Some Random Thoughts on Globalization/Free Trade.

With free trade, there are always winners and losers. Until about twenty years ago, that wasn’t a big deal here in the US… the losers were generally foreigners. It’s a big deal now because Americans are losing their jobs, or seeing their standards of living fall. What’s changed? (1) The US adopted new technologies/tools/methods far enough in advance of other countries, but these things diffuse much more quickly today. (2) Many jobs were protected from foreign competition. The number of jobs that could be exported were much smaller.

The US has collectively shot itself in the foot when it comes to education. The quality of US education relative to that of other countries seems to have been slowly deteriorating. US graduate schools still seem to be considered the best, but its certainly not true of undergraduate or high school. I remember in grad school… I don’t know precisely what percentage of students that started the program didn’t get complete their Ph.D., but I would estimate it at 50%. Whatever that fraction was, it was much worse for Americans. Why? Because we simply were not as prepared. Period. I remember in week one seeing things for the first time that my Mexican roommate (also in the program) had taken an entire year’s worth of coursework in. It happened repeatedly, on a number of topics. And not just with my Mexican roommate. My Danish, German, Swiss, Japanese, Chinese, Korean, Peruvian, Argentine, Brazilian, Chilean, Uruguayan, etc., classmates, all seemed to be a heck of a lot better prepared than I was, and I was one of the few Americans that survived the program. And by the way, in most cases, we’re talking folks who graduated from public schools abroad, so it sure as heck isn’t a function of public versus private education.

In terms of education, we’re collectively shooting ourselves in the foot more and more. Math now is something to be feared. That might not have been a problem in times past, but these days so much data is available on the internet that someone who is afraid to look at data is simply going to be at a disadvantage. And why/how can anyone think there’s a difference between creativity and science and/or math? It doesn’t mean we all have to be mathematicians, but it helps to be literate. And WTF is creationism? (And this is not a knock on religion. There are plenty of religious people out there that nevertheless don’t have much of a problem with science.) I realize that GW thinks we should “teach the controversy” but what exactly is the controversy?

I’ve noted elsewhere – I’m conceptually in favor of free trade. I’m against it if its just being used as a way to facilitate the imposition of externalities onto third parties. For example, if a company is moving to Mexico simply to take advantage of laxer pollution enforcement, I’m against it.

What about the losers in free trade? As noted earlier, people in the US tended to be the winners in free trade for many decades. Hence, the fact that compensation for those who lost out were minimal (unemployment compensation, welfare, etc.) was not a big problem. Now, it is becoming a problem. Maybe its time to revisit the compensation issue.

Why are some of the fastest growing countries (China, Vietnam) run by Communist parties?

Healthcare costs are clearly contributing to the lack of US competitiveness. Something I’ve mentioned on another post… I noticed, in graduate school, when the wives of my male Latin American classmates got pregnant, they usually went back to their home country to have the child. (I don’t remember any female foreign students getting pregnant, nor the wives of non-Latin Americans getting pregnant. But among Latin American students, there was a population explosion during the five years I was there.) Now, these were people that had insurance both at home and abroad. And in every single case, they went back to Mexico or Peru or Argentina to have the kid. It told me something about the much vaunted US healthcare system.

When I was in school, I remember watching “Free to Choose.” Its been half my lifetime ago, so my memory is dim, but as I recall, Milton Friedman noted that there was no reason to be concerned over a trade deficit – in fact, it was a good thing. After all, the Japanese sent us boomboxes and watches and cars, and we sent them little green pieces of paper. Clearly, the Japanese were the ones getting the raw end of the stick. Frankly, if my memory is correct, I think Uncle Milt was a bit blasé about the obligation those green pieces of paper represented, but that’s a topic for another day. I would note… the loss in value of the dollar means we’re getting a lot fewer things from them foreigner people than we used to. And it doesn’t seem to have helped US competitiveness. What happens if them foreigner people realize that there is no particular reason to think of the dollar as being specialer (to use a term that no doubt GW will think up some day) than some other currency? Its happened before… at one time, the pound sterling was the most specialer currency out there. As the English economy became less specialer, their currency followed suit.

I don’t think there’s an easy solution out there to the plight of the average American. When I was growing up, it was illegal to import electronic equipment into most South American countries. If they caught you at it, you paid a 200% tariff, even for things like calculators. The goal was to foster the domestic industry, especially the computer industry. The end result was that South Americans were stuck with lousier, more expensive computers than were available in the US. Eventually, it was so damaging to other industries that needed computers that the policy was scrapped.