US Trade Deficits and Blue Collar Jobs
I looks as if I might disagree with Paul Krugman for barely more than once. I admit I am following Brad DeLong (and also that I surfed there from Kevin Drum).
The discussion is over what hurt blue collar US workers, automation, China or two recessions.
Yang says it is automation. Krugman disagrees in a tweet thread noting that productivity growth has been slow (I do absolutely agree with Krugman that Twitter is horrible and that blogs are better).
I will fair use with abandon
OK, it seems mean to pick on Andrew Yang, who won’t even be a factor in the nomination. But he positions himself as the tech guy who knows how the world really works, and there are others like him. So maybe worth pointing out that they’re all wrong 1/
Yang’s thing is that automation is destroying all the jobs, so we need universal basic income. There is a case for UBI (and a case against, in favor of more targeted aid), but either way the premise is wrong. Productivity has been slowing down, not speeding up 2/
Here we have Yang focused on manufacturing and Krugman on the whole economy. Total labor productivity has a lot to do with where people are working and poorly measured production of health care (and education) matters a lot. However, the post great recession slowdowns are similar
The troubles of the very troubling past decade are not due to rampant revolutionary robots.
Krugman argues against Yang (and 1990s Krugman) that trade was very important. But there is an odd shift in time frames. The productivity slowdown noted in tweet 2 is post 2008, the next tweet discusses 2000-2005
And while Yang asserts that automation destroyed lots of manufacturing in the midwest, you don’t have to be a protectionist to realize that the acceleration of job loss after 2000 was mainly about the surging trade deficit 3/
“after 2000” is doing a lot of work here. First the figure shows a non agricultural non oil goods trade deficit surging from 1991 through 2005. In contrast the declines in manufacturing employment are 2000-2003 then 2008q1-2010q2. The raw correlation looks low.
By the way, Brad also has the very smart (as usual) point that blue collar jobs include transportation, construction, and mining (and really wholesale trade) and import competition specifically affects manufacturing (just click the link).
Largely Krugman is assuming his twitter followers understand the effects of the business cycle with high demand causing high employment and large trade deficits and recessions causing reduced employment and trade deficits. He looks at the graph and takes out the dot.com boom, the mini recession, the housing boom and the great recession. Brad and Drum take him to task for this, saying the main problem is aggregate demand. I don’t think Krugman really disagrees with that at all. He just assumes that anyone who looks at his second figure sees dramatic decline in manufacturing employment and increasing trade deficits 2000-2018 somewhat obscured by the business cycle.
But Krugman does have trouble with his little graph. First, since 2007, the non oil non agricultural merchandise trade deficit hasn’t surged. It went from 4% if GDP to 4% of GDP. “after 2000” must mean “fairly soon after 2000 but, by now, a long time ago”. Second, the productivity slowdown (noted in tweet 2) is totally after the deficit surge ended — from 2007 to now. In the years soon after 2000, there were two anomalies (much discussed by one Paul Krugman) a recovery with actually declining employment (job loss recovery after the jobless recovery and before the job lust recovery and I fear to think of the alphabetically following Job Lys tears recovery). The second was the extremely high growth of productivity in a fairly slack economy. Those years fit Yang’s story, about automation.
Then there are the great recession and the sluggish recovery. The US has seen stable non oil non agg. merchandise trade deficits, slow productivity growth (also in manufacturing) and an overall decline of manufacturing employment (of about 12%). That sure looks like a period of slack demand and extraordinarily slow growth for a US decade. Since 2007 US GDP detached from the exponential trend it had followed for a century (actually rather more than the shortfall 1929-1941, but I think even more 2007-2017 than 1929-1939). That is, as Kevin and Brad note (and as Krugman has noted again and again) clearly a matter of horrible macro policy (much less horrible than over here).
I’d say overall, the trade and manufacturing employment evidence is pretty weak. The China shock had dramatic effects on some factory towns, but it doesn’t show up very clearly in national data. Something very strange was happening 2000-2005. I didn’t understand it then and I don’t understand it now. Then from 2007 through 2016 (maybe) there was very slack demand largely due to low housing investment and low government investment. It doesn’t seem to have had all that much to do with robots, Chinese people, or even Chinese robots.
Ok, this is a rehash of something written at EPI in 2015 and the wording is similar.
1. You do not need productivity improvements (AI, robots, etc.) to increase output. You can rearrange a factory layout and use same old same old to improve throughput thereby increasing productivity.
2. You can change how they plan production making the factory more flexible and deliver on time. Cut lot sizes for example (Toyota Production System, Yasuhiro Monden, also me).
3. You can look at your A and B items and run them more frequently and cut inventory of them to run C, D, and E items.
I did prove to one company they wasted $millions on a new plant by not changing how they scheduled. Onward.
This will support your contention.
I am going to C & P the rest as I do not want to interpret. Sorry for my laziness.
The numbers at the end of some sentences point to End Notes.
Manufacturing Job Loss: Trade, Not Productivity, Is the Culprit, EPI, Robert E. Scott, August 11, 2015
There is more to this than what I have placed in comments here. Follow the link. Maybe I am missing a citation in yours, Brads or Drum’s words somewhere which would not be unusual for me. Forgot something:
“The leading cause of growing U.S. trade deficits is currency manipulation, which distorts trade flows by artificially lowering the cost of U.S. imports and raising the cost of U.S. exports. More than 20 countries, led by China, have been spending about $1 trillion per year buying foreign assets to artificially suppress the value of their currencies (Bergsten and Gagnon 2012). Ending currency manipulation can create between 2.3 million and 5.8 million jobs for working Americans, and about 40 percent of those jobs (between 891,500 and 2.3 million) would be in manufacturing (Scott 2014).”
This is exacting what China is going to do to the US now.
During the recession, companies really upped automation and computerization in aggregate, especially related in the auto industry, represented the final stages of the tech boom and its productivity surge for that matter.
Then we have the losses in some material extraction jobs, but they were long coming. Currency manipulation is a pure cop out. Nor are those jobs possible to be created. Why? Because the US overspends. Without that debt expansion, there are not jobs to be had. Which includes millions of service sector positions. Lets don’t be lazy and not understand what is going on. Robert E Scott doesn’t get it.
The numbers Brad, Robert W, and Robert S. are factual and supported. China today is indeed doing this to get back at the US. China has always had a manipulator currency issue with regards, the $dollar. What Scott has said is one of several points he made.
I’m not expert at understanding how the national accounts work. I know that if a corporation fires its entire manufacturing staff and outsources its manufacturing, its revenue would remain unchanged. I would think that with fewer workers producing the same goods, corporate productivity would rise. This would be good for the owners of the corporation and higher level employees.
The former workers, however, don’t disappear. Odds are that most of them will take lower paying, less productive jobs. If many companies are outsourcing, there will be no comparable replacement jobs, and there is a growing workforce competing for those lower paying, less productive jobs which would keep wages soft. Even if more of those lower paying, less productive jobs are being created, they have a small multiplier, so they are unlikely to seriously increase overall output.
What would I see in the national accounts? Those new jobs are low paying and low productivity. I’d expect to see an increase in overall output, but a modest one. I’d expect to see limited job creation. I’d expect see overall productivity stagnant or falling. I’d expect see stagnant or falling wages. I’d expect to see economic growth slowing overall.
Of course, I’m not expert in this area. This should be basic accounting. Is there someone more expert than I on the national accounts who can explain how this actually works?
It is not Labor, it is the Overhead associated with Labor and the operation of a business. The worst day ever for quality of air in Shanghai, I was there sucking it in like I might do in Tianjin or Beijing also. That is one case of comparative advantage over the US. To my point, China always set their currency to a numeric to give themselves an advantage.
Run, you still don’t get it. They don’t have any support because they don’t adjust US spending down. They keep it constant. He is full of it and pretty much admitted it to me after I blasted him on the issue.
Of course you did, citation.