Tired of economists’ misdirection on globalization

An interesting story in the New York Times this morning looks at the effect that job losses from trade have had on people’s political views. It’s no surprise that voters on the losing end of globalization are disenchanted with the political mainstream, as the Times puts it. They have every right to be.

But I’m tired of hearing from economists about the failure to support workers dislocated by globalization as a cause of anger and the policy action the elite somehow mistakenly forgot. Ignoring the losers was deliberate. In 1981, our vigorous trade adjustment assistance (TAA) program was one of the first things Reagan attacked, cutting its weekly compensation payments from a 70 percent replacement rate down to 50 percent. Currently, in a dozen states, unemployment insurance—the most basic safety net for workers—is being unraveled by the elites. Only about one unemployed person in four receives unemployment compensation today.

I’m also getting tired of hearing that job losses from trade are the result of the U.S. economy “not adjusting to a shock.” Trade theory tells us that globalization’s impact is much greater on the wages of all non-college grads (who are between two-thirds and three-quarters of the workforce, depending on the year), not just a few dislocated manufacturing workers. The damage is widespread, not concentrated among a few. Trade theory says the result is a permanent, not temporary, lowering of wages of all “unskilled” workers. You can’t adjust a dislocated worker to an equivalent job if good jobs are not being created and wages for the majority are being suppressed. Let’s not pretend.

The winners have never tried to fully compensate the losers, so let’s stop claiming that trade benefits us all. Globalization is one of several policy actions that has suppressed wage growth in recent decades. We would have better been able to weather its impact if we had better overall policies to support wages and workers and their families. Dani Rodrik has been saying this for decades.  If free-traders had actually cared about the working class they could have supported a full range of policies to support robust wage growth: full employment, collective bargaining, high labor standards, a robust minimum wage, and so on. They could have strengthened social insurance. And they could have done all that before administering “shocks” by expanding trade with low-wage countries. But they didn’t, and still won’t. Elites on both sides of the aisle have never even sought to restore TAA after the GOP assault. These economists do not really have a clue as to what has damaged working families, nor do they acknowledge the extent these families have been betrayed by a bipartisan elite crowd for which many economists provide intellectual cover.

(Please also read Josh Bivens, Jared Bernstein, and Jeff Faux on these matters.)