The Electoral Consequences of Globalization

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Yves here. I am featuring this piece as a reader critical thinking exercise. While it marshals some useful data, one can contest some of the conventional conclusions, which are often mere assertions, reached from the figures. For instance, Joyce points out that immigrants account for 16% of the workforce, and contends that reducing their level would increase the dependency ratio (as in the level of workers in the economy relative to those that don’t work). This is specious given the large number of discouraged workers who are no longer counted as part of the workforce, the level of under-employment, and the number of older workers who need to work past normal retirement age to survive.

Another conventional and erroneous assumption treated as an article of faith is that factory worker wages drive product costs, and hence it is a competitive imperative to move production to low wag locations. For most manufactured products, that’s rubbish. For instance, for cars, direct factory labor is only 10-13% of wholesale costs. And the reduction in direct factory labor is substantially, and usually entirely offset by hard and hidden costs: increased managerial costs (those top dogs have MUCH higher pay) due to greater complexity of extended supply chains, larger transportations and financing costs, greater inventory risks (more risk of being stuck with overproduction, again due to the difficulty and complexity of cutting orders for products that aren’t selling as well as forecast), and greater business system fragility. Thus much of offshoring is properly understood as not cost driven, but as a way to increase managerial incomes at the expense of direct factory labor pay. And you can see that dramatically in how CEO compensation has exploded at average incomes have stagnated.

By Joseph Joyce. Originally published at Angry Bear

The reasons for the election of Donald Trump as President of the U.S. will be analyzed and argued about for many years to come. Undoubtedly there are U.S.-specific factors that are relevant, such as racial divisions in voting patterns. But the election took place after the British vote to withdraw from the European Union and the rise to power of conservative politicians in continental Europe, so it is reasonable to ask whether globalization bears any responsibility.

The years before the global financial crisis were years of rapid economic globalization. Trade flows grew on average by 7% a year over the 1987-2007 period. Financial flows also expanded, particularly amongst the advanced economies. Global financial assets increased by 8% a year between 1990 and 2007. But all this activity was curtailed in 2008-09 when the global financial crisis pushed the world economy into a downturn. Are the subsequent rises in nationalist sentiment the product of these trends?

Trump seized upon some of the consequences of increased trade and investment to make the case that globalization was bad for the U.S. He had great success with his claim that international trade deals are responsible for a loss of jobs in the manufacturing sector. In addition, he blamed outward foreign direct investment (FDI) by U.S. firms that opened production facilities in foreign countries for moving manufacturing jobs outside the U.S. Among the firms that Trump criticized were Ford Motor, Nabisco and the Carrier Corporation, which is moving a manufacturing operation from Indiana to Mexico.

Have foreign workers taken the jobs of U.S. workers? Increased trade does lead to a reallocation of resources, as a country increases its output in those sectors where it has an advantage while cutting back production in other sectors. Resources should flow from the latter to the former, but in reality it can be difficult to switch employment across sectors. Daron Acemoglu and David Autor of MIT, David Dorn of the University of Zurich, Gordon Hanson of UC-San Diego and Brendan Price of MIT have found that import competition from China after 2000 contributed to reductions in U.S. manufacturing employment and weak U.S. job growth. They estimated manufacturing job losses due to Chinese competition of 2.0 – 2.4 million. Other studies find similar results for workers who do not have high school degrees.

Moreover, multinational firms do shift production across borders in response to lower wages, among other factors. Ann E. Harrison of UC-Berkeley and Margaret S. McMillan of Tufts University looked at the hiring practices of the foreign affiliates of U.S. firms during the period of 1977 to 1999. They found that lower wages in affiliate countries where the employees were substitutes for U.S. workers led to more employment in those countries but reductions in employment in the U.S. However, when employment across geographical locations is complementary for firms that do significantly different work at home and abroad, domestic and foreign employment rise and fall together.

Imports and foreign production, therefore, have had an impact on manufacturing employment in the U.S. But several caveats should be raised. First, as Erik Brynjolfsson and Andrew McAfee of MIT and others have pointed out, technology has had a much larger effect on jobs. The U.S. is the second largest global producer of manufactured goods, but these products are being made in plants that employ fewer workers than they did in the past. Many of the lost jobs simply do not exist any more. Second, the U.S. exports goods and services as well as purchases them. Among the manufactured goods that account for significant shares of U.S. exports are machines and engines, electronic equipment and aircraft. Third, there is inward FDI as well as outward, and the foreign-based firms hire U.S. workers. A 2013 Congressional Research Service study by James V. Jackson reported that by year-end 2011 foreign firms employed 6.1 million Americans, and 37% of this employment—2.3 million jobs—was in the manufacturing sector. More recent data shows that employment by the U.S. affiliates of multinational companies rose to 6.4 million in 2014. Mr. Trump will find himself in a difficult position if he threatens to shut down trade and investment with countries that both import from the U.S. and invest here.

The other form of globalization that drew Trump’s derision was immigration. Most of his ire focused on those who had entered the U.S. illegally. However, in a speech in Arizona he said that he would set up a commission that would roll back the number of legal migrants to “historic norms.”

The current number of immigrants (42 million) represents around 13% of the U.S. population, and 16% of the labor force. An increase in the number of foreign-born workers depresses the wages of some native-born workers, principally high-school dropouts, as well as other migrants who arrived earlier. But there are other, more significant reasons for the stagnation in working-class wages. In addition, a reduction in the number of migrant laborers would raise the ratio of young and retired people to workers—the dependency ratio—and endanger the financing of Social Security and Medicare. And by increasing the size of the U.S. economy, these workers induce expansions in investment expenditures and hiring in areas that are complementary.

The one form of globalization that Trump has not criticized, with the exception of outward FDI, is financial. This is a curious omission, as the crisis of 2008-09 arose from the financial implosion that followed the collapse of the housing bubble in the U.S. International financial flows exacerbated the magnitude of the crisis. But Trump has pledged to dismantle the Dodd-Frank legislation, which was enacted to implement financial regulatory reform and lower the probability of another crisis. While Trump has criticized China for undervaluing its currency in order to increase its exports to the U.S., most economists believe that the Chinese currency is no longer undervalued vis-à-vis the U.S. dollar.

Did globalization produce Trump, or lead to the circumstances that resulted in 46.7% of the electorate voting for him? A score sheet of the impact of globalization within the U.S. would record pluses and minuses. Among those who have benefitted are consumers who purchase items made abroad at cheaper prices, workers who produce export goods, and firms that hire migrants. Those who have been adversely affected include workers who no longer have manufacturing jobs and domestic workers who compete with migrants for low-paying jobs. Overall, most studies find evidence of positive net benefits from trade. Similarly, studies of the cost and benefits of immigration indicate that overall foreign workers make a positive contribution to the U.S. economy.

Other trends have exerted equal or greater consequences for our economic welfare. First, as pointed out above, advances in automation have had an enormous impact on the number and nature of jobs, and advances in artificial intelligence wii further change the nature of work. The launch of driverless cars and trucks, for example, will affect the economy in unforeseen ways, and more workers will lose their livelihoods. Second, income inequality has been on the increase in the U.S. and elsewhere for several decades. While those in the upper-income classes have benefitted most from increased trade and finance, inequality reflects many factors besides globalization.

Why, then, is globalization the focus of so much discontent? Trump had the insight that demonizing foreigners and U.S.-based multinationals would allow him to offer simple solutions—ripping up trade deals, strong-arming CEOs to relocate facilities—to complex problems. Moreover, it allows him to draw a line between his supporters and everyone else, with Trump as the one who will protect workers against the crafty foreigners and corrupt elite who conspire to steal American jobs. Blaming the foreign “other” is a well-trod route for those who aspire to power in times of economic and social upheaval.

Globalization, therefore, should not be held responsible for the election of Donald Trump and those in other countries who offer similar simplistic solutions to challenging trends. But globalization’s advocates did indirectly lead to his rise when they oversold the benefits of globalization and neglected the downside. Lower prices at Wal-Mart are scarce consolation to those who have lost their jobs. Moreover, the proponents of globalization failed to strengthen the safety networks and redistributive mechanisms that allow those who had to compete with foreign goods and workers to share in the broader benefits. Dani Rodrik of Harvard’s Kennedy School has described how the policy priorities were changed: “The new model of globalization stood priorities on their head, effectively putting democracy to work for the global economy, instead of the other way around. The elimination of barriers to trade and finance became an end in itself, rather than a means toward more fundamental economic and social goals.”

The battle over globalization is not finished, and there will be future opportunities to adapt it to benefit a wider section of society. The goal should be to place it within in a framework that allows a more egalitarian distribution of the benefits and payment of the costs. This is not a new task. After World War II, the Allied planners sought to revive international trade while allowing national governments to use their policy tools to foster full employment. Political scientist John Ruggie of the Kennedy School called the hybrid system based on fixed exchange rates, regulated capital accounts and government programs “embedded liberalism,” and it prevailed until it was swept aside by the wave of neoliberal policies in the 1980s and 1990s.

What would today’s version of “embedded liberalism” look like? In the financial sector, the pendulum has already swung back from unregulated capital flows and towards the use of capital control measures as part of macroprudential policies designed to address systemic risk in the financial sector. In addition, Thomas Piketty of the École des hautes etudes en sciences (EHESS) and associate chair at the Paris School of Economics, and author of Capital in the Twenty-first Century, has called for a new focus in discussions over the next stage of globalization: “…trade is a good thing, but fair and sustainable development also demands public services, infrastructure, health and education systems. In turn, these themselves demand fair taxation systems.”

The current political environment is not conducive toward the expansion of public goods. But it is unlikely that our new President’s policies will deliver on their promise to return to a past when U.S. workers could operate without concern for foreign competition or automation. We will certainly revisit these issues, and we need to redefine what a successful globalization looks like. And if we don’t? Thomas Piketty warns of the consequences of not enacting the necessary domestic policies and institutions: “If we fail to deliver these, Trumpism will prevail.”

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  1. BobbyK

    I notice none of these economists that expound on the benefits of globalization EVER advocate having their job outsourced(or in-sourced for that matter). I’m sure there’s plenty of smart Indian or Chinese economists that would do the job for 1/3 the pay/benefits.

    1. jgordon

      Outsourcing or insourcing is still overdoing it. A deck of Tarot cards or even a magic eight ball would be both more effective and cheaper than economists for guiding policy. The value they add to systems is a net negative.

    2. Dave D'Rave

      Good idea, in principle. Actual experience with Indian economists is that their accent makes then (even more) incomprehensible.

      1. sierra7

        The aforesaid comments at least gave me a giggle….!!!
        True; too many “economists” do truly ruin the cake!!

  2. Paul Art

    Another apologia in a rather long list of apologias published by the Water Carrier class in a bootless attempt to shift the focus away from Globalization and Financialization. The author after the obligatory genuflect to irrefutable proof that outsourcing has decimated US employment, spits on his hands and gets down to the corporate water carrying starting at paragraph 6 with this opening – ‘Imports and foreign production, therefore, have had an impact on manufacturing employment in the U.S. But several caveats should be raised.’ ‘But’ indeed.

    This guy is faculty at

    The famed alma mater of Hillary Goldman

    I am not going to address these ‘caveats’ as he calls them. Most of it is already peddled and disproved neoliberal twaddle like ‘automation!’, ‘immigration increases people employed to people on Social Security!’ and all the other hoary chestnuts of neoliberal hosannas.
    In recent times I have seen people like this shill who do a clever 3 step dance. For every outright blatant Austrian hogwash article, they will trot out something that is in the lukewarm category like this one here. Note the construction of this piece, the first 5 paragraphs is all pointing to the evidence of how globalization is harmful to employment from the source nations. So he painstakingly buys your attention first with this empathy move. Once you persist past the 5th paragraph the obfuscation is slowly rolled out. If you are not very well informed on the ‘caveats’ as most NC readers would be then you are sold.

    These guys do it just to camouflage themselves as ‘middle of the roaders’ when all they are, all the time is shilling for corporations.

    He sits behind his marble walls of academia probably making several $100,000s per year and is on tenure.

    Someone needs to make a list and put people like him on that. To be ready for distribution when the revolution finally arrives.

    1. tegnost

      …for instance, why not point out that were pay to increase in order to obtain the necessary workforce as the comparative advantage of hiring illegal workers was constricted , social security would gain more revenue to bolster it’s finances…also, he asks for tax increases, why not say one of the more beneficial tax increases would be to get rid of the cap on the SS tax in order to capture the unfairly low SS tax paid by the main groups benefiting from said comparative advantage?

      1. sierra7

        “……get rid of the cap on the SS tax in order to capture the unfairly low SS tax paid by the main groups benefiting from said comparative advantage?”
        Careful; you might stink up the new Cabinet!!

    2. jgordon

      Just like Robert Reich and other “progressive” economists, this guy is offering the same warmed-over neoliberal dogma that globalism is innately good–but those danged politicians just did a bad job of spreading around the loot and that’s why people are angry. This ignores the minor quibble that back here in the real world the whole point of globalism is to impoverish most people while enriching the elite. Spreading the loot around would defeat the purpose of the project, so that won’t happen.

      In a country with a diverse population of almost 350,000,000 and abundant land and natural resources (we can debate later about how wise it is to turn non-renewable precious natural resources into cheap plastic consumer trash and pollution) there is no legitimate reason whatsoever to go outside its borders for most business. Globalism is a traitorous scam the elites are running for wage and regulatory arbitrage, and the job of professional economists is to paste academic credentials onto the scam.

      News flash for the globalist economists who actually believe their own propaganda: you should have studied history instead of economics. The Roman Empire had virtually identical economic, political, and military policies to the US today (though how would you know–you wasted your time being indoctrinated in economics!). You’d have a lot more insight about what the future holds by studying the collapsing Roman Empire than the mumbo-jumbo made-up economics ideology popular today.

    3. run75441

      I would like to hear your reasoning as to why Labor moved overseas. If this was tied to Labor, the correct application would be the Heckscher–Ohlin theorem.

      I am manufacturing and a throughput analyst who does brownfield study in an attempt to save businesses.

  3. oho

    ‘or lead to the circumstances that resulted in 46.7% of the electorate voting for him?’

    Or 53% of the electorate voted against HRC.

    ‘ and hence it is a competitive imperative to move production to low wag locations. For most manufactured products, that’s rubbish. ‘

    believe it was Yves or a reader comment that highlighted that long supply chains = variable quality assurance—–long before mainstream media caught on.

  4. UserFriendly

    Your copy and paste missed the ‘T’ in ‘The’ in the first paragraph. It was probably a stylized image. I do that all the time.

  5. Paul Art

    Aristotle in his work Politics places the education of the population of a city front and center as the most important factor for building a good ‘polis’ or city. Neoliberal twaddle places front and center, a corporation’s profit numbers as the most important factor in any city. This has been going on for more than 30 years now. Among many other deleterious effects of this noxious policy has been the empowerment of the 1% and their subsequent suborning of the political process. The 1% with this suborned political machinery have carried out a systematic assault on education by cutting funding to public universities and in general populating boards, senates and governing committees everywhere with their minions trained in the monomaniacal focus on profits and efficiency. The quarterly focus on profits has caused corporations to stop hiring entry level candidates who need training and turn to the H1-B pipelines to bring in engineers and workers from abroad. This is particularly true in Software and Programming. The other thumb on the scale of competitiveness is the enormously strong dollar – promoted by our neoliberal commander-in-chief, Robert Rubin starting in the 1990s. Consider this – in 1990 the dollar-Indian Rupee exchange rate was, $1 = Rs.16. Today it is $1 = Rs.69. We have had an artificial lowering of labor costs in India (and everywhere else) due to the pumping up of the dollar. Ergo, it is cheaper to bring someone in from India with 5 years of experience than hire someone entry level here and train them for 5 years. The elite in Washington are paying no attention to this very dangerous confluence of events where the youth of our nation is ignored and made noncompetitive for no fault of their own. We are creating a tinder box of angry disappointed local populations with this asinine focus on profits as the key to nirvana. This great learned guru Dr.Joyce has not a single word in his article here about how we need tariffs and regulations to make sure that capitalism serves us and not some foreign population abroad or millions of imported H1-Bs who after 6 years will decamp with all their dollar savings back to India after their H1-B terms expire. How do we build a society that will serve all and not a few? This is something that has been totally obliterated from our education, our media and the consciousness of America as a whole. It is an ill portent like the stench from gas gangrene rapidly invading host tissue.

    1. Dave D'Rave

      Actually, the great majority of H1-Bs do not go home. They came here on the H1-B visa in the first place because they figure that it gets their foot in the door.
      This is probably related to the fact that a disproportionate number of H1-Bs are homosexuals and the fact that homosexuals get treated a lot better in San Francisco than in Calcutta.

      But yeah, H1-B is evil.

  6. The Trumpening

    This is a great essay for practicing critical thinking skills. Let’s take the issue of automation. Standard pro-globalization boilerplate is that automation means the jobs are not coming back so the spoiled white working class better stop whining. But then a sentence or two later we hear that it’s the cost of labor that is driving these jobs away. A few paragraphs later we hear how we just must keep importing huge flows of cheap low-skill labor. These things together don’t all add up.

    Automation is a fact and cannot be avoided. But automation is actually the enemy of globalization. If the factories don’t have as many workers in them, why must the robots be located in Mexico or China instead of the US? And if our factories require fewer workers, why, why, why must we import more immigrants, especially low-skill immigrants, when the US is already more than capable of producing our own, home-grown, low-skill labor?

    And so automation should be driving factories back to the US and keeping immigrants away.

    And what about climate change? Globalization is exacerbating climate change. If the US stopped most immigration for the next 30 years our 2100 population would be almost the same as today. But if we continue the mad dash towards ruin by allowing millions of immigrants a year our 2100 population is projected to be around 520 million. More Americans means more of everything implicated in environmental damage: cars, construction, energy and overall resource use, meat and animal product consumption, greenhouse gas emissions, and sprawl. If the US continues its overimmigration policies then there is no doubt that the 2100 sea levels will be several centimeters higher than they would be if we stopped most immigration.

    And while it is not the price of labor driving US factories overseas, it could very well be US environmental laws. Capitalists prefer the 3rd world’s near lack of environmental regulations. Amazingly enough, the same people decrying climate change are often the very same people cheering for globalization’s mass immigration and mass environmental dumping. And this is not to mention the increased shipping costs of manufacturing products in distant lands. Why do people who demand locally sourced food often still champion globalization when it comes to other products?

    1. cojo

      Not only is manufacturing moving abroad due to looser labor/environmental regulations, we are also outsourcing our carbon dioxide emissions required to produce all these goods. Hence China’s reluctance to be included in carbon reduction up until recently. There has been a large outcry, especially from the right, about this, but they fail to realized, this is to a large part due to all the western manufacturing that has been moved there.

    2. JTFaraday

      You can only sell yourself so many air conditioners. It’s not really true that US employees, even– and maybe especially– manufacturing employees, have no stake in the creation of markets for consumption abroad.

      We just witnessed manufacturing behemoth Germany– which also can only sell itself so many air conditioners– creating markets for consumption in southern Europe through the generation of debt. How is that working out for everyone?

      Personally, I think there are good reasons for developing and retaining manufacturing capacities– as in knowledge capacities– in any given population. But it also seems to me that some people in the most developed countries are looking to sell the resulting stuff into nothing, which you really can’t do.

      1. JTFaraday

        If anything, I might be inclined to say that what we lack is not so much trade barriers as that other conservative bugaboo “planning.” We could all use a little less market anarchism and a little more industrial planning.

        1. JTFaraday

          As it stands right now under market anarchism, you have grown adults in leadership positions in corporations whose careers basically consist in seeing how much they can get away with, (while conveniently lining their own pockets– and only their own pockets).

          This childish mentality is not any better for business than it is for society.

        2. Fiver

          It certainly is essential for any sovereign entity that wishes to remain that way. In too many places the planning has been effectively privatized and no longer serves the public interest as such. The leadership this century has been singularly lacking in vision, in setting national goals, generating some interest at last among the wealthy corporate class in getting all of us and the planet safely through the next 30 years. There has to be something they value,

      2. The Trumpening

        I think what you are saying is that trade surpluses are just as bad as trade deficits and I agree. The goal should be more or less balanced trade with a close matching of production and consumption. Having a large trade surplus leads to a kind of economic imperialism that we see Germany pushing in Europe and beyond.

        For the US with its huge trade deficit there is plenty of room to repatriate factories and production before we start getting anywhere near a trade surplus.

        1. JTFaraday

          Yes. but the way you’re putting it elides my main point which is that a dearth of consumers in places like China and Mexico and Latin America and much of the rest of the world means there’s a less of a market for higher cost goods US might want to sell.

          To hear some talk, these people and nations should just pull the money out of the sky, which they may well not be able to do or the US may not allow them to do, rather than force some people in developed nations to move on to another line of work. And I do agree that the US government could be much more proactive in helping them find their way out.

          I am also tired of the endless pity party for the white working class when conservatives have spent a whole generation or 2 attempting to retain a white monopoly on the good jobs while pissing on black people for being disproportionately unemployed. And who voted for this? Not me.

          If they’re so much better than everyone else, then I’ll double down. Shut up and get out already. Nobody gave them a permanent lease on the high school football field to middle class pipeline.

          I’ve never had access to that pipeline, believe me. So my sympathy is very limited.

          That said, I agree it would be better for the country. And the Trumpertantrums do not get to have a monomoly on that.

          1. JTFaraday

            You know, all this mockery of the college educated creative classes we get around here is basically about people who accept that they don’t have a monopoly on that high school football field to middle class pipeline.

            If they get a little too creative sometimes and a little too precious– which I’ll distinguish from the outright looters and their spin doctors– that’s just a sign of the absurdity of their own condition. At least they’re trying to make something out of nothing.

  7. Sound of the Suburbs

    Free Trade

    The Corn Laws and Laissez-Faire, the requirements of free trade, a historical lesson:

    “The Anti-Corn Law League was a successful political movement in Great Britain aimed at the abolition of the unpopular Corn Laws, which protected landowners’ interests by levying taxes on imported wheat, thus raising the price of bread at a time when factory-owners were trying to cut wages to be internationally competitive.”

    The landowners wanted to maintain their profit, charging a high price for corn, but this posed a barrier to international free trade in making UK wage labour uncompetitive raising the cost of living for workers.

    The anti-corn law league had to fight the vested interests of the landowners to get the UK in a position where it could engage in free trade. They had to get the cost of living down to a point where they could pay their workers internationally competitive wages.

    The US has done the opposite with soaring costs of housing, healthcare and student loan repayments making it impossible for it to engage in free trade as the cost of living has soared.

    These costs all have to be covered by wages and US businesses are now squealing about the high minimum wage.

    Everyone in the West is doing the same silly things and making free trade impossible.

    In a free trade world the cost of living needs to be the same in West and East as this sets the wage levels.

    There were hopes things would naturally reach a stable equilibrium but the West moved its cost of living in the wrong direction, it should of been lowing it to converge with a rising cost of living in the East.

    We will just have to put up tariffs and forget about free trade.

    The Classical Economists were only too aware that national rentiers were the enemy of free trade and distinguished between “earned” and “unearned” income.

    Those were the days of the anti-corn law league when people understood these things.

    Today we have silly housing booms raising mortgage payments and rents, with intense price gouging in healthcare and ever rising student loan repayments all raising the cost of living and wages.

    1. juliania

      Your point is a good one. And if you substitute “farmers” for “landowners” in the above quotation (or even make it be “peasants” instead), you have the reason so many Mexican farmers lost their livelihood when the agro businesses invaded, their named corn or maize being out-competed by reason of having no tariff on the incoming predation. It’s an easy way to devastate the local product – flood the country with lower cost items. That pesky profit when it comes to ordinary farmers was their livelihood, and losing that sent them off their land and northward to earn a living of some sort for their families.

      1. Sound of the Suburbs

        I think the US heavily subsidises its agriculture leaving other nations unable to compete (with free trade).

    2. Art Eclectic

      “The US has done the opposite with soaring costs of housing, healthcare and student loan repayments making it impossible for it to engage in free trade as the cost of living has soared.”


      Sure, we’ve all got loads and loads of cheap stuff now (as Elizabeth Warren showed) but housing and healthcare have obliterated the savings from cheaper consumer goods and actually eaten deeply into monthly expenses.

    3. run75441

      The Direct Cost of Labor in a manufactured part is < 10% today decreasing significantly since the sixties. It is the smallest cost in the Cost of Manufacturing. You analyst skirts the issue of what is really the issue and why companies are trying desperately to get away from it.

      Why would Toyota come to the US to make all of the Camry's sold in the US if what you say is true?

  8. Deep Thought

    I think there’s a much simpler electoral consequence of globalisation – or at least the immigration part of it – which is disenfranchisement.

    In my experience, a decent percentage of immigrants do not bother to gain full citizenship rights in the country they move to. Given the cost (in time and money) of many citizenship programs, this is understandable. This means that those who are exploiting the benefits of globalisation to sell their labour around the world are left unable to vote to support that system. Meanwhile those who are have lost most, or feel that they have lost most, are fully able to vote against it. Hence I’m not surprised that we are beginning to see an electoral kick-back. The current system isn’t politically stable – but I don’t see No Taxation without Representation making a comeback as a slogan.

    (If you’ll allow me to be parochial for a moment – the number of EU citizens living in the UK is double the margin by which the Brexit referendum was lost)

  9. Benedict@Large

    “… but in reality it can be difficult to switch employment across sectors.”

    In reality, there is nothing TO switch employment across sectors. In fact, orthodox macro does not concern itself with unemployment (of any cause), as markets are self-clearing, including the labor market, and so there can’t be any such thing as unemployment.

    You ever notice how the economic theories of the elites always seem to stop right before the needs of anyone (and everyone) else come in?

  10. craazyman

    I wouldn’t call what I’m about to say “critical”. That’s a harsh word. There are critics and there are creators, and I always try to be on the creator side. Sometimes creators see things, just to notice them in a non-judgemental context. This is a non-judgmental observation, frankly it’s merely a passing thought. It involuntarily occurred to me, that’s all, just reading. It flew into my brain as a bird flies into your field of vision while yer contemplating a landscape. You really just watch it.

    Here it is: one can say 3 and 4 relate to each other in the manner that 8 and 6 do. That is true. One can also say 3 is to 4 as 6 is to 8, which is somewhat more precise. One could also say 4, 5 and 9 are as 89, 876 and 23 million. WTF? It’s true. All are natural numbers.

    These things can get subjective. But if we say the dependency ratio is the “level of workers in the economy to those that don’t work” we have a few considerations that offer themselves up for contemplation. Level is a term that implies verticality. Are the workers at higher elevations than the non-workers? Not likely. Most workers are probably in cities, which tend to be at lower elevations. So are the non-workers probably so that’s confusing. The other consideration is whether the workers depend on the non-workers, as the phrasing above would imply. Or do the non-workers depend on the workers. If either of those are the case, then order matters in the way we say 3 is to 4 as 6 is to 8, and if order matters we don’t say 3 is to 4 as 8 is to 6. if the dependence is mutual and bi-directional, then the circumstance is that of members of a set in which order doesn’t matter.

    So which is it?

    The author seems to view the dependency ratio is a fraction composed of two natural numbers: the number of young and retired people (on the top) and workers (on the bottom). The ratio stated thusly implies a movement of something — let us say goods and services — from the workers to the non-workers. But if fails to contemplate the movement of something offsetting and potentially important, such as shopping, buying, eating, drinking and overall activity, from non-workers to workers. Also just staying out of the workers way while they work is a socially valuable activity! Policy makers should consider that but they don’t. The dependency ratio may be bi-directional and more complex than simple fractions imply, and workers and non-workers may in fact be members of an analytically illuminating larger set that includes them both and perhaps other elements. Maybe even immigrants. And maybe rednecks. Possibly feminists too. But probably not liberulls, at least until they get their shlt together.

    Again these aren’t critiques or corrections. They are merely offered as suggested enlargements of the sphere of analytical contemplation so that when critics, which I’m not, go to work, they can perhaps be more accurate than they would have probably been.

  11. Jim Haygood

    Trump had the insight that demonizing foreigners and U.S.-based multinationals would allow him to offer simple solutions—ripping up trade deals, strong-arming CEOs to relocate facilities—to complex problems.

    One of the more extraordinary moments of the US presidential race occurred when Britain’s Nigel Farage campaigned with Donald Trump on Aug 24, 2016 in Jackson, Mississippi. From the stage Farage delivered inflammatory zingers such as these:

    We made June 23rd our independence day when we smashed the establishment.”

    We reached the people who had been let down by modern global corporatism.”

    Brexit predated Trump’s election, just as Margaret Thatcher’s prime ministership in May 1979 predated Ronald Reagan’s Nov 1980 election in the US. Owing to its parliamentary system, the UK sometimes registers tectonic political change more timely than the fixed four-year presidential cycle in the US.

    In any case, the Anglosphere seems intent on going its own way. The drastic reaction registered in global bond markets suggests that this is major secular inflection point, both politically and economically.

  12. hemeantwell

    The article is about globalization, but as it pertains to the current nationalistic political climate, and so the writer could at least hint at other factors. He doesn’t refer once to the success of the offensive against the union movement, and this skews his conclusion regarding what a new form of embedded liberalism would look like.

    To my mind a purely technocratic, “embedded liberalism from above,” is a political impossibility, a fairy tale of social harmony that leads to disappointment and disaster. Embedded liberalism was an outcome of an interclass compromise, and in the US the subordinate classes have, by being enmired with the neoliberal Democrats, reached the point where they have little threat to brandish at the bargaining table. As we’ve often gone through here, that sets the stage for the fantasy of nationalist fixes and the questionable economic assumptions the writer sifts through albeit, as Yves so usefully states in her intro, in a questionable way. I realize that I often say this, but the writer is another instance of those, like Bacevich, who hold back from talking clearly about class conflict (Bacevich at the international level) and how the price of an even minimally tolerable, social democratic capitalism is brutal conflict and then “eternal vigilance,” to borrow from Cold War phraseology. Unable to bear this, the writer ends up more or less sighing into the conclusion that we’re stuck with Trump.

  13. cojo

    I think Carrier gave us another example of why significant amounts of our manufacturing have been outsourced. Tax benefits. Carrier was able to gain $7 million dollars in local/state tax breaks in return for keeping 800 workers in Indiana. I think the recent article on overseas corporate profits also ties in nicely. These earnings will be taxed at a much lower rate should there be a tax holiday.

    1. readerOfTeaLeaves

      ‘Globalization’ is a fancy term for ‘tax arbitrage’. And the idiots in government can’t seem to figure this out, which makes a perverted sort of sense if you consider that part of their paychecks frequently come from enabling, complexifying, and putting lipstick on variations of ‘tax arbitrage’, which they then crow about has ‘business development’.

      A legitimate business wants simplified rules, clear guidelines, and an absence of bullshit.
      Someone who wants to game the system by appearing to be a legitimate business wants to ‘cut deals’ with government employees on the pretext that they will create largesse if only the salaried toadies curry enough favor with them.

      Economists can’t seem to figure this out because they don’t have enough ‘skin in the game’.
      If their paychecks depended upon actually getting consumers to buy stuff, and having to bear the development, marketing, production, and distribution costs of bring something to market, I reckon the economists would have more than a few epiphanies about the ways in which ‘globalization’ has turned into a gigantic tax arbitrage system.

  14. John Wright

    This article asserts:

    “An increase in the number of foreign-born workers depresses the wages of some native-born workers, principally high-school dropouts, as well as other migrants who arrived earlier.”

    Why is the wage depression limited to just these groups? As displaced native workers attempt to maintain/increase their wages by training for better paying jobs, one would expect this wage depression effect to ripple through the entire non-elite US wage structure.

    “In addition, a reduction in the number of migrant laborers would raise the ratio of young and retired people to workers—the dependency ratio—and endanger the financing of Social Security and Medicare. And by increasing the size of the U.S. economy, these workers induce expansions in investment expenditures and hiring in areas that are complementary.”

    Perhaps some economists assume human labor is essential for the financing of Social Security, when perhaps machine labor will be more than adequate.

    The investing class seems to depend on capital investments to fund their retirements (stocks, corporate securities ownership of companies), where low wage labor only increases their returns.

    Why not have Social Security do the same?

    Perhaps the Social Security trust fund should be invested in robots/automation?

    Then the dependency ratio can also include robots in the count.

    Note, if the new workers have a low wage, they can’t possibly provide much funding into the social security system. 15% of an a $8.00 job (16K/year) results in a net inflow of 2.4K into the SS trust fund.

    With average Social Security benefits of $26990/year for a couple, this means about 10 low wage workers would be required for EACH retired couple to cover the Social Security benefits.

    But fewer workers would be required if their wages were higher.

    Then there is the possibility the low wage worker uses OTHER government programs to supplement their income, which might be paid, in part, by existing Social Security recipients.

    What happens when the new group of low wage workers reach Social Security age? Won’t even more low wage workers be required to support them?

    One can view the carrying capacity sign on the economists’ bridge to the even more populated future.

    “Trust us, earth’s human population safe carrying capacity: Infinite”

    1. run75441

      You did fine till investment. What we have is Productivity Gains based upon Capital without Labor. If Labor is no longer needed due to Capital, than Capital should pay the difference.

      In case you have not noticed, Median Population age is increasing. We do have a need for young immigrants as they reproduce at > 2.1 to 1 which will keep the Median Age lower. Today’s population occupies 5% of the US land mass. We have room for more. Read Joel Garreau’s study “300 Million and Counting” Smithsonian. A good read.

  15. VietnamVet

    This is the same argument that since the unemployment rate is at 4.6% everything is just great with the US economy. It ignores the increased inequality, the declining middle class and the lowered life expectancy of less educated whites. Look no further for the corruption of American society than the opioid epidemic that drives the obscene profits of the producers of Fentanyl and OxyContin. In today’s world, if it makes money, the dead don’t matter.

    1. Vatch

      Daly is one of the rare economists who pays attention to the ecological context in which economies are embedded. Without breathable air, drinkable water, fertile soil for crops, and other natural resources, an economy is impossible.

  16. RBHoughton

    What people resent and do not subscribe to is this idea of USA prescribing the correct forms of government to Canada, Europe and the Dominions and then those secondary powers repeating the exercise to countries under their control. It makes the occasional election of local representatives superfluous.

    If we are to have world government by one country its own government will have to make the case for it. That has not been done properly if at all. All I recall right now is GWB’s threat “You are either with us or against us.” That won’t do.

    We have to be persuaded, urged, encouraged, not coerced and threatened.

    When the EU was spreading its web over Europe it used finance on easy terms to get greedy national politicians to sign-up until it became possible to replace their national currency with the Euro whereupon government was transferred from the local parliament to Brussels and whatever the people had to say about it was of little consequence. In every case there was an instant doubling of asset prices with wages increasing by rather less many months later. That wasn’t nice either.

    Another thing. We tolerate the unsatisfactory nature of representative government because the representatives are expected to be creative original thinkers who will deal with governmental problems in a clever way. The politicians who have strutted the world stage in recent decades have lacked this basic qualification. That has to end.

  17. Russell

    I have finally retrained as an economist. I appreciate Industrial Service Banking over Finance Banking, and ascribe to MMT.
    Of course I am well aware that there in the laws and all of a nation there is the spirit of it all over what is written. The writings are only arrows pointing the right directions.
    Some like Monaco, but others find all that money without freedom isn’t as appealing as it might sound. Nothing of what men do can be done without belief.
    Now it is to make simple as Trump what is true.
    That being as best I can say that the Gold Standard laid on our modern system is a fiction enabling Financial Terrorists to stick their hands and arms into any Treasury that, believes.

    1. run75441

      The author did make one point which is very clear:

      “Lower prices at Wal-Mart are scarce consolation to those who have lost their jobs. Moreover, the proponents of globalization failed to strengthen the safety networks and redistributive mechanisms that allow those who had to compete with foreign goods and workers to share in the broader benefits. Dani Rodrik of Harvard’s Kennedy School has described how the policy priorities were changed: ‘The new model of globalization stood priorities on their head, effectively putting democracy to work for the global economy, instead of the other way around. The elimination of barriers to trade and finance became an end in itself, rather than a means toward more fundamental economic and social goals.’”

  18. Dianne Shatin

    How sad a day it is when US elections are manipulated by carefully targeted psychological information
    designed by a British research company specifically to impact U.S. Elections. In this case, a private British from, used by Ted Cruz then used by Trump .This information is from Wikipedia:

    Main article: Cambridge Analytica
    SCL formed Cambridge Analytica to participate in the election process in the United States. It entered the U.S. market in 2012, and was involved in 44 U.S. congressional, US Senate and state-level elections in the 2014 midterm elections[7] In 2015 it was disclosed that the company had entered the Republican Party presidential primaries, 2016, primarily in support of Ted Cruz. CA is heavily funded by hedge-fund billionaire Robert Mercer, a major supporter of Ted Cruz.[5]; literally, mind control. Should foreign firms and big money from folks like robert mercer billionaire, be banned from US elections? Or is this too old fashioned a notion.

    1. Yves Smith Post author

      Well, it’s not that good, is it? Ted Cruz lost.

      I don’t see why are so worked up about this. There are all sorts of pro consultants peddling high priced snake oil that work for candidates. Trump beat them

    2. flora

      I read the linked article above. The company basically took Trump seriously instead of dismissing his chances and used polling techniques available since the 1970’s. Article says that. All the rest, in this case, is hand waving, imo.

        1. Yves Smith Post author

          I’ve been face to face with traders who took credit for major trades they didn’t do. I’ve seen this across multiple firms!

          These people WOULD take credit for The Donald’s success whether or not they had squat to do with it in the name of getting more business. Everyone any anyone takes credit for success.

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