[VivienM]

Thankfully I have an Economics degree so you can't BS me -

You correctly mention all the obvious detrimental effects of plant closures - LOCAL communities working for the plants experience high level of unemployment. I understand that.

Plant closure also means that consumers dislike the product assembled by a given manufacturer and punish it by purchasing their competitor's products which give them more bang for their hard earned buck ... In turn, consumers save themselves money and promote better car manufactures - BASIC ECONOMICS!

What you fail to mention is that these LOCAL communities are united and well heard in POLITICAL circles and the MEDIA!
What you also fail to mention is that on a NATIONAL level, US/Canadian Consumers get better bang for their buck while unprofitable GM plants are going out of business! See, increased competition saves Consumers a lot of money by giving them better cars at competitive prices and takes the uncompetitive players ( some GM plants ) out of the market.

Obviously, those who reap the benefits of competition are a lot larger group of people than the LOCAL communities who suffer from plant closures. Unfortunately, those who reap benefits are a dispersed crowed, not united POLITICALLY so you never really know/hear of the MUCH LARGER benefits that competition brings!

There's one small problem with your logic. Sure, if company #1 lowers costs by cutting jobs and this is reflected in the price of company #1 products, company #1's laid off workers are worse off and company #1's customers are better off.

BUT... what if every business does like company #1? You end up with a much smaller consumer class once half your economy's jobs have gone away, unless you have some funky economic theory that argues that equivalent jobs will magically end up created to replace the old ones on such a large scale. That's the problem with your standard type of outsourcing: great for consumers... assuming their own jobs aren't themselves outsourced.

And I have an economics degree too, FYI...

 

[oilleak]

There's one small problem with your logic. Sure, if company #1 lowers costs by cutting jobs and this is reflected in the price of company #1 products, company #1's laid off workers are worse off and company #1's customers are better off.

BUT... what if every business does like company #1? You end up with a much smaller consumer class once half your economy's jobs have gone away, unless you have some funky economic theory that argues that equivalent jobs will magically end up created to replace the old ones on such a large scale. That's the problem with your standard type of outsourcing: great for consumers... assuming their own jobs aren't themselves outsourced.

And I have an economics degree too, FYI...

It's funny, but your funky logic has an obvious problem.

You make an assumption that I don't make - you assume that "every business does like company #1"! In other words, you assume that every business in your false model will have no competitive advantage!
By your assumption you just broke the #1 law of international trade - every country has a comparative advantage, so there is no way every "company #1" will be uncompetitive!
Did you sleep through your Economics classes?

 

[VivienM]

It's funny, but your funky logic has an obvious problem.

You make an assumption that I don't make - you assume that "every business does like company #1"! In other words, you assume that every business in your false model will have no competitve advantage!
By your assumption you just broke the #1 law of international trade - every country has a competitive advantage, so there is no way every "company #1" will be uncompetitive!
Did you sleep through your Economics classes?

Every country has a competitive advantage... that's certainly true in the textbook models (two things being produced, two countries, perfectly flexible labour/capital, etc), but this isn't a textbook world, now is it?

Let's start by talking about trade deficits, shall we? In the textbook world, currencies adjust and such so that no country has a (current + capital) account deficit/surplus. Not happening right now, is it? So that's already sign that something is up differently from the textbook models. (Yes, the Chinese currency practices are one big reason...)

Secondly, the standard competitive advantage story assumes that countries are facing tradeoffs about what to produce. You can produce either 10 cars and 20 TVs in China, or 50 cars and 10 TVs in the US, say, with the amount of labour/capital available in each country.

China, for instance, is sitting on surplus labour. India is too. Etc. So basically, they can produce additional things WITHOUT that tradeoff at this point. If I'm company #1, and sell things at $20/unit with my workers here, I can move half that workforce to China tomorrow and sell things at $10/unit. Half my workers here are screwed. My (domestic) consumers are better off. That is the story you described.

Now, let's look at company #2. There is enough surplus labour/land/etc in China for company #2 to move half its workforce tomorrow without affecting the prices of labour/land/etc in China. So they move too.

Same for company #3, #4, #5, etc. We'll run out of domestic jobs to move BEFORE China runs out of cheap workers to supply to those outsourcing companies. And at that point... well, half your domestic jobs are gone. And half your domestic consumers, too... while the other half are enjoying cheap consumer goods. And the Chinese probably aren't going to be buying more US-made stuff... Is that a Pareto improvement?

In theory, given free markets, currency (and exchange rates) SHOULD, at some point, stop this vicious cycle so that trade is balanced, obviously... but is that going to hold in the real world of massive and growing trade deficits and funky currency policies that don't follow the normative textbook models?

That's what is hard to predict, whether one was awake in class (which, unfortunately, I was...) or not...

 

[oilleak]

....
China, for instance, is sitting on surplus labour. India is too. Etc. So basically, they can produce additional things WITHOUT that tradeoff at this point. If I'm company #1, and sell things at $20/unit with my workers here, I can move half that workforce to China tomorrow and sell things at $10/unit. Half my workers here are screwed. My (domestic) consumers are better off. That is the story you described.

Now, let's look at company #2. There is enough surplus labour/land/etc in China for company #2 to move half its workforce tomorrow without affecting the prices of labour/land/etc in China. So they move too.

Same for company #3, #4, #5, etc. We'll run out of domestic jobs to move BEFORE China runs out of cheap workers to supply to those outsourcing companies. And at that point... well, half your domestic jobs are gone. And half your domestic consumers, too... while the other half are enjoying cheap consumer goods. And the Chinese probably aren't going to be buying more US-made stuff... Is that a Pareto improvement?
....

At first, you correctly explain my logic, but then your theory starts to contradict another important concept of Economics... I'll give you a full blown explanation where you went wrong, as soon as I get a spare moment.

 

[roughrider]

I'm a fan of both GM and Toyota.

Toyota has the press behind them, GM has them against them.

In terms of quality, GM and Toyota are typically neck and neck. Lexus is usually at the top, but Caddy and Buick typically are right under them. At that point the differences in quality is statistically insignificant concerning objective things. Yet, the press never celebrates GM even when in a statistical tie with Toyota. But who said journalist were fair?

Lastly, as much as I like Toyota I actually feel Honda has better refinement, better engineering, and is equally as innovative. They are also "greener", the greenest of all car companies actually. Yet the press paint Toyota as the green one. As usual, they are more interested in a good story than the truth.

All are good companies. Too bad we can't read about them minus the spin.

You see that's the problem, toyota and GM aren't neck in neck in quality and even if they were, GM still lacks the refinement and efficiency exhibited by current toyota cars and suffers from an aging lineup based on aging platforms. In addition, GM cars trail in resale value, build quality, interior materials quality, a good track record and less then expected innovation (push rod engines? come on) all offered at similar prices as comparable competitive imports.

THAT'S WHY GM IS LOSING MARKET SHARE PEOPLE!!!!

 

[DenCo]

GM's problem, for the most part, is merely perception. Sure, they DO have some bad models out there, for example, I wouldn't touch a Rendezvous with a ten foot pole. However, for the most part, they do have some good dependable vehicles in their lineup, Buick is always among the top (and higher than Toyota) in both initial quality and vehicle dependability.

The problem comes in when you have someone who's mother, father, uncle, aunt, grand father, grand mother, brother sister, cousin, pet monkey, etc. has had a "lemon" GM at some point in time. Suddenly, they see GM as this evil corporation out to rip them off. Even sadder is the fact that, it seems no matter what they do to try and fix this situation (new much better products, recalls, etc), people either don't believe it, yell "not god enough" at the top of their lungs or find any other excuse they can to continue bashing/hating them.

Interiors really aren't that different if you ignore the GMs with the really bad ones like the Cavalier/Sunfire twins or even the Grand-Am to name a few and are only getting better with every year. Build qualitu has been up there for Buick and Cadillac at least for many years now and the others (minus the few really bad models) aren't as bas as people would have you believe.

I have to agree with the aging line-up comment however, having two GMs model years 01 and 02 who's designs date back to 99 and 98 respectively. This is somewhat of a problem, especially when they hardly even add any features to them over the years, much less update anything.

Pushrod engines shouldn't be an issue, sure overhead cams are a newer and more advanced technology, but pushrod engines are not bad and they're what GM does best. Unless you have a high-revving engine, which GM engines usually are far from it, you really won't see much of a difference.

Oh, and fuel economy, when you're NOT doing an unfair comparison like a Corolla's I4 vs. a Deville DTS Northstar V8 (exagerating to better illustrate my point) you'll find that fuel mileage figure usually won't be that far off, and surprisingly, Toyota or anyt other brand for that matter, won't always come out the winner either.

 

[oilleak]

Every country has a competitive advantage... that's certainly true in the textbook models (two things being produced, two countries, perfectly flexible labour/capital, etc), but this isn't a textbook world, now is it?

Let's start by talking about trade deficits, shall we? In the textbook world, currencies adjust and such so that no country has a (current + capital) account deficit/surplus. Not happening right now, is it? So that's already sign that something is up differently from the textbook models. (Yes, the Chinese currency practices are one big reason...)

Secondly, the standard competitive advantage story assumes that countries are facing tradeoffs about what to produce. You can produce either 10 cars and 20 TVs in China, or 50 cars and 10 TVs in the US, say, with the amount of labour/capital available in each country.

China, for instance, is sitting on surplus labour. India is too. Etc. So basically, they can produce additional things WITHOUT that tradeoff at this point. If I'm company #1, and sell things at $20/unit with my workers here, I can move half that workforce to China tomorrow and sell things at $10/unit. Half my workers here are screwed. My (domestic) consumers are better off. That is the story you described.

Now, let's look at company #2. There is enough surplus labour/land/etc in China for company #2 to move half its workforce tomorrow without affecting the prices of labour/land/etc in China. So they move too.

Same for company #3, #4, #5, etc. We'll run out of domestic jobs to move BEFORE China runs out of cheap workers to supply to those outsourcing companies. And at that point... well, half your domestic jobs are gone. And half your domestic consumers, too... while the other half are enjoying cheap consumer goods. And the Chinese probably aren't going to be buying more US-made stuff... Is that a Pareto improvement?

In theory, given free markets, currency (and exchange rates) SHOULD, at some point, stop this vicious cycle so that trade is balanced, obviously... but is that going to hold in the real world of massive and growing trade deficits and funky currency policies that don't follow the normative textbook models?

That's what is hard to predict, whether one was awake in class (which, unfortunately, I was...) or not...

So, here is why BOTH US and China will be better off with free trade ( or outsourcing, as some people call it ):

In Economics, The theory of comparative advantage explains why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. What matters is not the absolute cost of production, but rather the ratio between how easily the two countries can produce different kinds of things. (http://en.wikipedia.org/wiki/Comparative_advantage)

The above link also contains an excellent example - Example #2 for the proof of benefits of trade.
Finally, there is a bunch of disclaimers that the theory doesn't take into account...however these disclaimers do not help your point and only further highlight the need for free trade.

Enjoy!

 

[oilleak]

GM's problem, for the most part, is merely perception. Sure, they DO have some bad models out there, for example, I wouldn't touch a Rendezvous with a ten foot pole. However, for the most part, they do have some good dependable vehicles in their lineup, Buick is always among the top (and higher than Toyota) in both initial quality and vehicle dependability.

I wouldn't put Buick reliability above Toyota. Check out Consumer Reports for Buick and Toyota, and then decide who is the winner in vehicle dependability.

As far as Caddy goes, it had a very painfull past - most of the 80s and 90s were just a disaster in terms of quality, and 2000s models are not a competition for Lexus or Acura Reliability. Again - check out CR.

 

[VivienM]

So, here is why BOTH US and China will be better off with free trade ( or outsourcing, as some people call it ):

In Economics, The theory of comparative advantage explains why it can be beneficial for two countries to trade, even though one of them may be able to produce every kind of item more cheaply than the other. What matters is not the absolute cost of production, but rather the ratio between how easily the two countries can produce different kinds of things. (http://en.wikipedia.org/wiki/Comparative_advantage)

The above link also contains an excellent example - Example #2 for the proof of benefits of trade.
Finally, there is a bunch of disclaimers that the theory doesn't take into account...however these disclaimers do not help your point and only further highlight the need for free trade.

Funny, that sounds a lot like the textbook example

Do I really have to write a critique of a major economic theory right now, right here?

This model makes a number of sketchy assumptions:
- labour/capital perfectly movable between production of different goods (so in this world, the UAW line worker can become an aerospace engineer overnight)
- both economies producing on their productions possibilities curve/frontier (depending on the textbook you use), so at full capacity
- no type of currency, just two goods (and each good, no matter where it is produced, is identical)

If you have two economies with fully mobile labour/capital producing at their full capacity, and a free market (floating) currency, then I would agree that this theory would hold. The full capacity assumption is the key one, because without that, it falls apart.

But... let's see here.
- the UAW line worker can't costlessly (or even costfully...) be transformed into aerospace engineers or whatever else the US might have a comparative advantage in (I'm assuming you'd assert the advantage would be in some high tech knowledge industry?)
- similarly, capital can't be easily shifted (though one could argue that in some sectors, e.g. TVs, this has happened over time, as there isn't any US capital left producing TVs)
- neither the US nor the Chinese economies are currently producing at full capacity by any economic definition of the term (don't forget the way the US doesn't count discouraged workers as unemployed) -> the reasons for this, of course, are far outside the scope of this discussion or trade theory
- the Chinese were, and probably still are, engaging in sketchy currency tricks

So, I continue to think that this model, while beautiful in the textbook world, is unapplicable in its basic Wikipedia form to the real world. I could probably draw up a numerical example, if I had enough time, too...

 

[VivienM]

BTW, since we're talking economic textbook materials, have you seen the thread on the EPA fuel economy report? You probably would agree with my-straight-out-of-the-textbook advocacy of corrective gasoline taxation

 

[oilleak]

Funny, that sounds a lot like the textbook example

Do I really have to write a critique of a major economic theory right now, right here?

This model makes a number of sketchy assumptions:
- labour/capital perfectly movable between production of different goods (so in this world, the UAW line worker can become an aerospace engineer overnight)
- both economies producing on their productions possibilities curve/frontier (depending on the textbook you use), so at full capacity
- no type of currency, just two goods (and each good, no matter where it is produced, is identical)

If you have two economies with fully mobile labour/capital producing at their full capacity, and a free market (floating) currency, then I would agree that this theory would hold. The full capacity assumption is the key one, because without that, it falls apart.

But... let's see here.
- the UAW line worker can't costlessly (or even costfully...) be transformed into aerospace engineers or whatever else the US might have a comparative advantage in (I'm assuming you'd assert the advantage would be in some high tech knowledge industry?)
- similarly, capital can't be easily shifted (though one could argue that in some sectors, e.g. TVs, this has happened over time, as there isn't any US capital left producing TVs)
- neither the US nor the Chinese economies are currently producing at full capacity by any economic definition of the term (don't forget the way the US doesn't count discouraged workers as unemployed) -> the reasons for this, of course, are far outside the scope of this discussion or trade theory
- the Chinese were, and probably still are, engaging in sketchy currency tricks

So, I continue to think that this model, while beautiful in the textbook world, is unapplicable in its basic Wikipedia form to the real world. I could probably draw up a numerical example, if I had enough time, too...

While you provide fair assumptions to the example #2, you fail to explain how these assumptions make protectionism a more favorable option to free trade.
For example:
assumption 1: the UAW line worker can't costlessly (or even costfully...) be transformed into aerospace engineers
BUT China is in the SAME boat - a Chinese Nike factory worker can not easily learn the TV production assembly.

assumption 2: capital can't be easily shifted
BUT this is true for BOTH US and China. Hand-held toy factories don't fall from the sky... and same goes for sewing sweatshops.

assumption 3: obviously both China and US do not employ their full population.

assumption 4: currency - don't know the latest tricks, so can't comment.

SO, most of the assumptions do NOT give either US or China special favors!

In fact, assumptions 1 and 2 only say that it will take some time for people to learn new trade and get another job, just as it takes time to build and move capital where it is needed.
Assumption 3 is just a fact of life - you don't expect a newborn or a riteree to work.
The above assumptions simply show that our current Economy is not as efficient as the one in the example, HOWEVER I disagree that the assumptions you mention imply protectionism instead of free trade.

On the contrary, the assumptions only highlight the fact that US and China face the same assumption-problems and should continue to benefit and get Richer from free trade!
I would be happy to see a numeric example from you to support protectionism. Just be careful what you support - North Korea still thinks they can fully support themselves...

 

[nailhead425]

GM may have decades of crappy cars to forget, but we don't know what Toyota has been making before the 80s. Can you say micro cars?

The FJ-40 used a ton of GM technology. True Toyota fans would know this...

I wouldn't put Buick reliability above Toyota. Check out Consumer Reports for Buick and Toyota, and then decide who is the winner in vehicle dependability.

:lmao:

Wait... You were SERIOUS! :fall:

 

[VivienM]

While you provide fair assumptions to the example #2, you fail to explain how these assumptions make protectionism a more favorable option to free trade.
For example:
assumption 1: the UAW line worker can't costlessly (or even costfully...) be transformed into aerospace engineers
BUT China is in the SAME boat - a Chinese Nike factory worker can not easily learn the TV production assembly.

assumption 2: capital can't be easily shifted
BUT this is true for BOTH US and China. Hand-held toy factories don't fall from the sky... and same goes for sewing sweatshops.

assumption 3: obviously both China and US do not employ their full population.

assumption 4: currency - don't know the latest tricks, so can't comment.

SO, most of the assumptions do NOT give either US or China special favors!

In fact, assumptions 1 and 2 only say that it will take some time for people to learn new trade and get another job, just as it takes time to build and move capital where it is needed.
Assumption 3 is just a fact of life - you don't expect a newborn or a riteree to work.
The above assumptions simply show that our current Economy is not as efficient as the one in the example, HOWEVER I disagree that the assumptions you mention imply protectionism instead of free trade.

On the contrary, the assumptions only highlight the fact that US and China face the same assumption-problems and should continue to benefit and get Richer from free trade!
I would be happy to see a numeric example from you to support protectionism. Just be careful what you support - North Korea still thinks they can fully support themselves...

I haven't said that protectionism is good, inherently, just that free trade with full specialization is not inherently as good as the competitive theory says, given the realities above (in particular, the part about full capacity).

You want a numerical example? I'll try one now, though I don't promise it'll work out (didn't get too much sleep last night... if it doesn't work out, I'll try another).

U.S. has 10 UAW dudes and 5 computer assemblers. One can't do the other's job without unaffordable training.
China has 100 car dudes, and 100 computer assemblers. Can't move one to the other sector, either.

One UAW dude can make 2 cars; one US computer assembler can make 6 computers.
One Chinese car dude can make 3 cars; one Chinese computer assembler makes 12 computers.

Ignore currency/trade balance/etc issues, as those have been skewed in the real world. Also assume all the necessary capital is lying around for whatever reason, and can't be moved from one to the other (again, retooling a car plant to make computers is unaffordable).

Total specialization:
U.S. makes 20 cars. China makes 1200 computers. They are allocated across the two countries through market mechanisms.
(You could make a case for the U.S. specializing in computers, China specializing in cars, too... given the assumptions made here)

Full employment in both countries with trade potential:
U.S. makes 20 cars, 30 computers.
China makes 300 cars, 1200 computers.
Total amount of computers: 1230, total amount of cars 320. They are allocated in whatever way the market wants.

Clearly, this point is a Pareto improvement over the competitive advantage point.

Full employment with protectionism:
U.S. makes 20 cars, 30 computers.
China makes 300 cars, 1200 computers.
If no trade goes on... that's it. Unless that particular distribution is the market outcome in the case with trade above (which would basically be a coincidence), this is hardly optimal.

So, protectionism sucks. But unfettered free trade... leads to a point below each economy's production possibilities frontier as well, which is not efficient either.

Underlying assumptions in this model, since I'll try to make this easy to criticize:
- Leontief production functions. Unlike the more common types where resources can be reallocated, this implies that if a car worker doesn't work in cars, they don't produce anything. This is the opposite extreme of the usual assumption of perfect labour mobility. I suspect that in the real world, it's somewhere in between...
This has the effect, of course, of making the tradeoff between car production and computer production to be undefined. Not producing one car in one place doesn't let you make any more computers.
- Capital is assumed to be available for each worker to work in their chosen field
- Currency and the final distribution of the two goods have been ignored.

Note, of course, that all the defenders of outsourcing implicitly are backing the first option (full specialization). If they weren't... then they would just suggest expanding in China without taking away U.S. jobs.

If this doesn't make sense (sleepiness and economics... don't usually work out too well), let me know, and I'll try and flesh it out a bit more or come up with a different example.

 

[timman]

Thankfully I have an Economics degree so you can't BS me -

assumption 4: currency - don't know the latest tricks, so can't comment

How can you have a degree in economics if you don't know the latest "tricks" to currency manipulation? Did you sleep through that class?

 

[SmallBlock]

VivienM,

Good job explaining the basic points (and examples) of trade dynamics. I thoroughly enjoyed it. As per usual, neither extremes (unfettered global market, nor restrictive protectionism) are desireable. And with the increasing likelihood of China (and Japan for that matter) currently engaging in some sort of economic warfare, limited US market protectionism may be a good idea.

 

[oilleak]

I haven't said that protectionism is good, inherently, just that free trade with full specialization is not inherently as good as the competitive theory says, given the realities above...

So, protectionism sucks. But unfettered free trade... leads to a point below each economy's production possibilities frontier as well, which is not efficient either.

Underlying assumptions in this model, since I'll try to make this easy to criticize:
- Leontief production functions. Unlike the more common types where resources can be reallocated, this implies that if a car worker doesn't work in cars, they don't produce anything. This is the opposite extreme of the usual assumption of perfect labour mobility. I suspect that in the real world, it's somewhere in between...

The example you give shows what happens with the industry lacking comparative advantage - the workers are simply unemployed for life.
Fortunately, this major assumption that makes a case for protectionism is false for 2 reasons:
1) Real unemployed workers can get new education.
2) US Government provides unemployment benefits and advise on the industries with Comparative Advantage to make the transition easier.

Now, in your previous posts you agreed with the comparative advantage theory as long as resources can easily migrate between industries. You did say "free trade with full specialization is not inherently as good as the competitive theory says" primarily because of the indynamic workforce assumption.

This actually comes in handy, because the more US Government cares about the 2) item - regarding educating it's workforce - the more dynamic/flexible the workforce becomes!!!! This in turn brings US workforce closer to the theory model workforce and translates into more efficiency and wealth for the US Economy!

As soon as you start finding the middle ground, and restricting outsourcing - that will save certain folks from switching career paths, however the economy will no longer use it's resources efficiently - and thus bring in the North Korea syndrom.

May be I don't understand your argument for "middle ground" - please explain. Based on your last two posts you seem to indirectly support free trade, but you haven't come out of the closet fully yet...
I know, it's tough to fight a proven theory after all...

 

[kenmi]

We have been practicing free trade for many years now. Where are the good results?
Things should be better than ever. How do you explain the recession and the still not complete recovery? I think that this free trade thing has had a few winners, but the long-term future of the country has been undermined. Business owners who shed American workers made an overnight fortune, but often, a Chinese company would steal the technology and undermined them eventually, putting them out of business. But the former business owner was rich, he didn't care. Free trade sure worked for him, and the stock holders, untill the company went under. Some shoppers liked the cheaper goods, untill they lost their jobs. Then it no longer worker for them.

It is interesting that Japan and China do not practice free trade at all! And it works wonderfully. They are almost completely protectionist. Yet they are killing us. How could this be? Free trade has become a religion to some. It sounds great, but in practice is as faulty as any other sweeping utopian system that claims to have an answer to everything. In fact it is BECAUSE we mindlessly continue to practice a cult of free trade, that they are killing us. Because they can manipulate us perfectly.

 

[VivienM]

How can you have a degree in economics if you don't know the latest "tricks" to currency manipulation? Did you sleep through that class?

Economics degrees are not about practicality; they're about funky theoretical mathematical models that, depending on your way of looking at the world around you, are more or less relevant.

 

[VivienM]

The example you give shows what happens with the industry lacking comparative advantage - the workers are simply unemployed for life.
Fortunately, this major assumption that makes a case for protectionism is false for 2 reasons:
1) Real unemployed workers can get new education.
2) US Government provides unemployment benefits and advise on the industries with Comparative Advantage to make the transition easier.

I do note that you continually fail to specify WHICH industry you see the US having a comparative advantage in.

Ahhh, here comes the usual argument. "People can retrain."

Let's say your comparative advantage is in some knowledge sector... financial services, for instance. China has a comparative advantage in cars.

Take your generic 45 year old UAW lineworker. Spend however much government money (raised through distortionary taxation, I assume, unless a) you've magically found a way to make lump-sum taxes work in the real world, or b) you believe passing the bill to your kids is sound economics and ethics) you want... I have trouble believing that you'll have more than maybe a 5% rate at turning UAW lineworkers into investment bankers. (Sorry, but turning the UAW dudes into janitors for the investment bankers hardly seems an ideal solution). Given that kind of return, I don't think any cost/benefit analysis can justify throwing government money into training people for the allegedly in-demand services.

Competitive advantage industries have to be industries producing stuff with foreign demand, presumably... (if A has an advantage in cars, B an advantage in finance, but B doesn't want cars, how does trade help?) and I just don't see a way of retraining a UAW worker for a decent, well-paying job in those sectors.

Now, in your previous posts you agreed with the comparative advantage theory as long as resources can easily migrate between industries. You did say "free trade with full specialization is not inherently as good as the competitive theory says" primarily because of the indynamic workforce assumption.

Yes, the mobility of the labour force (and to a slightly lesser extent, capital stock) is the key sticking point. If you can move resources at low cost, then sure you can produce more by specializing/trading. If you can't, that's much more arguable.

This actually comes in handy, because the more US Government cares about the 2) item - regarding educating it's workforce - the more dynamic/flexible the workforce becomes!!!! This in turn brings US workforce closer to the theory model workforce and translates into more efficiency and wealth for the US Economy!

You know, I've hung out with enough Americans by now that, despite my "liberal" (in U.S. politicalspeak) beliefs, I am starting to share the American right's belief in the incompetence of the US federal government to solve large social problems.

Let me, somewhat skeptically, ask the following questions about those job training programs, as I am not much aware of the details:
a) Is the training clearly oriented towards industries where the U.S. appears to have a long term competitive position?
[If it isn't... then it's silly to retrain somebody for a job that will go byebye in 6 months]
b) Assuming the training is successful, what impact does the training program have on the labour markets (specifically, wages and unemployment) in the relevant industry?
[By driving up the supply of 'qualified' workers, I would expect to see a sharp fall in wages in that sector. Again, is that a desirable policy group?]
c) In the long term, how did graduates of those programs compare with workers who had been in that sector for longer, or who entered it early in their working life)? (I mean here in terms of the metrics employers would use to rank whether an employee is good or not)
d) Do those programs actually pass a reasonable cost-benefit test?

I once read a very interesting argument (in the general media, though... not specialized economics literature), though I think it could be challenged if you apply economic tax incidence concepts, that the US EITC program was basically a subsidy to employers where basically taxpayers are paying money so that employers don't have to offer higher wages. Could the same argument be made about this program: it's a way to get taxpayers to drive down wages to the benefit of employers?

As soon as you start finding the middle ground, and restricting outsourcing - that will save certain folks from switching career paths, however the economy will no longer use it's resources efficiently - and thus bring in the North Korea syndrom.

May be I don't understand your argument for "middle ground" - please explain. Based on your last two posts you seem to indirectly support free trade, but you haven't come out of the closet fully yet...
I know, it's tough to fight a proven theory after all...

A proven theory is only proven insofar as the underlying assumptions are valid. I have already agreed that, in the world of my first or second year economics textbook (or that of the authors of that Wikipedia article), that theory is obviously true. I would argue it's basically a truism, anyways: you've defined everything in such a way that this conclusion HAS to be true.

But if we change the definitions... That'll be explained in my next post, as I figure this one is probably long enough for the server to start yelling at me soon.

 

[oilleak]

"We have been practicing free trade for many years now. Where are the good results?"

Don't like the way US Economy is doing, think things should be better? In that case, I've got just the country for you, kenmi! Try North Korea - you gonna love it - the last thing they want to do is trade... According to your theory, these guys "should be better than ever"... Guess something went horribly wrong... :rotf:

"...but the long-term future of the country has been undermined. Business owners who shed American workers made an overnight fortune, but often, a Chinese company would steal the technology and undermined them eventually, putting them out of business. But the former business owner was rich, he didn't care. Free trade sure worked for him, and the stock holders, untill the company went under. Some shoppers liked the cheaper goods, untill they lost their jobs. Then it no longer worker for them. "
Run forest, run, we all gonna die! :hyper: just pure pessimism, plain and simple...

"It is interesting that Japan and China do not practice free trade at all! "
At all??? You sure?

"And it works wonderfully. They are almost completely protectionist. Yet they are killing us. How could this be? Free trade has become a religion to some. It sounds great, but in practice is as faulty as any other sweeping utopian system that claims to have an answer to everything. In fact it is BECAUSE we mindlessly continue to practice a cult of free trade, that they are killing us. Because they can manipulate us perfectly."

Kim Jong Il would definitely agree with your wise decision! After all, this protectionist ideology is the root of North Korean paranoya, oh sorry, Economics. That's why they are soooo independent and prosperous these days...:rotf: