model, I realised they were utter nonsense. In turn,
that made me reluctant to believe anything else that economists wrote on the
subject.

The same thing happened with banking. The standard macro model where banks
lend out central bank reserves with the overall constraint on credit creation
being 1/(reserve requirement) is kinda-sorta what happens, but the details are
all wrong. As far as I can tell, economists don't want to change the details
of this story because then they have to re-write another part of their theory
(IS/LM), and that forms the keystone of a lot of standard theory.

To summarise, I haven't seen much from academic economics that inspires
confidence. So why should I trust them?

~~~
lmm
> But I have read about Ricardian comparative advantage. When I looked into
> the assumptions behind that model, I realised they were utter nonsense. In
> turn, that made me reluctant to believe anything else that economists wrote
> on the subject.

Could you be more specific? It's a simplistic model sure, but just about every
field of study or industry uses simplified models. As a first-order
approximation it seems reasonable.

~~~
soVeryTired
Sure. (as an aside if anyone can point out how to do proper bullet points I'll
edit). Here's a non-exhaustive list of concerns that occur to me when I read
e.g. the wikipedia page on comparative advantage. I'll happily admit my
ignorance in this field.

1/ What is the nature of comparative advantage? Where does it come from? The
standard explanations point to things like weather, but surely location-
dependent industries are only a tiny fraction of modern economic output.

2/ Is comparative advantage fixed? To the best of my limited knowledge, heavy
industry in the US civil war era was only able to grow because of trade
barriers. If comparative advantage can vary over time, surely that implies a
very different course of action to "specialise in what you're best at right
now".

3/ How does a country automatically know what it is best at producing?

4/ What about cross-pollination of ideas between industries?

5/ What about diversification? Surely putting all your eggs in one industrial
basket is a bad idea? Holland (and now Saudi Arabia, Nigeria, and others)
specialised in oil production, which ultimately had nasty side effects on its
economy. This is known as the Dutch disease.

6/ The usual claim is that "in the long run", everyone benefits. How long is
the long run? How much suffering takes place in the short run? I mean, look
what happened to Detroit.

To address your "simple model" point: yes, many people do argue that "all
models are wrong, but some are useful". If you're going to make that argument,
you need a mechanisim for differentiating between bad and good models. I don't
know of any such mechanism in economics.

I'd be a whole lot happier with a series of detailed ethnographies than with a
mathematical model. Some things are just too complicated for mathematics to
handle.

~~~
lmm
> 3/ How does a country automatically know what it is best at producing?

I know the standard answer to this one: they don't, but they allow the free
market to handle it. Industries which have an advantage in that country will
flourish, those that don't will go bankrupt.

~~~
raj_o
This makes no sense. A person who studies medicine, knows what his comparative
advantage is, or should be. A business that makes springs, knows where to
focus their energy in order to compete. The idea that a country doesn't know
is because a country doesn't have an over-seeing rule-maker (a government)
defining the rules of play.

Outside of a regulatory framework, in modern economics, comparative advantage
won't work. It will be those with the most power (derived from success or
money or something else) will win. Those with the most resources wins. And yes
those who can game the system will win. Otherwise you'd take the 'capital' out
of capitalism. After all, who wouldn't capitalize over the stupidity of
another country that let you take advantage of it?

Outside of natural resources, can you please tell me how an area on this earth
can have an advantage over another area. I am befuddled by this argument for
free trade, in regards to countries.

~~~
snrplfth
The point is that comparative advantage is _discovered_ in the market. I may
think that I'm the best at painting houses - and I may be better than most! -
but in striving for the best gains I can, I may find that my comparative
advantage in doing something else, something I'm more expert in, is greater.
To wit, "what is the best use of my limited time?"

An advantage can come out of any number of things - climate, location relative
to a trade route, particular local demands or preferences, or just
happenstance. As you note, comparative advantage is not just about whole
countries, but also about regions, companies, and individuals - so that it's
not just about an "area of earth" but about the variety of things that happen
in each place. Comparative advantage is an argument that trade makes people
(regions, cities, etc.) better off even if they have nothing they are the
_best_ at.

~~~
sprafa
Markets and governments are necessarily linked. So even though you might
"think" you are no good at painting houses, because you can't compete with
foreign labor, actually what's happening is that their government has figured
there is a huge multiplier for them to capture all the house painting work in
your country, and therefore, they subsidise and protect their own house
painters and help them in any they can. So that they can eventually force you
out of the market. See China on consumer electronics, solar panels, etc.

And if you say "but the perfect market wouldn't have any subsidies or aids"
then you are living in a fantasy world made up by economists! They don't even
have to subsidise, all they need to do is make it slightly easier for house
painters to do their work there than anywhere else in the World, by easing
legislation and lowering taxes. They will outcompete you just by following
less laws and regulations and paying less tax. Because everyone ever has
agreed that laws and tax should exist, you need to explain how "perfect"
markets will ever exist. Again, look into China and it's the exact same thing.
They don't need subsidies, they create Special Economic Zones.

Anyway the idea that markets exist separate from governments is a fiction made
up by economists. See "Debt the first 5000 years" on a description of how
anthropologists have found that actually, the most common origin of a market
is government intervention.

~~~
snrplfth
Well, I disagree with David Graeber on the very nature of money and exchange,
so take that as you will. I'm well aware of the argument though.

I don't think most economists have ever argued that markets exist outside
frameworks of property rights and rules of trade. And while these things have
often been _laid out_ by governments, it does not necessarily mean that they
always are, or always must be (where we take "government" to signify a
usually-geographically-bounded entity with the monopoly of force.) Just the
same, money has often been issued by governments, but does not necessarily
mean that only governments can issue or create money. Markets exist wherever
trade exists, and are shaped by governments - sometimes well, sometimes badly,
and always within certain constraints of reality.

As pertains to the supposed advantage of government support of industry - take
a closer look at China. The most dynamic sectors of the economy there - in
assembly and manufacturing - have been the least directly subsidized and
encouraged. The big State Owned Enterprises, in steel, concrete, and other
heavy industry insulated from competition, are the most saddled with debt and
are not innovative and dynamic. The main effect of their subsidy to these
industries is philanthropize everybody's consumption of their products. Sucks
for the Chinese taxpayer, but everyone else gets cut-price goods. And you'll
note that, even after getting "pseudo-monopolies" on various economic sectors,
prices in those sectors have kept falling. The "drive-out-competitors-then-
raise-prices" drama never seems to appear - and it's no surprise, because
these companies are competing with _each other_.

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

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

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

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

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

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

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

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

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

On the free movement of capital, one notes that the US, for example, has a
large "trade deficit". But what does this mean? Essentially, that US consumers
are net exporters of dollars in trade for foreign goods. But where do these
dollars go? Well, they come to the US as part of "capital account surplus" \-
that is, the movement of capital investment into the US. While the immediate
impression is of "industry moving overseas", the US is in fact an enormous net
_destination_ of capital investment. (
[http://3.bp.blogspot.com/_otfwl2zc6Qc/TMybFmTdp1I/AAAAAAAAOm...](http://3.bp.blogspot.com/_otfwl2zc6Qc/TMybFmTdp1I/AAAAAAAAOmc/UL33SjiWSOg/s1600/bop.jpg))
If they restricted the movement of capital, it would mean shutting out
incoming capital investment, not keeping it from leaving.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

~~~
snrplfth
Picketty's work is generally about wealth inequality moreso. He asserts that
the returns on capital investment exceed the average growth of the economy at
large, and that therefore the share of wealth going to the top of the wealth
scale will continuously increase. Others point out that this increase is
relatively small, happening only in a few countries, and also happened in the
context of a historic bubble in real estate and securities. They also point
out that this does not count wealth such as government pensions and health
insurance, or human capital like education and training (which in a services
economy is quite significant.)

As to _losing_ purchasing power, I would more prudently say "relative
stagnation". Here's before-tax incomes, adjusted for inflation, for the top 1%
and bottom 20%: ([http://inequality.org/wp-
content/uploads/2014/10/Figure-8-e1...](http://inequality.org/wp-
content/uploads/2014/10/Figure-8-e1455724364778.png)) It's not that the
majority have seen real declines in purchasing power in most areas, it's just
that they have seen relatively less growth than the richest - but this is
unsurprising in a rapidly growing, globalizing world. Inequality certainly
chafes a lot of people - but it's not quite the same as declining real
incomes. (You can also see how tied to asset valuations the top 1%'s incomes
are - the dot-com bust and the 2008-2010 recession are quite visible.)

Edit: Here's the same sort of graph for the whole income spread:
[http://inequality.org/wp-
content/uploads/2014/10/Figure-9-e1...](http://inequality.org/wp-
content/uploads/2014/10/Figure-9-e1455724425470.png)

~~~
sprafa
Alright that's new to me. I was under the impression that real wages were
falling, not stagnating. Still, most of the population is stagnated, but the
top 1% are getting an increasing share of economic growth: That graph shows an
increasingly escalating sine wave of returns going up to the top 1% of the
population. On some years, like pre-2008, the returns on the top 1% go all the
way to 300%. That's crazy.

On top of that, it's making people angry, for very good reason, because if you
look into behavioural economics and psychology, we have an innate sense of
fairness that's being violated. And the social contract that maintains
democracy includes the idea of fair work, fair rewards.

It seems like you regard this sort of outcome, of massive income inequality
and stagnating wages, as inevitable, or neutral. I don't and many other people
don't. They're angry about it and they're voting for Trump, or fighting for
higher minimun wages, or unionizing. And historically those things (political
change, collective bargaining) have in fact ended up giving higher percentage
of the profits to the workers and citizens involved in the manufacturing of
the products that are making so much money for capital. This is exactly what
global trade is destroying, and people are getting increasingly angry.

Look, I just think you need to reconsider, globally, the psychological effect
this sort of thing has on the population. Since 1973 the median wage has grown
at a 0.2 percent annual rate. 0.2 percent! And the return is slowing down
since 2000.

Source: [https://thinkprogress.org/wages-have-been-stagnant-
for-40-ye...](https://thinkprogress.org/wages-have-been-stagnant-for-40-years-
but-its-not-the-fault-of-american-workers-ede9b2133989#.p1lf86g3t)

~~~
snrplfth
Just a few concluding notes here on my end:

Yes, I understand why people are angry. People get angry about all number of
thigs, more or less justifiably.

The problem is that most of the cures being proffered for this percieved
unfairness _will not solve the problem_. To reduce the disparity between the
wealthiest and the rest, are people talking about, you know, ending mortgage
and property tax deductions, liberalizing the education sector, permitting
more housebuilding, ending moral-hazard-generating bailouts of companies and
banks? A little, but hardly. What you hear is that the "people" want tariffs
(impacting the poorest, who disproportionately consume cheap imports), higher
minimum wages (which slightly raise the incomes of some workers, at the
expense of making youth, people with minimal educations, ex-prisoners and the
disabled unemployable), and trade unionization (which benefit those in the
union, but those shut out of the union scarcely at all.)

I'll also note that this era of stagnation for the developed-world middle
class has also coincided with a huge growth in the incomes of most of the rest
of the world - these are not totally unconnected. Sure, we can be nationalists
about it, but there are big benefits to the rest of the world from
globalization.

I think there are sensible ways to diminish these income disparities. But I
don't really that many people advocating for them - mostly I hear the old
protectionist mantras, and I just do not agree with that.

------
dominotw
Hard to find a Trump free article on nytimes these days. I wonder if its a
staff mandate at nytimes to somehow pencil in trump stuff in every article.

~~~
trendia
Maybe it's the cause (or result) of their 95% drop in profit last quarter.

~~~
sanderjd
Or the simpler explanation of there being an election _tomorrow_? It would be
pretty surprising if newspapers in the US weren't spending most of their
inches on the election right now...

~~~
dominotw
>Or the simpler explanation of there being an election tomorrow?

There are 2 candidates this election.

------
m52go
I highly recommend Economics In One Lesson by Henry Hazlitt.

Comprehensive economics 101 in simple language, probably middle-school level.

~~~
eli_gottlieb
How can it be right if it's middle-school level?

~~~
snrplfth
How can a textbook saying "the planets and asteroids orbit around the sun" be
right if it's middle-school level? Or one saying "life is generally divided
into five kingdoms" be right if it's middle-school level? In each case,
there's some added detail and complications ("actually they orbit the
'barycentre' of both bodies", "viruses are hard to categorize, and some
lifeforms are obligate symbiotes") but the essential facts and basic logic of
the theory is there.

------
swiftisthebest
We aren't mad at the experts. We just think they're navel-gazing, self-
important idiots.

~~~
Balgair
Hey! That is totally not true! I have seen them look at their arm hairs on
occasion.

------
zacharytelschow
Huh. I thought it was the much more simple argument of: "Everyone needs to
contribute because we're in this together, you're selfish for wanting what you
produce" vs "half the country doesn't pay for anything and government is
wasteful" argument that was dividing us. I'm glad to hear it's the complexity
of the arguments, not the core viewpoints they represent, that are the source
all the bitterness and ugliness we face.

~~~
sanderjd
I suspect neither side sees their argument in your simplified summaries (I
certainly don't see my viewpoint in either of those), which is sort of the
point.

------
csense
One of the things that many economic experts agree on is that "deflation =
bad", if things will cost less tomorrow and people realize it today, then
nobody will ever spend anything and the entire economy will be hosed.

In the computer industry, deflation is one of the facts of life for many
decades -- just about anything, e.g. gigahertz, gigabytes, cores, etc. will
cost less tomorrow, and people realize it today. So the economic theory says
that due to having been in the grips of deflation for many decades, the
computer industry should be a barren wasteland with almost no investment,
employment, or opportunity because no sane investor would ever spend any money
on anything because their money would be able to get more of what they would
have spent it on if they're just patient.

This is one thing that makes me very skeptical of the experts. Of course the
following passage also succinctly describes my experiences having grown up in
the Rust Belt:

> if you live in a one-industry town and the main workplace has closed, you
> are unlikely to agree with the professional consensus instead of your own
> lived reality of loss and decline.

------
tim333
The problem is deeper than Gobbledygook - Economics is just kind of
complicated and sometimes counterintuitive when you get into it regardless of
the language.

Things like that in a recession it is sensible for individuals to cut spending
but it can make sense for the government to borrow and run deficits just go
past most people. I'm not quite sure what the answer is.

------
MisterBastahrd
The average economic education in the US is so poor that there's an entire
political movement predicated on the fears that people have that the US will
be unable to service its debts. They actually think that the national debt is
the same thing as personal debt.

