July 16, 2007

Foreign Affairs - A New Deal for Globalization - Kenneth F. Scheve and Matthew J. Slaughter

This is a worthwhile article that attempts to reconcile the gulf between pro-globalization elites and the growing reaction against globalization by the large number of Americans who have found their livelihoods and futures slipping. (here is a typcial stat, from this article: "from 1966 to 2001, the median pretax inflation-adjusted wage and salary income grew just 11 percent -- versus 58 percent for incomes in the 90th percentile and 121 percent for those in the 99th percentile." Translation: free trade is the rich get richer plan)

Rather than continue with the free trade fundamentalism so evident in elite circles in US business and politics, and rather than embrace the reactionary protectionism of some, the authors contend (inevitably, one guesses) that there is a third path that is sensitive to the problems of free trade but cognizant of its many advantages. Worth a read.

Foreign Affairs - A New Deal for Globalization - Kenneth F. Scheve and Matthew J. Slaughter: "THE ROOTS OF PROTECTIONISM

The fundamental explanation is much simpler: policy is becoming more protectionist because the public is becoming more protectionist, and the public is becoming more protectionist because incomes are stagnating or falling. The integration of the world economy has boosted productivity and wealth creation in the United States and much of the rest of the world. But within many countries, and certainly within the United States, the benefits of this integration have been unevenly distributed -- and this fact is increasingly being recognized. Individuals are asking themselves, 'Is globalization good for me?' and, in a growing number of cases, arriving at the conclusion that it is not.

This account of rising protectionism depends on two key facts. First, there is a strong link between individuals' labor-market interests and their policy opinions about globalization. Second, in the past several years labor-market outcomes have become worse for many more Americans -- and globalization is plausibly part of the reason for this poor performance."

Research on polling data shows that opinions about trade, FDI, and immigration are closely correlated to skill and educational levels. Less skilled Americans -- who make up the majority of the U.S. labor force -- have long led opposition to open borders. Workers with only high school educations are almost twice as likely to support protectionist policies as workers with college educations are....


Of workers in seven educational categories -- high school dropout, high school graduate, some college, college graduate, nonprofessional master's, Ph.D., and M.B.A./J.D./M.D. -- only those in the last two categories, with doctorates or professional graduate degrees, experienced any growth in mean real money earnings between 2000 and 2005. Workers in these two categories comprised only 3.4 percent of the labor force in 2005, meaning that more than 96 percent of U.S. workers are in educational groups for which average money earnings have fallen. In contrast to in earlier decades, since 2000 even college graduates and those with nonprofessional master's degrees -- 29 percent of workers in 2005 -- suffered declines in mean real money earnings.

The astonishing skewness of U.S. income growth is evident in the analysis of other measures as well. The growth in total income reported on tax returns has been extremely concentrated in recent years: the share of national income accounted for by the top one percent of earners reached 21.8 percent in 2005 -- a level not seen since 1928. In addition to high labor earnings, income growth at the top is being driven by corporate profits, which are at nearly 50-year highs as a share of national income and which accrue mainly to those with high labor earnings. The basic fact is clear: the benefits of strong productivity growth in the past several years have gone largely to a small set of highly skilled, highly compensated workers.

Their description of the problem is interesting, but their solution is totally inadequtae and quite alarmingly stupid. The authors want to use tax policy to redistribute income.

A New Deal for globalization would combine further trade and investment liberalization with eliminating the full payroll tax for all workers earning below the national median.

The obvious solution is to keep jobs here. This tax idea is just more of the same, a salve over the race to the bottom. This has been the accelerant of globalization all along. As jobs disappear, the workers are bought off with cheap goods. As more jobs disappear, the discontent is siphoned off with mountains and mountains of ever-cheaper shit made by the slaves of Asia. Now, the elite vested in globalization say the key is to lower taxes on the lowered incomes of the working poor....so they can buy more of the cheap stuff.

The solution, friends, is to bring the jobs back to this country. This way, people who have little but their labor to sell can make a decent living and theoretically work their families up the foodchain, as generations have done. Making a permanently impoverished class that feels like impoverished because their taxes are low is not the way to solve the probem.

Solving the problem is the way to solve the problem. Solving the problem means keeping the jobs in this country and not fooling ourselves that destroying future opportunity for the working class of this country can be papered over with tax credits.

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