Wednesday, January 1, 2020

Good Economics for Hard Times I

This is a recent book by Abhijit Banerjee and Esther Duflo, two (married) economists who won Nobels in 2019. Although economics is not an inspiring subject, I am finding that it is one of the very few academic fields which actually studies human behavior in a manner that could be of some value in matters of policy. This is particularly relevant at the moment, when so many politicians in the U.S. and elsewhere pay little or no attention to findings that are relevant to decisions that will definitely impact millions of people over the long term. I am a little surprised that sociologists don't have comparable publications, but, then, we live in capitalist societies, and economists have clout, whereas sociology professors are perceived as run-of-the-mill academics who produce work with no practical applications. I find books like this informative, because the authors actually know something and rarely appear in the news; they are replaced by ignorant TV personalities who cater to the wishes of politicians and corporations. Although biologists such as E.O. Wilson and Robert Sapolsky have long been writing about our animal natures, economics seems to be the only academic subject that sits at the intersection between science and public policy. Unfortunately, no economics books that I've read have made for exciting reading, and I read them mainly out of a sense of responsibility. Not only is E.O. Wilson a better writer than any economist I've ever read, but he also has a more profound understanding of life on Earth.

As far as I've read, there are chapters on immigration and trade. Donald Trump's name has come up a few times, but he is not really a target of the authors. As far as migration is concerned, generally migrants from poorer countries to wealthier countries do not cause significant disruptions, because they take jobs that people don't want in the wealthy countries. They enrich the local economies by making inexpensive services available to the existing inhabitants. Anecdotally, you can see this in Vermont, where the locals don't want to milk cows or pick apples, and migrants are enabling the survival of those industries. An exception occurs in the case of highly-educated immigrants arriving in wealthy countries. In this instance, they may drive wages down in high-paying industries. I know of one example in which a highly-educated American tech worker feels like a token American in a field that is being taken over by foreigners. Thus, in the case of migration, Trump has got it completely wrong, i.e. poor people should be allowed in and well-educated people should be restricted unless there are no comparable domestic workers. The chapter also examines problems related to migrations within countries. Many examples come from India, while similar circumstances occur in countries like the U.S. For a variety of reasons, some rational and some not, many people don't like to move. Often reduced economic circumstances can be improved significantly simply by retraining or moving to a different location. I noticed something like this when I lived in Dixon, Illinois, which is one hundred miles west of Chicago. Quite a few of the people there were poor because the local economy was a little depressed, and I was surprised to learn that some of them had never even been to Chicago once. They liked Dixon because their families lived there.

The chapter on trade is quite complex but readable. It looks closely at economic dogma that has been present since the early nineteenth century. Specifically, most economists still hold to modern versions of the ideas of comparative advantage and free trade. Comparative advantage and free trade do work in most circumstances, though in the literature at this stage there are many provisos and adjustments that need to be made. Comparative advantage, of course, means that each nation will be able to produce some goods and services at a lower cost than other nations and will therefore be able to compete and trade internationally even if it is weak in some industries. For example, China was poor but had cheap labor which gave the country an economic advantage in some manufacturing industries. The economic rise of China did hurt American workers in rural areas whose jobs were lost due to competition. However, the main point of the chapter is that internal adjustments in the U.S. could compensate for that damage. Overall, there is a slight net gain to the U.S. economy attributable to free trade, and it would make sense to leave free trade intact and allocate internal resources to help those who are hurt by it.  Banerjee and Duflo think that the elimination of tariffs would be fine if the losers to free trade were retrained and moved if necessary. Apparently the U.S. has an underfunded and underused Trade Adjustment Assistance program which has proven to be effective in assisting displaced workers. Increasing the funding and publicizing that program would be a better idea than imposing tariffs, which, under Trump, are helping the steel and aluminum industries but hurting industries associated with agriculture.

Anecdotally, moving has been advantageous to my family. My English ancestors converged on London during the Industrial Revolution and got better jobs. My father's move to the U.S. was not exactly a success story for him, but the rest of the family did eventually attain a higher standard of living. More dramatically, my Armenian ancestors moved from Armenia to what is now western Turkey long ago and became wealthy. When the Armenian genocide was taking shape, they moved to Greece, and later the U.S. and South Africa. In my case, I worked in the printing industry for thirty years, most of which were during its decline. Of the eight unrelated plants where I worked, located in Indiana, Kentucky and Illinois, five have closed. Although the printing industry is hardly affected by foreign competition, the same general rule about being willing to move applies to laid-off employees. For this reason I have very little sympathy for rural Americans who are reluctant to make necessary changes in their lives and vote for incompetent, corrupt politicians just because they would rather hear lies than face the truth.

I still have a long way to go in the book and should have one or two more posts to make on it. So far it hasn't said anything about adapting to the Anthropocene epoch or offered a critique of capitalism, which are probably beyond its scope. Another concern I have, which hasn't been discussed, is that centrally managed countries like China will at some point have tremendous global economic advantages as long as the people in power are competent and not corrupt. By applying research in economics and public policy, China may eventually become a much more functional country than the U.S., which is increasingly burdened by inept voters and efforts to decentralize the government. If Japan, South Korea and Taiwan were able to attain Western-like economies in such short periods, one can expect the same from China, but on a much larger scale.

No comments:

Post a Comment