h1

Goolsbee named staff director of Obama’s Economic Recovery Advisory Board

Friday 19 December, 2008

As an avowed & unabashed member (leader?) of the Austan Goolsbee fan club, I was happy to come across this article in the Chicago Tribune by Michael Oneal U. of C. ‘s Goolsbee joins advisory board

I only have 1 beef:  journalists should learn more about economics, & especially international economics,  when they’re writing about it.  Oneal says.”When talking about Obama’s platform on trade, for instance, Goolsbee insists that the president-elect has a deep commitment to free markets. But he also recognizes that classic free-trade theory doesn’t account for consequences like job loss.”

Free trade theory does account for consequences like job loss, the difference simply depends on in which time frame you consider it.  Free trade theory recognizes that, of course, unemployment will displace workers as a result of free trade in the short term when markets specialize in products/services in which they have comparative/(like Michael Porter’s competitive advantages too?) advantages.  The other assumption is that there are enough resources to be allocated so that those who are unemployed in the short term are retrained & re-employed in the long term.  How long the short & long terms are is open to debate as a theoretical question, but the policy issue becomes “Are we allocating enough resources for retraining for those who are unemployed in the short term so that they don’t become long-term unemployed?”  My answer is a resounding no.  Governments in Europe do a much better job or re-educating their unemployed, but they pay more in personal income taxes & union dues for the costs of those programs.

Supposed free-trader Obama’s beefs with trade are lack of enforcement of environmental & labor standards, not job displacement.  Enforcing standards is quite different from preventing job losses, many of which are inevitable anyway.  In this case, free trader is a matter of degree.  Obama is not a total free trader because he’s imposing costs that wouldn’t exist in a totally free trade scenario.  When other countries gain unfair competitive advantages by not having to pay for the same environmental & labor standards we do, we incur costs that they don’t in enforcing these standards & consequently become more expensive.  Job losses may result here because our costs go up, but those are indirect or better said not direct results & therefore it’s difficult to link causality.  Banning imports won’t work either because then we’d have no choice but to buy more expensive locally-produced goods, & our consumer-led economy always seeks out the lowest prices of similar goods.  I don’t doubt that Barack is essentially a free-trader, & that may have its social advantages, as long as we recognize that we pay a price for enforcing those standards in either higher unemployment or higher prices.

Advertisements

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: