Marshall Auerback: Donald Trump Understands the Nexus Between Trade and Immigration

By Marshall Auerback, a market analyst and Research Associate at the Levy Institute

In the post-Cold War era, the dominant force in the development of the world economy has been globalization. The inexorable trend toward greater global integration took somewhat of a hit with the onset of the Asian Financial Crisis of 1997/98, but momentum was clearly re-established with China’s entry into WTO. Distance simply evaporated as a concept. Businesses moved to China, India, Latin America, and other emerging markets in search of cheaper places & ways to produce goods & services for the Western economies. Several hundred million people in underdeveloped economies were lifted into urbanization from centuries of debilitating rural poverty.

At the same time, globalization created losers or at least relative losers. Revolutionary technological advances enabled an unprecedented outsourcing binge by American companies seeking to maximize profits by employment of low cost foreign labor. The scale of the outsourcing has been made possible because of advances in technology, global trade treaties and capital account liberalization.

For all of the vaunted gains in profitability, it is unclear that globalization has been the huge win-win, as its apologists all argue. Internationally, the richest 5 percent of people receive one-third of total global income, as much as the poorest 80 percent, according to research by Professor Branko Milanovic, a visiting presidential professor at CUNY’s Graduate Center and a senior scholar at the Luxembourg Income Study Center. While a few poor countries are catching up with the rich world, the differences between the richest and poorest individuals around the globe are huge and likely growing.

And domestically, U.S. workers have been semi-permanently replaced by low cost foreign workers. Prior to these great advances in technology, displacement of the current labor force could only have occurred through immigration of workers into the country. The upshot is that a huge number of Americans have experienced stagnant wages and incomes for over a quarter of a century. Trade agreements have exacerbated this problem, and the results of this unconcern are evident today in the campaigns of Donald Trump & Bernie Sanders.

Trump, however, has taken this one stage further with his hardline stance on immigration. For all of the media attention being devoted to walls along the Mexican border, or an outright ban on Muslim immigration, there is method to Trump’s madness, which goes well beyond racism (even though there is much of that in his rhetoric). By linking immigration and trade, however crudely, Trump has exposed the broader paradox and inherent contradictions which lurk between the two.

Historically, immigration law has concerned itself with many considerations, the most of which is the displacement of US workers. By contrast, advocates of free trade ignore this consideration, or blithely suggest that the resultant unemployment in a displaced sector (e.g., the automobile industry), is a “negative externality”, which is generally offset by the resultant gains in competitive efficiency, and lower cost goods. Cheap imports, then, outweigh the displacement of workers.

But we do not extend this logic to immigration, or we would move straight to a policy of open borders. Historically, the answer to the question as to why we do not have open borders is because it would substantially drive down the wages of American workers. Low costs for traded goods is okay; low cost labor, not so good (at least that is implicit in the application of our current immigration policy).

Businesses have sought to evade this inconvenient immigration restriction via offshoring manufacturing facilities, the result of which has been the displacing of U.S workers by low cost foreign labor. The economic impact subverts the policy goal behind American immigration policy. In many respects, it mirrors the impact of a hypothetical open borders policy, in effect creating a “synthetic immigration”, which has the impact of reducing employment and lowering wages as investment is increasingly outsourced abroad.

Globalisation advocates argue that the resultant profits to US corporations spur re-investment, which in turn creates employment. In reality, the profits that accrue to US corporations do not go toward domestic re-investment (and, hence, more jobs), but to increasing investment abroad (that is, of course, when they are not using corporate cash to buy back stock and inflate share prices and CEO executive compensation). In fact, it’s worse: Ex China, the evidence is strong that corporations have been net savers. Companies increasingly using their record high profits relative to GDP to buy stock. That means they are actually liquidating. That fact has been masked by acquisitions. And this is a long-standing trend. It was evident in the US as of the early 2000s.

To offset the economic drag that outsourcing and synthetic Immigration impose, policymakers have been pursuing a reckless and increasingly ineffective program of Quantitative Easing (QE) in unprecedented amounts both absolutely and relative to GDP. This policy, designed to stimulate consumption and ultimately investment by pumping up housing and stock markets, have resulted instead in a weak real economy with persistently high underemployment and non-existent wage growth.

In regards to free trade, we think nothing of displacing tens of thousands of automobile workers in Michigan because we attach primacy to the goal of being able to buy the cheapest cars available (the theory being that the resultant savings will generate sufficient demand elsewhere to offset the impact of displaced workers). The implicit assumption is that this “good” outweighs all other considerations, even though the relative consumption problem that occurs as one person buys the lower cost good creates a consumption equivalent to Keynes’s “paradox of thrift” – insofar as consumers fail to realize that if they all do it then many more of them ultimately end up unemployed or underemployed.

Consider a thought experiment: imagine a country that had only one worker and that worker was the sole consumer. It is obvious the worker would understand that by consuming foreign made goods produced by the synthetic immigrant, he would soon have no income and as a consequence, no consumption. In the real world, people want to maximize their welfare and most do so by maximizing current consumption, which is said to be one of the benefits underlying free trade. Maximizing current consumption means purchasing the lowest priced goods at any particular level of quality. In that way, the volume of consumption can be increased and one’s utility maximized. Relative consumption behavior increases this behavior. One’s (call him Joe) sense of values quickly decays when he sees his neighbors increasing their utility at his expense. The neighbor’s foreign-made flat screen TV is so nice and was so cheap that Joe decides he must have one too even though as a union member he well understands his purchase will result in a job loss in the U.S.

This behavior cascades because in the short-run the increased standard of living offered by low cost goods swamps the longer-term effects of chronic job losses. Thus, the paradox of consumption is the idea that a rational person in a one-person world would never behave in the same way as many rational utility-maximizing individuals behave even if the many understand the possible outcome. So, in the world of many individuals creeping Synthetic Immigration progresses as a result of the paradox of consumption until a crisis occurs. Of course, it is the responsibility of the sovereign to prevent the proliferation of the paradox of consumption and synthetic Immigration.

In periods prior to globalization, this was not a problem because displacement by immigrants generally began at the most menial level of the labor force, and policy changes adopted in the aftermath of each successive immigration wave (at least until 1965) generally prevented massive amounts of displacement and consequently, stopped the migration of jobs at the menial labor level. This is because immigration policy has generally considered the impact of immigrants on the domestic job market. The trade-off has widely been characterized as one between greater consumer happiness (lower prices) and job displacement, which is in marked contrast to the trade-offs we consider when introducing trade agreements.

The ethics debate regarding immigration is similar to that regarding trade. Should policy be constructed with respect to domestic or global welfare? For the most part, it seems as if domestic concerns dominated immigration policy; whereas trade policy, haunted by misconceptions regarding the Smoot-Hawley Tariff of the 1930s is generally obsessed with global considerations. Today false ideas about great prospects for exporting into the enormous Chinese market hinder national policy and enable employee displacement. Because of technological advances, today’s trade policies are effectively an immigration policy.

There are differences to be sure, but those differences work to the detriment of American workers. Typically low cost labor attracted long-lived capital investment. Today, Synthetic Immigration via global outsourcing leads to capital investment in the immigrant’s country (China) resulting in a greater capital stock there and increased competitiveness. So, in a very simple model, Synthetic Immigration means less revenue for the U.S. government but comparable expenses in the form of social welfare costs associated with under-employment and lower paying jobs, and correspondingly lower tax revenues. This process in turn has led budget austerians to call for greater cuts in Social Security, Medicare, state pension funds for public sector employees, the very social supports that have somewhat offset the deleterious impact of globalization.

It is and always has been the government’s duty to provide for and protect its citizens. Immigration policies differ everywhere and change as the government’s responsibility to its citizens is enforced. Protection of U.S. workers from synthetic immigrants is long overdue and the cost of government neglect is huge. And yet we never apply the same principles that underlie our immigration policy for trade. At least until now, where it has become a major feature of the Trump campaign, likely catapulting him to the GOP Presidential nomination this year.

So what is the right policy response? Clearly, there has been a backlash against trade agreements, such as the Trans-Pacific Partnership. As Thomas Frank recently noted:

Trade is an issue that polarizes Americans by socio-economic status. To the professional class, which encompasses the vast majority of our media figures, economists, Washington officials and Democratic powerbrokers, what they call “free trade” is something so obviously good and noble it doesn’t require explanation or inquiry or even thought. Republican and Democratic leaders alike agree on this, and no amount of facts can move them from their Econ 101 dream.

To the remaining 80 or 90% of America, trade means something very different. There’s a video going around on the internet these days that shows a room full of workers at a Carrier air conditioning plant in Indiana being told by an officer of the company that the factory is being moved to Monterrey, Mexico, and that they’re all going to lose their jobs.

And Trump has used this video in his campaign. As Frank has noted, “Trump is making a point of assailing that Indiana air conditioning company from the video in his speeches. What this suggests is that he’s telling a tale as much about economic outrage as it is tale of racism on the march.” And the reaction against immigrants may well appeal to racists, but it also overlaps with the economic concerns of people who have been displaced by decades of trade and immigration liberalization, both real and “synthetic”.

Outsourcing is the source of creeping synthetic immigration and synthetic immigration is the source of unemployment. Since unemployment is the source of the extended pay benefits provided by the government, perhaps the government should permanently tax the source of the unemployment—U.S. corporations producing abroad. Doing so will help restore a permanent incentive to invest in plant and equipment in the U.S. and create additional revenues to rebuild America’s decaying infrastructure (as one possible source of domestic employment). At the very least, we need to wean US policymakers off destructive monetary fixes that largely relied on indirect transmission mechanisms (such as QE) that subsidize financial intermediaries and create bubbles. Policymakers believed that human behavior would respond to increased prices of assets (Keynesian “Animal Spirits”) and the subsidization of consumption via unemployment benefits.

Those companies that first exploited the opportunities afforded by globalization and outsourcing did very well, because it provided them with a first mover advantage. Profits grew for those companies that exploited very low cost foreign labor and a much undervalued exchange rate relative to the dollar. At the extreme, all manufacturers must know that a rational public policy would reject outsourcing as un-American and destabilizing. That is certainly a sentiment that Trump continues to exploit in his campaign. As the putative GOP frontrunner says, “we have rebuilt China and yet our country is falling apart. Our infrastructure is falling apart … Our airports are, like, Third World.” (Frank, ibid)

As globalization has intensified, companies have increasingly competed with each other. Those with substantial low cost advantages have generally prevailed and eliminated competitors which sought to preserve well-paying American jobs. Therein lays the paradox of outsourcing. Again, it is the responsibility of the U.S. government to construct policies that stop or least restricts the cascading of outsourcing because of its adverse impact on employment in the U.S. and the negative incentives outsourcing imposes on domestic investment. We have historically considered these factors in our immigration policy. Why is trade so sacrosanct? The candidate who has been most persistent, however crudely and coarsely, in asking these questions is Trump. His unexpected success this election shows that populist backlash against the Washington Consensus is no longer the preserve of a lunatic fringe.

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  1. Synoia

    Very good, including the First Mover advantage, which is probably the only economic advantage.

    And this is also very relevant:

    it is the responsibility of the U.S. government to construct policies that stop or least restricts the cascading of outsourcing because of its adverse impact on employment in the U.S

    However, it will take massive action to drive this point home. If Trump can deliver on this, or better, Bernie wins the D nomination, either have my vote.

    I’m presuming the “Washington Consensus” is bipartisan (sarcasm intended) and need an opposition party. I suspect the Washington Consensus include the military, health care and war on drugs, as I see little sensible in those areas.

    When I read abut Consensus in Washington I see influence peddling, and being played by eleventy-seven dimensional chess, and picture the unique form of American Bribery and Corruption. (Politicians take action against the promise of being bought).

    I’m ABC. Anything But Clinton. She is an integral part of the Washington Consensus which has served us all very poorly.

    1. ArkansasAngie

      I am also ABC. Should she win the nomination … I will vote for whomever is most likely to beat her.

      Hillary is not an unknown. Anybody would be better

  2. RepubAnon

    Another way to look at off-shoring jobs to cut prices is farmers who start eating their seed corn. At first, they benefit – there’s more to eat, and still some left over to plant. However, there’s less seed to plant each year – so each year’s total harvest is smaller.

    So too with off-shoring US jobs in order to produce cheap goods to sell to US consumers. The folks whose jobs got off-shored can’t afford to buy the goods, even at the lower price. Eventually, there aren’t any customers (except overseas, where the jobs went).

      1. inode_buddha

        Last year I toured the GM engine plant in Tonawanda. This plant had been an industrial powerhouse throughout the wartime period all the way up to now. A mainstay of the local economy. Very impressive feats of manufacturing through the years.

        This plant is mostly populated by robots nowdays. What used to take a small army of people is now automated and very exact. And yet what boggled my mind was, look a the price of a new pickup truck. You would think they would go down but NO… so what gives? They’ve already got their labor costs down as far as possible, entire sub-assemblies are Hecho en Mexico. And yet they still find ways or reasons to drive the prices ever upwards, surfing on the backs of subprimes.

  3. Minnie Mouse

    Globalization – not a thermodynamic process of atoms and molecules but a hyperagressive top down policy agenda placing financialization of everything above physical functionality and risks. Like the loss of manufacturing capacity does not matter and trans ocean supply chains are energy and security risk free? Physics and geography be damned and finance conquers all. Oil tankers travel at the speed of light unfettered, like capital around the world.

  4. Dino Reno

    Here’s today’s NYT take on the issue.

    “Mainstream economists regard the evidence as unequivocal that trade has produced significant benefits for the American economy and the average household.”

    Now that that’s settled, the Times concedes some people on the bottom are still pissed off, mostly for no good reason. Hey, factory jobs are up 600,000 in the last few years! No mention of the 12 million lost since 2000.
    Almost no mention that the new factory jobs pay about half of the old ones. Also no mention of income inequality that is driving this whole issue. They do interview a few real people and conclude they are stupid or just uninformed. Nothing to see folks, move along.

    1. Carolinian

      As Dean Baker says, start outsourcing doctors, lawyers, newspaper reporters and economics professors and our professional classes will discover the virtues of protectionism in a hurry! In fact doctors and lawyers already enjoy this sort of protectionism through their trade associations and licensing laws.

      1. Dave

        You can start sowing fear in them today…

        Whenever I get a phone sales pitch for insurance, a subscription to anything or a callback for buying advertising, or talk to a para professional, I like to tell them that the last person I spoke to from their company was in India.

        “I asked the Indian some questions, can you believe they were being less a dollar an hour?” Jesh, there won’t be a job left in this country in few years…”

        “You should learn about this kind of thing, I’d suggest you read a great website called Naked Capitalism”

        p.s. The super short version of this article is
        “Trump is actually right on trade, no matter how much you want to deny it.”

        1. Marshall Auerback

          Yes, like the stopped clock that is right twice a day, Trump is probably right on trade (as is Sanders, whom I support, for the record). But the other point which I think is just as salient is a much broader one: we tolerate free trade in goods, but we don’t tolerate “free trade” in people (i.e. open borders). In one case, we elevate the ability to purchase the cheapest goods possible as the best of all possible virtues, ignoring the impact that it has on a number of American workers (economists use the horrible term, “negative externality”). In the case of immigration, the question of displacement of an American by a foreigner is a germane consideration in terms of whether to grant the potential immigrant’s right to stay and work in the country. In other words, other policy considerations apply. Why do we apply one set of values in the case of trade and a different one in immigration? My own feeling is that the government should permanently tax the source of the unemployment—U.S. corporations producing abroad. In so doing, the paradox of
          outsourcing can be alleviated and a permanent incentive to invest in plant and
          equipment in the U.S. be restored. Investment in plant and equipment will lead to
          greater employment. Unfortunately, the stocks of companies affected will fall to reflect
          the reduction in cash flow associated with the tax. Owners of the stocks will suffer as
          they incur the tax to help the unemployed workforce they created. Too bad. They’ve been helped enough via QE.

          1. Sluggeaux

            I think that you must be spending too much time in Annandale-on-Hudson. In California we have had Open Borders for thirty years, since Ronnie Reagan’s 1986 amnesty. This immigration isn’t acknowledged by the Census, but it is far from “synthetic.”

            Hundreds of thousands of Mexicans were driven off the land when NAFTA allowed a massive importation of ADM-sourced corn into Mexico. Their exploitation is rampant in construction, agriculture, and restaurants, driving down wages and union membership. Not a single employer is prosecuted for employing these undocumented immigrants, but they are regularly rounded-up when they become too established or talk to union organizers. There has been a categorical absence of enforcement of immigration laws — for years.

            In parallel, massive graft from the tech industry has allowed pervasive abuse of the H1B program. The U.S. government certifies “shortages” of “qualified” workers in tech, while recent U.S. STEM graduates face massive unemployment. These H1B’s are allowed large numbers of “dependent” visas, who contribute to downward pressure on wages.

            I don’t think that tax policy on foreign investment is going to correct the fact that many (if not most) working Americans find themselves either displaced by immigrants or having their wages undercut by immigrants. Our elites have been engaging in class warfare for decades.

            1. John Wright

              One can simply look at the need to appeal to the Hispanic voter by politicians to get some idea of how limited USA immigration enforcement has been at the USA’s southern border.

              If the politicians are concerned about Hispanic voters, then these voters have likely been born in the USA and are at least 18 years old, implying a long period of limited enforcement of immigration laws.

              If the economically powerful and government officials wanted to enforce immigration laws, e-verify and employer fines would be strictly enforced.

              Per there were 8.1million unauthorized workers in the US civilian workforce in 2012.

              Here are the fines for hiring an illegal worker:

              First offenders can be fined $375 to $3,200/ per worker after March 27, 2008

              For a second offense, the fine is $3200-$5,500.

              Three or more offenses can cost an employer 4300-16000

              Table I has “Final orders and Administrative fines from 1999 to 2014” and shows $16,275,821 in fines in 2014.

              This is about $2 per year per estimated illegal worker when one might expect at least the minimum fine of $375 per worker per year if ALL employers were naive first offenders and employer sanctions were truly enforced.

              That seems to indicate little enforcement of USA worker immigration laws.

              If the government wanted to, it could have sting operations where ostensibly non-citizens applied for work to check for employer violators, just as underage kids asking for alcohol are used by law enforcement to enforce drinking age laws.

              But you will never hear Trump push for E-verify and employer fines as that would immediately hit his net profits on his properties AND hit a lot of his friends.

              Hence, Trump will push for something completely implausible and impractical, a massive wall.

              Neither Clinton nor Trump is interested in raising the cost of US labor for their friends/benefactors.

              Not quite open borders for low wage labor, but reasonably close.

            2. oh

              Good points. The outsourcers and the offshorers make a bundle of money cause they don’t really need to invest in most of the countries. H1B’s are deadly for STEM workers and sooner than later, there won’t be any purchasing power left for the lower middle class. The race to the bottom will bear a lot fruit!

          2. JazzPaw

            I note that immigration is preferable to outsourcing for many reasons. The immigrant is subject to the same labor laws, assuming he is legal. The wage differential is less. The wages are spent in this country, so demand is not impacted as much.

            I have no problem with legal immigration, or even illegal immigration to some extent. I resent H-1B programs because those workers are captive and that puts further pressure on wage demands. In that sense, H-1B is more akin to the lousy labor conditions in the outsource countries.

            1. Yves Smith Post author

              In addition, immigrants pay taxes. There are numerous SSNs that have been used thousands of times, meaning employers are using those SSNs to withhold FICA on their pay. I’m told the # of probable workers this represents is in the millions. They also pay sales taxes, gas taxes, and property taxes via their rents (landlords recover their property tax payments via rental income).

              1. John Zelnicker

                In addition, the IRS will issue Individual Tax Identification Numbers (ITIN) to undocumented immigrants so they can file tax returns legitimately. They are ineligible to receive the various tax credits available to regular taxpayers, but they can get back any tax withholding in excess of their tax liability. These ITIN’s do not create Social Security accounts, so they never benefit from the FICA withholding.

      2. dw

        we have been out sourcing doctors and lawyers already, they just haven’t noticed it yet. a few of the large law farms, have hired a lot of low cost lawyers in other countries. just havent done it for the high cost talent yet. and some doctors that interpreted xrays and the like have lost their jobs to low cost countries too. and it seems to have had an impact on recent graduates, as they are having trouble finding jobs

    2. JazzPaw

      NYT has spent the past few days “debunking” the trade anxiety of Americans. Their arguments are very weak. Basically, the losers are uneducated who shouldn’t believe their lying eyes, those oppressed foreign workers are now better off, the pain is now over, and besides we can finance our wars cheaper this way. Can’t believe that’s the best they could come up with.

  5. flora

    Great post with many, many good points.
    My 2 cents: The current outsourcing, cheap labor, cheap products, high US unemployment is in effect the mirror image (same, but in reverse) as the monopolist price gouging of 100 years ago. People were price gouged on RR shipping, transportation in general, costs for goods, etc. They had jobs and even a decent wage that was eaten up in monopolist pricing.
    Now we have cheap goods but people are unemployed, underemployed, and so the costs of even cheap goods eat up a comparable amount of income. There was a time when cheap goods manufactured abroad that were priced uncompetitively low against US made goods to undercut market was illegal. It was called dumping.

  6. Nevada Tom

    12 million good jobs lost to outsourcing, say at $20/hr. That’s $480 billion removed from the economy every year and from the tax rolls.

    1. HotFlash

      Yup, and replaced with drains on unemployment benefits (for as long/short as they last), food stamps (when they can get them), health insurance subsidies (when they can get them), retraining, (when they can get it), not to mention for-profit prisons, etc. etc. Not just tax revenue* removed, but costs added.

      *Yes, I know about MMT, but it only works for the Federal Govt, not states or local govts, and the PTB do not make decisions based on it in any case, at least not yet. Well, except bank bailouts and war spending.

  7. ke

    The first filter is social, and those who accept short term consumption look to the government providing it for redress, expecting something other than a breeding program to the end, with those so penned on the other side of the fence employed as scapegoats.

    The basic process hasn’t changed for millennia. The psychologists are just building virtual silos these days, and the techies are quite efficient.

  8. Trish

    Apart from the environmental cost of shipping consumer goods around the world, if other countries want to produce consumer goods at a cheaper cost than what local workers can, why not let them? This theoretically frees up workers to focus on other things such as the public purpose, infrastructure, education, social programs and innovation (Mariana Mazzucato), those things that governments do so well contrary to popular myth. China has done a better job than western governments of fully employing its productive capacity by adopting and merging some elements of capitalism into a fundamentally socialist economy. We need to do the same and reassert the role of government in our economies, focusing on the public purpose and recognizing that the level of government debt is not a burden to future generations. We need to promote a better understanding of the fundamental role that government debt plays in our economies from its role in the creation of money, to a stabilizer for the financial system, to a wealth recycling or redistributive mechanism. If governments were to spend into their economies the amount necessary to fully engage the productive capacity of labour, the issue of fair wages for wage earners would not be as great an issue. Rather than focusing on taxing corporations, we should be focusing on governments as employers of last resort setting standards for fair wages and working conditions. I know that Marshall Auerback already understands and promotes many of these ideas and I greatly admire his work, but I do think we sometimes get sidetracked by the dominant discourse. My concern with the trade deals presently being promoted is not that we will have more foreign competition for local products but that these deals will hamstring our democracies in such a way that we will not be able to reform our monetary and financial system in any fundamental way to move beyond a system that is not working for the environment or society in general.

    1. Carla

      “My concern with the trade deals presently being promoted is not that we will have more foreign competition for local products but that these deals will hamstring our democracies in such a way that we will not be able to reform our monetary and financial system in any fundamental way to move beyond a system that is not working for the environment or society in general.”

      Very well said, Trish. I wish that sentence were published in bold face on the front page of every newspaper in the country!

      The jobs of the past are just that — past. That doesn’t mean there isn’t WORK to be done. While rebuilding our physical and social infrastructure, we also have to figure out how the great masses of people will be able to live meaningful lives without old-fashioned jobs. And hardly anyone is even talking about it. Instead, we trudge along, which is very hard to do with our collective heads in the sand.

      1. dw

        so exactly what are the new jobs? uber isnt it, that just a different flavor of taxis. its IT, thats also been exported. its not finance, as they have been exported too. even lawyers and doctors have been impacted.

        so exactly what is the new job?

        1. Ulysses

          Running from weaponized robots? Dumpster diving?

          The truth is all of these people, in the chattering classes, who blithely talk about the “new economy,” are still living off of the remnants of the old economy which they can see being looted before their eyes!

        2. Carla

          @dw — There is no “new job.” We have to figure out how the vast majority of us will live without “jobs.”

          We are WAY far behind the 8-ball on this one.

          It could be good. We could actually learn how to build meaningful lives and a peaceful, sustainable future for the world and the people who live here.

          Or not.

          But not paying attention to this will not make it go away.

        3. oh

          Retraining will be new job and then we can retrain the retrainers! When they standup, the retrainers can stand down. Of course there’s Uber, Lyft, Amazon warehouses (read sweatshops) and other real high paying work-at-home jobs that we keep hearing about on the blog comments!

    2. HotFlash

      Exactly. Global climate change is the biggest challenge coming down the pike, and the trade agreements will render us/our govts powerless.

    3. financial matters

      Well said Trish, it would be great to hear our political leaders talk like this.

      There are so many ways we could make life better with a stronger focus on public purpose such as better and cheaper education (Imagining Socialist Education by Megan Erickson), creating a more labor friendly job market (Working for the Weekend by Chris Maisano), and dealing with economic exploitation in general (How to Make Black Lives Really, Truly Matter by Jesse A. Myerson and Mychal Denzel Smith)

      (Chapters in ‘The Future We Want, Radical Ideas for the New Century’ 2016)

  9. mark

    example of illegal workers driving down wages

    “A new study released today by researchers at Tulane University and the University of California, Berkeley reveals that undocumented workers are being abused even as they provide critical help to rebuild New Orleans after Hurricane Katrina, the most costly natural disaster in American history.

    The study found that almost half of the reconstruction workforce in New Orleans is Latino, and 54 percent of that group is undocumented, meaning 25 percent of all workers are undocumented Latinos. In the aftermath of the storm, the federal government allowed special waivers of immigration laws, which made it easier for employers to hire undocumented workers.

    On average, documented workers received significantly higher wages than undocumented workers peforming the same work ($16.50 per hour average for documented vs. $10 per hour for undocumented.)”

  10. NeqNeq

    I would quibble with a few of the statements (ie “Of course, it is the responsibility of the sovereign to prevent the proliferation of the paradox of consumption and synthetic Immigration.”), but its nice to see something that has been in the Philosophy literature for a long time finally making to a wider audience.

    That said, the comparison between immigration and outsourcing is now dated. There has been a shift in the justification for limiting immigration to keeping out social undesirables….sometimes that is couched in terrorist panic and sometimes in illiberal panic. The switch alleviates the cognitive dissonance the author’s work (should) created by offering a distraction. And, so, the population keeps on fighting against its own interests.

  11. susan the other

    Synthetic immigration is an interesting term. I’ve noticed that Trump thumps his podium over unfair synthetic immigration, makes a big deal over that moronic Mexican fence, trashes the VA, has toned it down about the TPP, and has walked back everything he ever said about single payer. He has done all this loudly. But he has never once mentioned global warming and the environment. Trump would welcome infrastructure fiscal spending, no problem. But there is a problem. And it is that all the old infra, the world around, will be rebuilt to save the planet and it would be foolish to do it any other way. As environmental concerns now stand, take coal, we are shutting down entire industries that pollute so that to rebuild infra requires rebuilding some things all along the chain of use. It is an enormous project and there is absolutely no point patching up the old crappy infra just for politix. So synthetic immigration is prolonging the old infra until the time is ripe to rip it up and replace it. This possible policy does nothing for jobs and wages in the present and so it should be offset by govt compensation and that is the point every pol and their dog is trying to avoid. betcha.

    1. jrs

      Actually Trump is on record as not believing in climate change. See his Washington Post interview about foreign policy (or nominally about that anyway but since it’s Trump …) at the end of the interview.

      Yes any infrastructure spending should be aimed at sustainability

  12. Indrid Cold

    Of course the thing to remember about our elites and ‘public policy intellectuals’ is they’re not stupid and they don’t mean well.

  13. jim a

    Of course if we look a national borders as a boundary condition, than globalization increases returns on capital at the expense of returns to labor. Which is to say that corporate investment in foreign plants returns profits on those investments to the owners and managers of those companies, rather than to the larger number of domestic employees that they used to employ. Which would seem to be part of the concentration of wealth, at least if you only look at domestic wealth.

    1. dw

      it also explains the problems that so many companies have today. the lack of a growing sales. seems almost all of them (unless they are relatively new) actually having slowing sales. which is what you would expect if there were fewer and fewer potential customers (and the vast majority work for a business)

  14. myshkin

    Thanks for the thought provoking meditation on a handful of important issues to US workers and workers everywhere. I recall the frustration of listening to the free trade debate in the Eighties and Nineties that as Frank says, embraced the belief that, ‘“Free trade’ is something so obviously good and noble it doesn’t require explanation or inquiry or even thought.” I thought the most effective (and largely ignored) dissenting opinion was coming from the faction that thought free trade could possibly be beneficial national and international policy if trade agreements clearly specified a high common denominator among the signers on equivalencies on environmental protection and union organizing and other issues that would level the labor field.

    Externalities have long been ignored to the detriment of the working class and really to all but the 1 percent. How about the externality of subsidized oil? That would include the long neglected environmental cost as well as the vast military enterprise engaged in securing it, that combine to falsely lower transportation costs, ultimately subsidizing international trade over domestic industry.

    Regarding domestic concerns dominating immigration policy and trade policies eventual obsession with global considerations (I remember Krugman and others attempt to justify FT based on raising the third world masses out of base poverty). There has long been a domestic arbitrage of labor cost in US industry due to states rights. Domestic industry has played state labor regulations off against one another in a race to the bottom in wages and environmental protection. Prior to getting religion about International free trade in the post cold war era, while the LCD at the national level was being plumbed, corporations were focusing on liberalizing trade agreements with Japan, Korea, Brazil, Mexico and China.

  15. TG

    1. But we are increasingly moving to open borders on immigration. Post-1970 immigration policy has already increased the US population by nearly 80 million beyond what it would have been if the policy had not changed. By around 2040 it will have doubled the population to about half a billion, and increasingly likely we will near a billion by the end of the century (it would have stabilized at about 240 million without the specific changes in immigration policy that started around 1970). Sure sounds like open borders to me.

    2. Not just wages, but resource costs. Americans tend to take resources for granted, because we have always had more than we needed. But increasingly things like fresh water and topsoil etc. are going to be getting pricier, and that will also impact both the standard of living and industrial competitiveness.

    1. dw

      oddly enough, if you go back far enough, you will find that us borders were completely open, there wasnt any attempt to control immigration at all. it wasnt until it became an economic problem that we started trying to control the border which makes it really odd that the GOP is big on border control (or at least they make it appear that way) while being really big on free trade

      1. Carla

        How far back?

        “Among the first groups of immigrants to be excluded, in
        1875, were criminals, prostitutes, and Chinese contract laborers. The immigration of workers
        from China was banned entirely in 1882, and immigration from other Asian Pacific countries in 1917. The first numerical immigration quotas were created in 1921 and heavily favored immigrants from northwestern Europe. However, these numerical quotas
        were not even applied to immigrants from Latin America until 1965—which is also the year that discriminatory quotas based on race or national origin were eliminated. Numerical quotas on immigration from
        individual countries in Latin America were not imposed until 1976.”

  16. Jon Claerbout

    You write,
    perhaps the government should permanently tax the source of the unemployment—U.S. corporations producing abroad.

    So, would they find a way to tax the NON U.S. corporations producing abroad as well? It’s called tariffs.

    1. Vatch


      Yes! Thank you. It’s necessary if workers in the U.S. are to have any chance at all.

  17. ChrisPacific

    Good article. I like the concept of synthetic immigration as a way of drawing attention to inconsistencies between trade and immigration policy (which I agree are closely related).

    I think I was aware of this link a long time back when I was still a free trade believer of the type described here. Instead of seeing it as a criticism of free trade, I took it as an argument for liberalizing immigration policy, on the grounds that it wasn’t fair to pay people widely varying amounts for doing the same job to the same level of competence. The fact that I was an immigrant probably shaped my thinking here. Liberalizing immigration in the same way as trade would, I thought, cause pay levels in different countries to converge (which was correct) by lifting everybody to match first world pay rates (which was wrong). In hindsight I’m not sure why I had the latter view as it’s pretty clear that driving pay levels down to improve profitability would be much more in the interest of big corporations. I think I was subconsciously expecting the Free Market Fairy to make everything right, embarrassing as it is to admit right now.

    I still think it’s important for people to be paid fairly but I have lost confidence in the free market as a tool for achieving this – as I believe have most American workers, although not the Democrat and Republican parties. Trump is one symptom of this.

    1. Carla

      Yes. I agree. Trump is definitely a symptom that the free market is not a tool for achieving the goal of people being paid fairly.

    2. financial matters

      Yes, I don’t think the free market does a good job of setting a minimum wage.

      “”Luckily, there are two policies up to the task (of creating full employment): a federally funded job guarantee and a universal basic income that is unattached to employment.

      By offering employment as a guaranteed right, the federal government could direct capital to the communities where it is most desperately needed. By paying a basic living wage and normal benefits for a federal employee, the program would effectively set a minimum wage and standard of treatment for private-sector employment.

      This program could and should be paired with a universal basic income, which King (Martin Luther) called ‘the simplest…and most effective’ approach to eliminating poverty.”” (How to Make Black Lives Really, Truly Matter)

  18. John

    I remember seeing China for the first time.
    It was a visual kick in the gut:
    here was our 2 1/2 decades of money flowing one way by the hundreds of billions a year on display, new everything.

    Coming back and landing in one of our 3rd world
    crumbling airports and then going home on
    a highway that was nothing but unfilled pot holes brought it all home.

    The hollowing out of America.

  19. Michael Fiorillo

    Trump is right on trade. That’s the Socialism in his National Socialism speaking.

    OK, sorry, but I couldn’t help saying that, and there’s more than a kernel of truth to it.

    Anyway, I’m glad that Donnie – as a fellow New Yorker, I like to refer to him more familiarly, and because it takes him down a peg – has helped blow the trade debate wide open; Bernie alone might not have been able to do it so effectively, for all the media-blackout reasons well-reported here.

    But that’s about the limit of Donnie’s usefulness, on this or anything else. Why on earth does anyone think that Trump would follow through on any of this trade stuff? He’s a hustler and carnival barker, with a long history of fleecing contractors, venders, investors and customers: what evidence is there to suggest that this pattern of behavior wouldn’t be visited on the nation?

    This is not a back door way to suggest voting for Hillary, a known Greater Evil, but come on, folks: Donnie’s a flim-flam man who is caught up with the rest of us – in fact, as he constantly shows us, he’s even less in control – in deep historical currents and reality TV psychodrama bullshit. That he might in good faith try to help the working class (forgetting about the likelihood of success if he did) seems laughable.

    His entire persona and career are based upon screwing people over, and gloating about it. The burden of proof that he won’t keep on doing it is on those who see voting for him as potential way to break the Overclass’ hammerlock on the rest of us.

    1. John

      The serfs are desperate for a savior.
      Trump says what the people want but
      no one has given them in decades.
      What neither owned-by-the-criminal-elites parties will even say.

      Where it get’s interesting is what happens when he wins
      and does NOTHING he says he will do?

      The American people are going to explode with anger.

      1. Carla

        “Where it get’s interesting is what happens when he wins
        and does NOTHING he says he will do?

        The American people are going to explode with anger.”

        Well, well, well. I think you’re right.

        When Obama got elected and did NOTHING he said he would do, not a damned thing happened.

        With Trump, it will be a different story. Why? Trump voters all CARRY.

  20. Cry Shop

    Besides being prescient on all the problems of capitalism Karl Marx was right on at least one part of the solution. What the world really needs is an international workers community. Trying to address these issues at the national level without an effective tool to counter act Capitalism ability to go international is doomed to fail. Seeing this as us against the Mexican workers, rather than all of us against the capitalist is just playing the game they want us to play. Initially the US and European Unions did try to go international, but their leadership was both corrupted by international capitalism and made fearful by nationalist/racist pressures. Their failure because the failure of humanity.

    “I can hire one-half of the working class to kill the other half.” Substitute “nation” for “working class” and Jay Gould could be Obama, Congress & the Supreme Court’s paymaster.

    How will we live in this new world? Not where borders no longer exist,
    but where they have become, ever increasingly, the impediment to safety of our health and wealth?
    This is going to be one of our real challenges in the future!

  21. Cry Shop

    Skynet strikes again, so one last try — into the breach, lads…

    The (above story) works well when considered together with one posted earlier from Prof. Mathew Watson (Warwick) on pursuit of cheaper costs (instead of creating wealth) crushes both growth and labour.

    Seeing the labour of other nations as our competitors and not as our allies whom we need to liberate is something I’ve comment on many times here. it’s counter productive and in the end defeatist.

    Besides being prescient on all the problems of capitalism Karl Marx was right on at least one part of the solution. What the world really needs is an international workers community. Trying to address these issues at the national level without an effective tool to counter act Capitalism ability to go international is doomed to fail. Seeing this as us against the Mexican workers, rather than all of us against the capitalist is just playing the game they want us to play.

    “I can hire one-half of the working class to kill the other half.” Substitute “nation” for “working class” and Jay Gould could be Obama, Congress & the Supreme Court’s paymaster.

    How will we live in this new world? Not where borders no longer exist,
    but where they have become, ever increasingly, the impediment to
    safety of our health and wealth? This is going to be one of our real
    challenges in the future!

  22. Hilario

    “Several hundred million people in underdeveloped economies were lifted into urbanization from centuries of debilitating rural poverty. ”

    Most of the comments on this thread seem to imply that this was deeply disturbing, given the impact it had on jobs in the USA. The article itself and the comments also focus on a very lengthy period of economic history – all of 25 years.

    The past two or three hundred years have shown that freeing up trade, internally and internationally, has been hugely damaging to one industry after another, causing unemployment and impovershment. This was accompanied by a permanent rumble of anguished debates about how necessary it was to stop the destruction caused by free trade.

    Indeed, the whole trouble with capitalism is that it is so horribly disruptive, and it is also why it has been so succesful in advancing standards of living in those countries where it was permitted to flourish. Capitalism is like democracy – a terrible way to run a country, but better than all the others

    Marshall Auerback makes makes many interesting points, among them (I think – all that technological change) that if only travel was restricted to horses and sailing ships, immigration would be easier to digest, but let’s keep today’s problems in perspective.

    Oh, and thank goodness I don’t have to decide who to vote for in US presidential elections.

    1. Cry Shop

      “Capitalism is like democracy – a terrible way to run a country, but better than all the others.”

      That’s very debatable, those nations that have highest standards of living, do because wealth is distributed more equally, have considerable constraints on what capitalism can do, and on how markets deploy capital.

      Trade transfers wealth.
      True, but it’s not to either end, but to the gate keepers. Trade has impoverished much of Africa and South America, it’s never free because there is always an imperial agenda with trade, TTP is just the latest in a long sorry story of robbing the poor to enrich a small elite. Further, this lifting out of poverty may just be the very blip you protest about in your brief 25 years. In facts, i suspect it is so because the process has led to an insane growth in carbon and other green house gas emissions, the cost of which will fall hardest on the poor.

      The UK was a big backer of freedom of the seas and free trade, particularly when it came to breaking the monopoly on the slave trade to the Spanish colonies, the Assiento, but then the UK began to place restrictions on slavery, and eventually the trading of slaves, even to the extent of modifying it’s former freedom of the seas policy. Trade policy is never set with the average joe in mind.

  23. Mary Wehrheim

    I know one thing The Donald will do while in office..resurface all the White House furniture in Banana Republic Gold Gilt. Mar-a-Lago meets Colonial Revival.

    1. Vatch

      Hah! Yes, The Donald has a thing for gilt surfaces. A web search for:

      Donald Trump’s living room

      shows some very gaudy images.

  24. Keith

    The US has forgotten its own history.

    The US is a protectionist success story.

    Free trade sounds good doesn’t it?
    Free trade actually stops other nations catching up with more advanced nations.

    How did the US become the super-power it is today?

    In the 18th and 19th century the UK was the workshop of the world and the home of the industrial revolution.

    How did the US and other Western European nations catch up with the UK’s more advanced factories, technology and cheaper products?

    Was free trade the answer?
    No. Tariffs were the order of the day.

    Tariffs made cheap UK products more expensive in the US and Western Europe allowing them to catch up on the UK’s industrial advances.

    Eventually, the US over-took the UK as the workshop of the world, thanks to tariffs.

    The US is a protectionist success story.

    In a free trade world, the UK, being the home of the industrial revolution, would have maintained its advantage forever.

  25. Keith

    Globalisation has had a similar effect to central planning in the old USSR where different factories were placed in different regions to make it hard to break up the USSR.

    The factories for right shoes were put in one region and the factories for left shoes were put on the other side of the USSR.

    Most of our manufacturing now resides in China and Europe is reliant on Russia for energy.

    The US is becoming increasingly hostile to both Russia and China and dragging the rest of the West with it.

    What does Europe look like without the products now manufactured in China and the energy coming from Russia?

    Globalisation was seen as a one way process.

    History tells us globalisation goes in phases of expansion and retrenchment into nationalism, we need to be careful though it may be too late already.

    It is the desire of globalist elites to line their own pockets that brings an end to globalisation phases.

    1) The expansion, with globalist elites lining their own pockets:

    1920s/2000s – high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons(CEOs), reckless bankers, globalisation phase

    2) The discovery that globalist elites are not half as clever as they like to think they are:

    1929/2008 – Wall Street crash

    3) The disintegration

    1930s/2010s – Global recession, currency wars, rising nationalism and extremism

    We have seen how the current globalisation works.

    In the good times, prior to 2008, all we hear about are the wealth creators. How they are responsible for the boom and how they deserve to keep their rewards.

    In the bad times, after 2008, the easy profits have gone and so have the wealth creators. It is up to national tax payers and national institutions (Governments and Central Banks) to sort out the mess.

    The profits are privatised and the losses are socialised.

    Unconditional bailouts for bankers and austerity for the people.

    A globalist elite lining their pockets at everyone else’s expense.

    What is there not to like?

    The global electorate is increasingly turning away from globalisation due to the greed of the globalist elite.

    Everyone has now noticed the Neo-Liberal, Centrist main parties are not working in the interests of the electorate.

    Unconditional bailouts for bankers and austerity for the people.

    How can there be any doubt?

    In Europe we have Podemos, Syriza and Five Star with a myriad of right wing parties including Golden Dawn.

    In the UK, UKIP and Corbyn.

    In the US, Trump, Sanders and the Tea Party.

    The globalist elite haven’t quite worked out how badly they have failed their electorate.

    Times they are a changing, get ready.

  26. Felix47

    If the UAW could only organize the Mexican auto plants. And if we could institute a national licensing and exam system for lawyers.

  27. Keith

    We always are given the image of the harsh and unrelenting existence of the past.

    In fact people had more freedom to carry out their work and usually did very little on Monday and Tuesday, Saint Monday and Saint Tuesday, were well observed. The work did have to be done and later in the week there was much hard work to be done but you could do it as you pleased – real freedom.

    “The work pattern was one of alternate bouts of intense labour and of idleness, wherever men were in control of their own working lives. (The pattern persists among some self-employed – artists, writers, small farmers, and perhaps also with students – today, and provokes the question whether it is not a “natural” human work-rhythm.) On Monday or Tuesday according to tradition, the hand-loom went to the slow chant of Plenty of Time, Plenty of Time: on Thursday and Friday A day t’lat, A day t’lat. The temptation to lie in an extra hour in the morning pushed work into the evening, candle-lit hours. There are few trades which are not described as honouring Saint Monday: shoemakers, tailors, colliers, printing workers, potters, weavers, hosiery workers, cutlers, all Cockneys. Despite the full employment of many London trades during the Napoleonic Wars, a witness complained that “we see Saint Monday so religiously kept in this great city. . . in general followed by a Saint Tuesday also”.”

    Training people for the Monday to Friday, 9 – 5 routine takes some doing, it is not a natural rhythm.

    Oh, for those student days before my 9 – 5 training, oh for 9 – 5.

    In days gone past people owned the means of production and just had to get their products made for sale.

    Today we have to rent ourselves out to an employer that takes most of the profit from our labour.

    This is progress?

    The skilled craftsmen of the third world won’t know what has hit them, life is going to get a whole lot worse.

    1. Keith

      I read it some time ago and have found a more amusing passage:

      “This general irregularity must be placed within the irregular cycle of the working week (and indeed of the working year) which provoked so much lament from moralists and mercantilists in the seventeenth and eighteenth centuries.

      A rhyme printed in 1639 gives us a satirical version:

      You know that Munday is Sundayes brother;
      Tuesday is such another;
      Wednesday you must go to Church and pray;
      Thursday is half-holiday;
      On Friday it is too late to begin to spin;
      The Saturday is half-holiday agen.

      John Houghton, in 1681, gives us the indignant version:

      When the framework knitters or makers of silk stockings had a great price for their work, they have been observed seldom to work on Mondays and Tuesdays but to spend most of their time at the ale-house or nine-pins . . .
      The weavers, ’tis common with them to be drunk on Monday, have their head-ache on Tuesday, and their tools out of order on Wednesday. As for the shoemakers, they’ll rather be hanged than not remember St. Crispin on Monday . . . and it commonly holds as long as they have a penny of money or pennyworth of credit.”

  28. Lyle

    Actually Trump on trade is closer to the position of the 19th century GOP than today’s GOP. Lincoln and successors used protective tariffs, which the Whigs had wanted but were blocked by the South, During the civil war the tariffs were raised due to the south not being in Congress. This protectionism was largely against the big industrial giant of the time the UK. It included a 100% (in terms of the UK price) tariff on steel rails. However US prices did not go all the way to $50 due to rising us steelmaking.
    Interestingly it is the case that when the industrial leader of the world faces competition it considers going off free trade. Look at the UK by 1900 it had to serious economic competitors the US and Germany. in 1906 Joseph Chamberlin ran on Imperial Preference which would have advantaged trade from the empire over trade from elsewhere. (The Germans by this time were dumping steel on the UK)
    Chamberlin’s proposal was in many respects a throwback to the 18th century view of trade in the UK.

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