Saturday, February 06, 2016

Why I flipped from pro to con-TPP and similar international trade pacts

Traditionally, I have been pro-International trade for a long time now. During the TPP controversy last year, I was solidly in Obama's camp, supporting the trade deal. In recent months I have started questioning it more, after two lawmakers whom I highly admire have come out against it: Sen. Elizabeth Warren and Sen. Bernie Sanders. It took me a a few months to further ponder this question and I have now finally flipped: I am against trade deals unless perhaps if they are very narrowly focused and precisely implemented.

In explaining my reversal on this matter, first let me lay out out my traditional reasoning FOR International trade agreements.

International trade agreements, such as NAFTA, promise foreign countries that we will not impose tariffs on their manufactured exports to us, such as cars, toys, tools, furniture, electronic components, etc., in return for their agreement to purchase goods from us tariff-free, thus making us more competitive in their markets in fields that we are good at, such as weapons systems, medical technology and, recently, sophisticated software. (My understanding is that in the recent TPP deal, software and other copyright-protected American products are the main beneficiaries, as opposed to previous agreements which did not focus so much on such intangible goods for which foreign governments' cooperation with us in enforcing copyright is now so vital.)

In essence what we are saying here is: let us focus our energies on producing the types of goods that our smart, high-tech economy is really good at; let us then secure the cooperation of foreign governments to promise to pay a fair price to import such products and ensure that they are not pirated by their citizens. This will yield a nice profit for our high-tech sector. In return, we are willing to purchase from them cheap consumer goods such as apparel, inasmuch as such products cannot profitably be made here anyway due to higher wages and regulatory costs.

Obama has used the metaphor "the horse has already left the barn" to point out that the low-tech manufacturing that TPP calls for importing has already left our country anyway, and --willy nilly-- it ain't coming back. Why not then, argues Obama, should we not atleast fully profit from what we do make here by, in effect, threatening import tariffs (albeit this may be a bluff) if other countries do not pay a fair price for our exports?

To critics who argue "what about those workers who suffer the loss of jobs due to industries moving overseas?" Obama's solution is to offer government aid in retraining them for high-tech jobs that we are good at (and which constitute the backbone of our economy) and for the plethora of service jobs that support our core high-tech economy. This aid for retraining is known as TAA -- trade adjustment assistance.

Here's what changed my mind on this topic.

Charles Murray makes a very compelling assertion in "Real Education", one that has altered the way I think about education and the job market: About 70% of students are NOT CAPABLE of academic education. The standard educational track that American students are enrolled in --one that emphasizes reading and writing, advanced math, history, and natural sciences, and which leads to a college education and supposedly to a well-paid career and a good life-- is not suitable for most students. Most people do not have what it takes to succeed in such a track. They don't want it and they feel miserable being in it. He advocates teaching more traditional and simpler vocations such as plumbing and carpentry to such students.

As a teacher assigned to a "regular" 6th grade social studies class, I have become convinced from first-hand experience that his assertion is true. My students abhor reading and have no interest in what the Shang and Zhou dynasty did 3,000 years ago, nor in what ancient Hindus believed will lead them to moksha. I can honestly not envision that they will one day come to appreciate this stuff, as I did, and in any event this approach can only go so far. If students' ability and interest is severely limited then it's inappropriate to keep goading them in the fanciful hope and "high expectation" that they will eventually get it.

Upon some reflection on this I realized that Murray's doctrine is applicable in the job market as well: most people will never be a good fit for the kind of high-tech jobs that the Obama admin hopes America at large will specialize in. This could be formulated as a natural law: No matter how smart a given society is based on geography, genetics and historical circumstances, there will always be a majority within it which cannot rise to the level of productivity that the elite does. This explains what seemed an enigma to me for quite some time: how millions of Americans are actually quite content being cashiers, salespeople, security guards, phone operators and so on -- jobs that I view as numbingly and excruciatingly boring. I turns out that while they are boring to me, our society needs them; they cannot be exported, and there are always folks who not only are willing to take them, but will actually be content in them.

The corollary is that racing to the bottom --the idea of NOT making anything in this country that could be made cheaper and more efficiently in another-- may seem like a smart thing economically, but it is not an effective norm socially. Our society needs service jobs and manufacturing jobs that are simple and repetitive, not because the products and services can best be made here, but because they enrich and complement us as an integral, holistic society. A society without them is akin to a man without a woman or vice versa; one sector without the other is not a stable, functioning, and complete society. College for all, doctorate degrees for all, is not practicable.

Accordingly, there is a grave flaw in free trade. The assumption therein is that we can maximize high-tech employment by pushing everyone to get a "higher education" and keeping the service and low-paying manufacturing jobs (that could be outsourced more economically) to a minimum. If this is not achievable, as indeed it isn't, due to the inherent constraints in the basic aptitude of the majority of the population, then what we are in effect doing is creating a bubble in the service sector. Millions of Americans find work in the medical industry and as security guards and as cops and firefighters and special-ed teachers, not because they are really needed in those capacities, but because they can be hired cheaply by their employers and there is underlying social incentive to employ as much of the population as possible.

The end result is the exact opposite of what free-trade proponents are trying to accomplish. Instead of efficiency in the job market, entire service sectors are born and grow and thrive because its employees have nothing else to do in an economy that has been gutted of traditional jobs, such as construction and craftsmanship.

Moreover, because the service sectors balloon to such large proportions, the competition for its jobs is intense, which drives down wages, thus feeding the wide income gap between those employed in the core sectors of computer programming, medical technology and advanced weaponry, on the one hand--all of which are very profitably export sectors IN ADDITION to being consumed domestically-- and the service sectors which are by definition NOT exportable, on the other hand. Contrary to popular wisdom, jobs in the 21st century that are not exportable may indeed be fairly secure and command more than minimum wages, yet they are also by definition ("service") not part of our economic core. (After all, if all jobs were service jobs, we would have no surplus to spend on consumer imported goods.)

What we ought to do instead is nurture domestic craft industries that employ large numbers of people who do not have a college degree. Such workers will, of course, not make as much as the ones working in the cutting-edge high-tech sectors that are exportable and which are ultimately the engine of our economy. But such workers will get to do work that is satisfying psychologically, knowing that they are producing concrete stuff that is indispensable to their fellow citizenry, as opposed to boondoggling. In addition, unlike service jobs, manufacturing jobs are in theory exportable, even if in practice it won't happen often by dint of the higher cost associated with a higher standard of living, government regulation, labor rights, etc.

To summarize:

  1. Our service sector is one big bubble. Many of its jobs are unnecessary and unsatisfying.
  2. Service workers make very little money because there is a glut of job vacancies, many of which are boondoggles.
  3. The solution is to return to productive manual labor, not out of economic efficiency, but out of social necessity, and in order to close the income gap.
  4. Jobs that can be exported profitably should constitute the core of our economy and will only be occupied by intelligent and ambitious individuals --our "elite"-- around 20% of the population. Construction and craft work that COULD be exported but normally isn't should constitute the second tier. Service jobs that CANNOT be exported should constitute the lowest tier. Customer service call centers we can let go of completely (The Indians hold it in high regard and do it more efficiently).