Krugman on those lost rust belt jobs

Here’s Paul Krugman:

Donald Trump won the electoral college at least in part by promising to bring coal jobs back to Appalachia and manufacturing jobs back to the Rust Belt. Neither promise can be honored – for the most part we’re talking about jobs lost, not to unfair foreign competition, but to technological change. But a funny thing happens when people like me try to point that out: we get enraged responses from economists who feel an affinity for the working people of the afflicted regions – responses that assume that trying to do the numbers must reflect contempt for regional cultures, or something.

I’ve made this same argument in a half dozen recent posts over at Econlog. And I also get people complaining that I have no empathy for the adversely affected workers.

I promote neoliberal policies precisely because they are good for the working class.

PS.  I believe that readers will find my new Econlog post to be of interest.


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46 Responses to “Krugman on those lost rust belt jobs”

  1. Gravatar of Benny Lava Benny Lava
    20. December 2016 at 07:53

    I’ve long proposed we implement some sort of amelioration program for regions that we know will be hurt by trade deals. I guess it is sorta too late now but we know reducing the trade barriers with Japan will crush places like upstate New York where Kodac lived or Detroit. Some sort of relocation or jobs retraining program.

    Shit I still feel that way. I mean wouldn’t everyone be better off if we created a fund that buys out everyone in the city of Flint? Cut everyone a check for 100k and unincorporate the city. Let everyone move someplace better and call it a day. Tyler Cowan talks of ZMP people but what about ZMP places?

  2. Gravatar of flow5 flow5
    20. December 2016 at 08:19

    http://www.nakedcapitalism.com/2016/12/cnn-hosts-attempt-to-explain-the-u-s-economy-was-so-bad-i-started-yelling-at-the-tv.html

    Check this out:

    by Lambert Strether

    Fact #1: Germany uses the most advanced technologies in the world.
    Fact #2: Manufacturing workers in Germany earn much more than their U.S. counterparts: 44.7% more in textiles, 44.6% more in chemicals, 34.2% more in machine tools, and 66.9% more in the automobile industry.
    Fact #3: Manufacturing jobs make up 22% of the German workforce and account for 21% of the GDP. U.S. manufacturing jobs make up only 11% of our workforce and only 13% of our GDP.
    Fact #4: The economic gods either speak German or the Germans are doing things differently from their U.S counterparts.
    Rather than divine intervention, German manufacturing depends on producing high-quality products that are so good people the world over are willing to pay a premium for them. The most sought-after, high-end motor vehicles (Mercedes, BMW, Audi) and kitchen appliances (Bosch, Miele) are produced by German companies using highly trained, well-paid workers and the most advanced technologies.
    The German manufacturing juggernaut depends on vast investments in innovation (by their government), in research and development (by their firms), and in worker education and training (by both the government and the firms).

    The whole article is worth reading.

  3. Gravatar of Don Geddis Don Geddis
    20. December 2016 at 09:07

    @Benny Lava: “regions that we know will be hurt by trade deals

    Did you somehow miss that the whole point of both (!) Krugman and Sumner is that the coal and manufacturing jobs were not, in fact, hurt by any trade deal?

    I’ve long proposed we implement some sort of amelioration program

    Does it matter at all to you, that you’re trying to suggest a policy fix based on a false economic theory?

  4. Gravatar of E. Harding E. Harding
    20. December 2016 at 09:45

    “Neither promise can be honored – for the most part we’re talking about jobs lost, not to unfair foreign competition, but to technological change.”

    -What do you guys know about technology? Yes, many, perhaps most, of the manufacturing jobs lost since the early 1970s can be brought back, even if their losses were mostly due to technological change (which I am uncertain of). Look at North Korea. It still has its manufacturing jobs. Only questions about this should be “how?” and “is the method proposed a good idea, even if effective?”. But don’t pretend it can’t happen.

  5. Gravatar of Randomize Randomize
    20. December 2016 at 09:45

    @Benny,

    I’ve pondered the same solution for other self-inflicted crises we’ve brought on towns. There’s been a lot of talk in the Northwest about the town of Colstrip, Montanan, where the region’s largest coal power plant is likely to be shut down in the next decade. It’s a town of about 2,500 people that’s entirely dependent on the mine and power plant. There’s been so much hemming and hawing in the legislatures about how this shut down will destroy the town but, like you say, why not just cut them all a check as a moving subsidy and call it good?

  6. Gravatar of Typhoon Jim Typhoon Jim
    20. December 2016 at 10:25

    The people in that place would have to by and large consent.

    It took decades to get people out of a town with a never ending coal fire under it, and plenty of those people left feet first.

  7. Gravatar of Benny Lava Benny Lava
    20. December 2016 at 11:13

    @Don

    “Did you somehow miss that the whole point of both (!) Krugman and Sumner is that the coal and manufacturing jobs were not, in fact, hurt by any trade deal?”

    Sure coal jobs weren’t hurt by trade. I didn’t say they were. But certainly some manufacturing towns were hurt by free trade. When Whirlpool outsources manufacturing and shutters a plant in Iowa or Michigan and sets up production in China or Mexico it hurts one small town even though the region is better off. Sometimes I wish you zealots stopped to think and read sometimes.

  8. Gravatar of Massimo Heitor Massimo Heitor
    20. December 2016 at 12:21

    @sumner

    “I’ve made this same argument in a half dozen recent posts over at Econlog.”

    You just don’t get it. Your narrow points are correct: The obsolete jobs of the past aren’t coming back and leaders shouldn’t try to change that. More Carrier deals are not a good direction. I agree with Sumner on those narrow points.

    However, the culture war is a much bigger factor. A full throated culture war against the white working class isn’t in their interests. Demonizing their past, their ancestors, their history, having top leadership champion the Black Lives Matters racial movement, endorsing attacks on any symbols of whiteness across the university system, and incorporating this racially charged culture war into federal housing, education, immigration, and even health care, while constantly hammering a rhetoric that frames their demographic as a “fossilized, supposedly crude, illiberal, and soon-to-be-displaced white working class” is not in their interests.

    And while Sumner definitely never endorsed the left’s culture war against the white working class and even quietly agrees to objections, his objection to any kind of counter punch is far stronger. Even economists acknowledge the importance of “animal spirits”. Beyond strict policy and tax rates and dry analysis of crappy air conditioner manufacturing jobs, the white working class needs a leadership and culture that is passionate about them as living people and their success. Sumner refuses them this.

    “I promote neoliberal policies precisely because they are good for the working class.”

    The incoming Trump cabinet is a principled neoliberal dream team in the most serious sense. While Sumner has an identity and a long reputation of favoring dry neoliberal technocratic policy, he’s showing a profound lack of enthusiasm for seeing it work. Sumner has instead chosen a position of stubborn predictable opposition to anything from the Trump administration be it principled neoliberal policy or not.

    The real principled neoliberals are passionate to show people how school choice can work and how a more free market health care option can benefit the masses. Sumner has chosen hysterical stubborn outrage instead.

  9. Gravatar of dtoh dtoh
    20. December 2016 at 12:38

    Scott,

    1. As I’ve said before the issue (and it is primarily a polical one) is not the aggregate effect of trade, it’s the impact on individual jobs.

    2. From a political point of view, equally important to the actual loss of individual jobs is the indifference of the governing elite to those losses and the blind assumption that individual loss is not an issue if the common good is somehow advanced.

    3. The alternative (your) theory as to why trade has become a political issue is that no individuals have been hurt by trade and it’s only an issue because people are stupid and susceptible to demagoguery.

    4. As I have said before, you fail to understand how automation is actually implemented in real businesses and that job reduction due to automation is more likely to be effected through natural attrition and retirement, whereas trade is more likely to result in layoffs.

    5. I also believe that automation is less of an issue because it is accepted as an inevitable process of a free and fair market, unlike trade where the individual job losses are a direct result of action taken by politicians.

    6. Finally of note is the complete failure of the governing elite (Republican and Democrat) to understand that like everything else it’s not the absolute numbers but the marginal numbers that drive change. Maybe individual job losses due to trade were only a few hundred thousand, but Trump’s combined margin in Wisconsin, Minnesota and Pennsylvania was only 100k votes.

  10. Gravatar of J Mann J Mann
    20. December 2016 at 12:53

    Yeah, my guess is that Trump will either (1) jawbone a few hundred or even thousand jobs into relocating to the US like we did to foreign auto manufacturers back in the Reagan days, then (2) take credit for turning American manufacturing around, or else just skip to step (2).

    Of course, I don’t know that that’s *worse* than ramping up a lot of infrastructure and education “investments” then doing step (2). Maybe.

    On coal, I agree that if the big issue is the ubiquity of natural gas, then coal is out of luck. Presumably the industry might do less terribly under Trump than Clinton, but if Trump allows more fracking and pipeline construction, it could also do worse.

  11. Gravatar of dtoh dtoh
    20. December 2016 at 12:57

    @Benny Lava
    Per capita income in Benton Harbor, Michigan (home to the worldwide corporate headquarters of Whirlpool Corporation) is $10,050…lower than China.

    If you want to know why Trump won, stop in a bar there and start telling people about the aggregate utility gains from trade.

  12. Gravatar of Benny Lava Benny Lava
    20. December 2016 at 13:38

    @dtoh

    Indeed, the workers at Kenmore and Whirlpool are well aware when a new plant opens overseas and where their jobs are going. A lot of jobs were crushed by automation in the 70-80s but a lot of jobs were crushed by outsourcing in the recent past. Isn’t it interesting that economists look at 40 years as one monolithic block instead of seeing the automation years vs the outsourcing years. Or to put it another way if it was all automation why move a factory to China? Are robots really cheaper to operate in China?

  13. Gravatar of Don Geddis Don Geddis
    20. December 2016 at 14:11

    @Benny Lava: “But certainly some manufacturing towns were hurt by free trade.

    You assert this claim, but the empirical evidence does not support you. First you fail to properly account for job losses due to automation (the vast majority), vs. job losses due to trade. Secondly, you confuse “free trade” with “outsourcing”. Whether the US signs a free trade treaty or not, has only a minor impact on whether Whirlpool opens a factory in China or Mexico.

    You’ve come nowhere near to justifying the claims that seem so “obvious” to you. And economists who have studied the data (e.g. Krugman, Sumner) say that your naive narrative of economic causal history is incorrect.

  14. Gravatar of ssumner ssumner
    20. December 2016 at 14:27

    Benny, Just out of curiosity, what about regions hurt by automation, like West Virginia? Should they be helped?

    Flow5, Fact#5, the Germans are losing manufacturing jobs just as fast as we are.

    Massimo, You said:

    “the white working class needs a leadership and culture that is passionate about them as living people and their success. Sumner refuses them this.”

    Only Massimo could say something this absurd.

    dtoh, You said:

    “blind assumption”

    Rather than being a blind assumption, it’s the conclusion of 250 years of careful analysis starting with Hume and Adam Smith and continuing on to Milton Friedman and Paul Krugman. But what do any of them know, compared to Trump?

    You said:

    “As I have said before, you fail to understand how automation is actually implemented in real businesses and that job reduction due to automation is more likely to be effected through natural attrition and retirement, whereas trade is more likely to result in layoffs.”

    That’s totally inaccurate, just completely. Do you think those missing 700,000 steel jobs were lost through “attrition”? Not a chance. They were lost when old mills shut down and newer more efficient mills opened in completely different parts of the country, using completely different technologies.

    As far as your 5th point, trade also results in a loss of jobs via the market, in this case the global market. Politicians have little to do with it. It’s all about comparative advantage.

    You said:

    “Finally of note is the complete failure of the governing elite (Republican and Democrat) to understand that like everything else it’s not the absolute numbers but the marginal numbers that drive change. Maybe individual job losses due to trade were only a few hundred thousand, but Trump’s combined margin in Wisconsin, Minnesota and Pennsylvania was only 100k votes.”

    I’ve never met a single person who doesn’t understand this. Who are the people who supposedly do not? Do they have names?

    BTW, Trump lost Minnesota.

    Benny, Check out my posts at Econlog. I have one looking at the period since 2000, and it’s mostly automation. Europe has a massive trade surplus, why are they losing manufacturing jobs at roughly the same pace as the US?

    Manufacturing jobs are disappearing all over the world, even China. Is it trade with Martians? Please explain.

  15. Gravatar of Massimo Heitor Massimo Heitor
    20. December 2016 at 14:34

    OK, how about this coverage of “Bleaksville”:

    https://theawl.com/i-talked-to-some-trump-voters-too-24d8399a6147

    “Bleaksville’s Main Street was once a thriving hub of commerce; now it’s dotted with used-condom stores, with the husk of an old abandoned monorail looming in the background.”

  16. Gravatar of dtoh dtoh
    20. December 2016 at 15:28

    Scott,
    The decision as to whether the greater good outweighs the good of an individual has nothing to do with economics. It’s an ethical question and the fact that you cite economists as arbiters on this question shows precisely why mainstream academics and politicians are so reviled by a large segment of the population.

    As to 700,000 jobs lost in the steel. The last time the U.S. steel industry employed that many people was 60 years ago, and I’m sure everyone who worked at a steel mill in 1965 is past retirement age so yes a drop of 700k could easily have been achieved through attrition during that time frame. Looked at another way, productivity has increased 5 fold in the steel industry since the 60s. So even assuming no growth in output, the productivity gains could easily have been absorbed by 2.5 to 3% annual attrition in the workforce. What killed the jobs in Gary and Youngstown was the unions and foreign competition.

    And BTW, businesses don’t just suddenly replace a factory full of workers with a factory full a robots. It might happen on a TV documentary you saw or in an econ textbook, but it’s rare in real business, and when it does happen, it’s usually done to increase output not replace it. Usually automation takes place through a gradual replacement of lines or machinery within a line.

  17. Gravatar of engineer engineer
    20. December 2016 at 16:02

    Couple of points:
    – I think there is a fundamental difference between jobs lost to automation and entire industrial sectors lost to foreign competition. I don’t think I need to elaborate..it should be obvious.
    – A lot of the fine print of our “trade deals” are by their very nature not about “free trade”..if they were…their would not much to negotiate….take TPP for example…from what I have seen it goes something like this…you guys can have all the shrimp farming as long as you honor the patents and copyrights from Silicon valley and Hollywood…
    Sorry Bubba…but that shrimp farm that you inherited from your pa and all that money you spend to make sure you are complying with USDA regulations…well here are some movie tickets..enjoy the show..

  18. Gravatar of Jp Jp
    20. December 2016 at 18:25

    Speaking from a point of view of someone with a career in manufacturing on the management side – the number one trend I’ve seen anecdotally, the number one buzz word is automation. Companies will bring product back into the US with big investment in automation. Its already happening. Focus on job loss to China and Mexico is about 20 years too late.

  19. Gravatar of Potato Potato
    20. December 2016 at 20:14

    Same background as Jp, and I agree completely. What’s so hilarious about Trump ranting about offshoring is that it doesn’t even have the long run trend right.

    Automation is actually a large driver of reshoring, along with the simplification of supply chains, decreasing lead times, lower standard deviation of lead times, quality issues, and IP concerns. Of course, the rising cost of labor overseas plays into this as well.

    Automation and reshoring will continue, but the jobs will continue to go away.

  20. Gravatar of Benjamin Cole Benjamin Cole
    20. December 2016 at 22:15

    A lot of jobs, or I should say occupations, would open up in the US if property zoning was banned, and push-cart, truck- or motorcycle-sidecar vending was decriminalized.

    Remember, Wal-Mart can import goods with components made with slave labor and consume a large part of the legal or zoned retail space in your neighborhood.

    If you start up a small production line in your basement, and retail the goods on the street/sidewalk outside of Wal-mart–well, you be be arrested.

    This is free trade?

    Why is it in the US we criminalize the one business most ordinary people could start—push-cart vending and retailing, often of goods or services they provide themselves. Hot soups, handcrafts, smartphone repair, haircuts, etc.

    US orthodox macroeconomists blubber a lot about free trade—within carefully circumscribed limits.

  21. Gravatar of Massimo Heitor Massimo Heitor
    20. December 2016 at 22:22

    @sumner

    “Only Massimo could say something this absurd.”

    This is quite the smug and reptilian response.

  22. Gravatar of Prakash Prakash
    20. December 2016 at 22:59

    Prof. Sumner

    I’m repeating ditto, a comment I made in a mises.org forum a while back. It is relevant to the discussion here.

    Lets envisage a revenue neutral Land Value Tax that reduces the most onerous taxes – dividend tax, cap gains tax, corporate tax, income tax, VAT in that order. We’re not talking about the size of government in this discussion. Taking that in place, I place my arguments.

    This tax shift works on many margins.

    On the margin of the land speculators themselves, the LVT favours the smart land speculator/ smart landlord over the dumb and lucky one. This is unambiguously good.

    On the margin of investment, LVT favours investment in machinery, companies, intellectual property and even human capital over investment in land. This is also good, though in a traditionally subjective austrian view, it would be disputed. But most reasonable people would agree that it is good. This is also independent of your views on intellectual property. (which is a separate discussion)

    The following 2 points are more speculative.

    Currently, land prices are shooting up in areas where rich and smart people seek to agglomerate. The papers tackling the numbers of Pickety’s capital trace almost all of the growth in wealth inequality to differences in land value. This makes sense. After all, if you’re paying a full 30% income tax in NY or in nowheresville, why ever choose to relocate to nowheresville ? The LVT will favour the dispersal of these people and this intellectual capital to more far flung areas. This increases the resilience of the overall civilization.

    LVT is by nature a local tax. A local jurisdiction conducting improvements which result in higher taxes is a much tighter feedback loop than central taxes going to a central government whose chance to be influenced by your vote is minimal. On the margin, may lead to better government and governance.

    The last 2 speculative points are where I believe that a tax shift to LVT will help the rust belt areas. I know that it may be too late for some areas, but it will work well on the margin.

  23. Gravatar of Dan W. Dan W.
    21. December 2016 at 05:12

    Benjamin Cole,

    For once I agree with you! Free trade is truly only free when citizens of different nations enjoy a similar freedom to work. If US policymakers were honest then they would assess a tariff on imported goods to account for the costs domestic companies face to pay for environmental, work safety, taxes, insurance and other regulations.

  24. Gravatar of dwb dwb
    21. December 2016 at 05:24

    The “technological change” that killed coal jobs is the 1-2-3 punch of cheap natural gas, low electricity demand, and Obama’s war on fossil fuels. Cheap natural gas has made inefficient coal-fired electricity plants expensive to run (high marginal cost). They would run (you can un-mothball a plant quicker than you can build one), even at higher marginal cost, if the electricity demand was there, but it isn’t.

    There actually is a very strong world demand for coal. If we had the ports and rail infrastructure to sell it, we could sell it almost as fast as Australia. It used to be Powder River Basin (PRB) Coal in the west would be the cheapest to transport (closest to port), but with the Panama Canal widening, we probably could sell Appalachian coal too. Appalachian coal is somewhat higher quality, better for steel/coking and electricity generation. PRB coal is higher sulfur/lower quality. Also ok for electricity – but only can be used in the US if you have a sulfur scrubber or permits.

    The Obama administration has used every single ambiguous law on the books to kill projects and shut down fossil fuel mining and extraction, along with rail and infrastructure projects that would let us sell them on world markets.

    As usual you are looking for facts to support your predetermined conclusions. Anytime you find yourself agreeing with Krugman, that should be a sign of derangement. He’s opposed to Trump, mining, and extraction, so he is just grasping at straws.

    Remember: People read “technological change” and “productivity” as “I really don’t have any idea what the hell is going on.” It’s the unexplained fudge factor.

    I little doubt US mines will be humming again with a combination of 1-higher US growth and electricity demand; 2- reduced/eliminated EPA and other regulations on fossil fuels; 3- better infrastructure that will enable us to get coal to port and also better ports; 4-better electricity infrastructure that will allow us to transmit electricity from the midwest (where there is a lot of coal-fired generation) to the east coast (again – also opposed).

    1 & 2 will be good news. Merely getting infrastructure projects approved in a reasonable time would be good news – transmission lines alone would improve demand. You can easily kill a project with a “slow no” because time=money. #3 is particular important since it will enable US to sell coal on the world market.

    You may disagree with the pro-fossil fuel policy, but so far Trump’s cabinet choices strongly suggest we have a driller and miner in chief.

  25. Gravatar of Benny Lava Benny Lava
    21. December 2016 at 07:55

    Scott,

    Yes I do favor helping places like West Virginia. I believe less in Tyler’s ZMP people and more in ZMP places. Instead of wasting political capital on trade deals America should spend more political capital on relocating people to where the jobs are and build more affordable housing in those places. America did that on a large scale from 1942-1944 it seems to have worked.

    I’ve never clicked on an econlog link before but I might do that today.

  26. Gravatar of A Definite Beta Guy A Definite Beta Guy
    21. December 2016 at 08:01

    I don’t see how your graph on the steel industry proves your point. Just eyeballing graphs:

    In 1994 there were appx. 220,000 steel jobs based on US consumption of 120 million tons of steel, of which 20 million is imported.

    In 2015, consumption is appx. the same 120 million tons, of which appx. 50 million is imported, and US steel jobs are now 120,000.

    So 220k Steel jobs in 1994 for 100 million tons, vs. 120k jobs in 2015 based on 70 million tons.

    So, yeah, there’s a productivity factor here, but I don’t see how you can’t see the effect of trade. If the domestic vs. foreign proportions were the same, holding all else equal, there’d be tens of thousands of more jobs.

    So an industry cut in half would have a more modest decrease of, what, 15-20%?

    That’s a pretty big effect of trade, even though automation is also a factor.

  27. Gravatar of Hoosier Hoosier
    21. December 2016 at 08:16

    Something hasn’t gone right for the working class over the last 20 years. Do you deny this? If not, what went wrong if neo-liberalism wasn’t at fault?

  28. Gravatar of Benny Lava Benny Lava
    21. December 2016 at 08:32

    Scott,

    A cursory reading of your econlog post seems to refute your thesis. Your own graphs contradict this. The domestic consumption graph shows since 1980 flat consumption and the employment graph shows a slow decline in employment since 1980 but the huge drop from 1970s to 1980s correlates with the huge increase in imports. So the very evidence you present demonstrates that there was a huge drop in manufacturing employment due to imports with additional drops due to automation.

    Or to put it another way Gary Indiana went to hell in the 80s thanks to free trade and the only politician on the national stage to contradict the eggheads is…Trump. The alternative to Trump would be ZMP places.

  29. Gravatar of Benny Lava Benny Lava
    21. December 2016 at 08:35

    @ Don Geddis

    The empirical evidence demonstrates your error. Go back, look at the charts, and then put aside your prejudice and motivated reasoning. That is what I did. Why continue to be wrong if it is so easy to be right?

  30. Gravatar of ssumner ssumner
    21. December 2016 at 08:52

    dtoh, You said:

    “And BTW, businesses don’t just suddenly replace a factory full of workers with a factory full a robots.”

    You are missing the point. Imagine a world with no trade, so that no one can blame imports. Jobs in manufacturing still are lost at a very rapid rate. Factories all over the world are still shutting down, devastating communities. How do you explain that? You cannot, because by definition there is no trade. Europe has the world’s largest trade surplus. Explain why their manufacturing has been devastated. Obviously not trade, so what is the cause of job loss?

    The jobs lost in Youngstown and Gary and Pittsburgh most certainly were lost to automation, not trade. Old mills shut down, laying off thousands of workers, and new mills run by companies like Nucor open in other parts of the country, with the latest up to date technology. They employ far fewer workers than the old mills. I’m afraid you are the one who doesn’t understand how manufacturing works.

    And yes, I consider the welfare of a million people more important than the welfare of a single person, so we’ll have to agree to disagree on that issue.

    Engineer, You said:

    “I think there is a fundamental difference between jobs lost to automation and entire industrial sectors lost to foreign competition. I don’t think I need to elaborate..it should be obvious.”

    No, it’s a cognitive illusion that lots of my commenters suffer from. I have multiple posts at Econlog that explaining this.

    Jp and Potato, It’s nice to finally get some commenters who knows something about manufacturing.

    Prakash, In economics “investment” means “construction”. How is it possible to invest in land?

    dwb, You said:

    “The “technological change” that killed coal jobs is the 1-2-3 punch of cheap natural gas, low electricity demand, and Obama’s war on fossil fuels.”

    This is just laughably out of date. The coal jobs were lost to automation decades ago, long before fracking. A giant steam shovel in a Wyoming strip mine replaces 100 West Virginia miners. That’s the problem.

    You said:

    I little doubt US mines will be humming again”

    Sure, the mines may be humming, but the coal jobs are not coming back.

    Benny, The best way to help West Virginia is with more trade deals. Coal is an American export industry.

    Beta, Steel employment has fallen from about 800,000 in 1960s to about 130,000 today. At least 80% of that fall is automation, only a small share is due to trade. Yes, since 1994 trade might have been somewhat more important, but the big job loss had already occurred by that time.

    https://www.themoneyillusion.com/?p=31847

    Also, don’t forget all the manufacturing jobs that would be lost in areas like autos if we protected US steel producers and forced steel prices above the level paid by our competitors. People make the mistake of looking at these issues in isolation.

  31. Gravatar of LK Beland LK Beland
    21. December 2016 at 09:54

    I think that we’re widly overstating the importance of these jobs and salaries on the electoral cycle (we would most likely not be having this discussion if HRC had won).

    The Clinton 90s were one of the greatest economic periods in history, and the purchasing power of the middle-class grew tremendously. The public rewarded this performance by electing (and re-electing) GW Bush.

    These states have unemployment rates between 4.5% and 5.5%. And higher than average cost-of-life-adjusted incomes. And somehow, we are making up stories of economic devastation.

  32. Gravatar of ssumner ssumner
    21. December 2016 at 12:31

    Hoosier, Lots of things went wrong, but if it really were neoliberalism, then how can you explain the fact that the working class in the more neoliberal countries has done better than the working class in the less neoliberal countries?

    Benny, How many jobs would the steel industry have if we still imported steel at 1980 levels? We used to have 800,000 jobs in steel, what happened to them?

    LK, Exactly.

  33. Gravatar of ssumner ssumner
    21. December 2016 at 12:46

    The comment for benny was actually aimed at beta.

  34. Gravatar of engineer engineer
    21. December 2016 at 14:19

    “No, it’s a cognitive illusion that lots of my commenters suffer from. I have multiple posts at Econlog that explaining this.”

    Often the rational for off shoring production (or automation) is to better compete with foreign manufacturers..so the entire market is not lost. For example, Carrier moved production to lower cost sites, but kept the design and engineering in country. Once design and engineering has left, there is no chance that the industry will come back unless there is something completely disruptive, which certainly has happened (like audio electronics, for example, that killed the Japanese audio companies, like Sony, that had gained 100% world dominance). So as an engineer, inventor, designer, yes I see a big difference between losing production jobs to automation and loosing an entire industry..it is not a cognitive illusion.

    No one is for protectionism, just a fair playing field. Is it fair that Asian shrimp and carp farms can import products filled with pesticides, antibiotics, all types of industrial chemicals, etc…and put nearly the entire American industry that lives up to USDA guidelines out of business? Once those farms have been bankrupted…the industry is gone forever and as a consumer..I don’t feel like I have the option of ever eating shrimp again.

    Why is the US so timid about doing something about it…I suspect that it has to do with geopolitics and TPP…all I know is that recently I read 100% of the imported shrimp tested had antibiotics in them. I can’t take that health risk.

  35. Gravatar of dtoh dtoh
    21. December 2016 at 16:11

    Scott,
    You’re still missing the point.

    No one cares if Joe retires from a manufacturing job and his daughter ends up working as an ultra-sound tech at the local hospital or as a UX designer for Google. If the steel industry sheds 700k jobs or 7 million jobs or over a 65 year period it doesn’t matter, because this can happen through attrition without individuals being laid off or losing their job.

    (You have offered zero evidence to suggest that productivity gains are sufficiently high in manufacturing to exceed the ability to absorb them through natural attrition in the workforce absent the loss of market share to foreign manufacturing.)

    The (political) problem arises when people are laid off and the problem becomes particularly acute if layoffs are a result of politicians changing the rules so that companies shutter their plants because they moved their factories to Mexico or have been put out of business by Chinese competitors.

    Further, equating the problem to “the welfare of a million people [is] more important than the welfare of a single person” belittles those who have lost their jobs and is precisely the attitude that engenders anti-trade rhetoric from politicians like Trump and Sanders. Surely when there are winners and losers from specific policies, then some sympathy with and attempt to accommodate the losers is appropriate. Would you advocate expropriating land without compensation to property owners in order to build a road that increased aggregate utility? Surely not, but your views on trade essentially do this.

    It must be obvious to you at this point that ignoring the very real hurt caused to some people by trade risks a political backlash that could or will result in real harm to free trade and the international order.

  36. Gravatar of Dtoh Dtoh
    21. December 2016 at 17:35

    Scott,
    And by the way, the reason Nucor was successful was not because of automation. Quite the opposite.They used a less capital intensive process with lower labor productivity, but they operated in South Carolina where they had cheaper and more flexible labor.

  37. Gravatar of Dtoh Dtoh
    21. December 2016 at 17:39

    And cheaper raw material and energy costs.

  38. Gravatar of Prakash Prakash
    21. December 2016 at 20:14

    @ssumner – Prakash, In economics “investment” means “construction”. How is it possible to invest in land?

    I meant investment in the financial sense. Buying something with the expectation of appreciation of value (in this case). i.e. A person is given the choice to invest in a stock or bond or buy a plot of land with the hope of appreciation. What he chooses today will be different from what he chooses after an LVT. That’s what i meant.

  39. Gravatar of Potato Potato
    21. December 2016 at 20:20

    Dtoh,

    Leaving aside the questionable comparison of stealing land and free trade, I don’t see how manufacturing productivity increases through automation would be absorbed via attrition. Automation is not uniformly distributed in operations. It’s not a random stochastic process that just occurs. It is a methodical application of ROI to various sub operations in a process flow.

    Labor costs in a plant aren’t uniformly distributed across sub processes either. And this is where you stop listening to the engineers and start asking ROI questions. Attrition, at least in my experience, is not usually the best way to reshape your work force. It starts with laying off experienced workers, who are the most expensive and thus where the automation monetary gains are the highest. If automation allows you to have relatively cheap and inexperienced labor, etc etc on down the line.

    Sometimes automation is a form of investing in physical capital to decrease the rents from human capital.

  40. Gravatar of Dtoh Dtoh
    21. December 2016 at 21:35

    Potato
    It’s relative of course and there are big differences depending on the industry, but in general job loss from automation is much more easily absorbed through attrition than is the job loss from moving production overseas.

    We generally maintain a list of several hundred automation projects ranked by ROI. We work our way through the list making adjustments based on cash flow, availability of engineering resources, the need to manage our workforce, etc. In some cases automation involves replacing machines with other machines. In other cases, it involves replacing people with machines. Nevertheless even if we had no growth in output, the pace of automation is such that it’s easily handled through attrition. In cases where it might be more efficient to lay off people, we nevertheless avoid that because of the adverse impact it has on employee morale and productivity.

    Also, it’s generally the less skilled and less experienced labor that can be replaced with automation.

  41. Gravatar of A Definite Beta Guy A Definite Beta Guy
    22. December 2016 at 06:08

    Scott,

    I don’t think that those steel jobs are ever going to come back or even make a significant dent, but I think your profession is understating the total impact on manufacturing more broadly.

    http://static4.businessinsider.com/image/5278fd2a69beddf93d41ccc2-630-378/manufacturing%20jobs-1.png

    Yeah, we’re never going to return to the 60s or 70s, but mfg jobs entered a free fall in the late 90s. I am as skeptical of claims that NAFTA and the WTO had no impact on this as I am of claims suggesting minimum wage increases have no impact on employment levels.

    Maybe the Chinese jobs are getting automated out of existence, too. Good for them. But trade definitely looks (to me) like a huge factor in the last 20 years, even if it isn’t a factor in the 20-60 year period.

  42. Gravatar of ssumner ssumner
    22. December 2016 at 08:30

    Engineer, Your comments on design are completely off topic. Lots of goods that we import (iPhones, etc.) are designed in the US.

    You said:

    “No one is for protectionism, just a fair playing field.”

    Lots of people favor protectionism. And the US doesn’t “play fair” either, we subsidize our exporters.

    dtoh, You said:

    “No one cares if Joe retires from a manufacturing job and his daughter ends up working as an ultra-sound tech at the local hospital or as a UX designer for Google. If the steel industry sheds 700k jobs or 7 million jobs or over a 65 year period it doesn’t matter, because this can happen through attrition without individuals being laid off or losing their job.”

    No, you are missing the point, it does not happen through attrition. Entire mills shut down, costing 1000s of jobs for people in the prime of their lives, all at once.

    You said:

    “The (political) problem arises when people are laid off and the problem becomes particularly acute if layoffs are a result of politicians changing the rules so that companies shutter their plants because they moved their factories to Mexico or have been put out of business by Chinese competitors.”

    Trade does not occur because we “change the rules”, it occurs due to differences in comparative advantage. East Asia is not in NAFTA, and they export massive quantities to the US. Mexico would be a huge exporter to the US even if NAFTA never existed.

    You said:

    “Further, equating the problem to “the welfare of a million people [is] more important than the welfare of a single person” belittles those who have lost their jobs and is precisely the attitude that engenders anti-trade rhetoric from politicians like Trump and Sanders.”

    I could say exactly the same about your comments on automation. You seem like a meanie who has no sympathy for those who have lost their jobs to automations. I know you are not, but the claim I don’t care is also ridiculous. And why do so many anti-trade people seem to have so little sympathy for China’s poor?

    Sorry, but I am not going to swallow the left wing anti-capitalist Bernie Sanders nonsense that people who robustly defend capitalism are mean hearted neoliberals, because I know that creative destruction is good for the overall welfare of society, even if some people do suffer along the way.

    Didn’t you used to be a conservative supply-sider who favored tax cuts for the rich?

    Trickle down for me, but not for thee?

    I don’t agree about Nucor.

    Prakash, You said:

    “I meant investment in the financial sense.”

    OK, but there is no net investment in the financial sense. For everyone who buys land, someone sells. So if there is no aggregate investment, exactly what is your argument?

    Suppose Trump bought a billion dollars in land, and then sold it back the next day at the same price. That’s a lot of “financial investment” but what has actually changed?

    dtoh, You said:

    “Also, it’s generally the less skilled and less experienced labor that can be replaced with automation.”

    The same is true of trade, we keep jobs at Boeing and lose jobs making sneakers.

    Beta, I never said that trade had no impact. Trade helps us to specialize in what we are best at, which is industries that require fewer or better jobs than the goods we export. I argued that most of the jobs were lost to automation, not all. But I also argued that the jobs lost to trade in manufacturing were made up with jobs in other fields like construction and services. So I have two claims. One is that most manufacturing jobs are lost via automation. And the second is that there is no net rise in the US unemployment rate via trade. But there may be a net loss of manufacturing jobs, just much less than from automation.

    Why do you think Europe has lost so many manufacturing jobs since the late 1990s? Then have the world’s biggest trade surplus. I’d be interested in how you interpret that data.

    In addition, everyone seems to agree that most manufacturing jobs will be lost to robots in the 21st century. So what is the claim here, that trade is causing a trend already underway to happen slightly faster? Is that it?

    One final point. Our current account deficit as a share of GDP is smaller than back in 1987, and also lower than in 2000. So during this period when you think trade has killed us, exports have risen just as far is imports.

  43. Gravatar of dtoh dtoh
    22. December 2016 at 16:20

    Scott,

    You said, “Sorry, but I am not going to swallow the left wing anti-capitalist Bernie Sanders nonsense that people who robustly defend capitalism are mean hearted neoliberals, because I know that creative destruction is good for the overall welfare of society, even if some people do suffer along the way.”

    I would ask yourself these questions.

    1. Have (or is there a perception) that individuals have or will lose their jobs because of trade.

    2. Has this created a political backlash.

    3. Could/will the backlash result in protectionist trade legislation which will greatly reduce aggregate utility.

    So even if you think that ethically it’s ok for some people to suffer to advance the greater good, you should from a purely practical utilitarian viewpoint favor trade policies that are more accomodative or sympathetic to the individuals who are losing their jobs. (Which BTW is primarily the reason I’m arguing this point even though I do think there are ethical considerations.)

    BTW – I completely agree that automation has had a (much greater) effect than trade on aggregate employment in manufacturing, but you’re generally wrong about it having the same effect on individual jobs.

    And also, I don’t favor tax cuts for the rich. I favor replacing all taxes on capital and income with a progressive tax on consumption, which in many cases would raise taxes on the rich.

  44. Gravatar of ssumner ssumner
    23. December 2016 at 08:31

    dtoh, We already have a very accommodative trade policy, and you still have the backlash. We have special Federal programs to provide aid for workers who lose jobs to trade, but not to workers who lose jobs to automation. We have lots of trade barriers, like 25% tariffs on “trucks” (which includes vans, etc.)

    Exactly what sort of accommodation do you have in mind?

  45. Gravatar of Dtoh Dtoh
    23. December 2016 at 09:23

    Scott

    1. I think the biggest thing that would help is a recognition in the debate that some people are very badly hurt. We shouldn’t have had to wait for a Trump or a Sanders to have had the discussion. IMHO the main reason some people are upset is because they’ve been treated like they don’t matter.

    2. I think people would rather keep their jobs than to receive aid or retraining. A more gradual introduction of trade measures that are likely to have large effects might help.

    And as I have said automation while having a bigger impact on aggregate manufacturing employment has less of an impact on individual jobs.

  46. Gravatar of ssumner ssumner
    28. December 2016 at 09:59

    dtoh, Trade measures have been introduced extremely gradually. These “measures” are not the cause of job loss. Measures like NAFTA are of trivial importance

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