Month: March 2008

Paul Krugman on trade and wages

Here is his new paper, but start first with this Mark Thoma summary, and two graphs from Brad DeLong.  The main point is that some U.S. imports may be more labor-intensive and less skill-intensive than previous classifications had indicated.  Here is one key paragraph (p.20):

But what are we to make of NAICS 334, Computer and Electronic Products? In U.S. data it ranks as the most skill-intensive of industries, yet it is also an industry in which more than three-quarters of imports come from developing countries, especially China.

If these sectors count as "importing labor," we can find that trade is creating more downward pressures on U.S. wages than we had thought. 

I don’t think Krugman is quite right to claim: "the apparent sophistication of imports from developing countries is in large part a statistical illusion."  I would sooner say that China and some other Asian countries are specializing in new (and sophisticated) techniques of cooperation, made possible by long-term historical investments in human capital and social norms.  At least in certain sectors, they are combining complementary labor inputs, with complementary capital inputs, more effectively than before; it’s hard to explain that change in the impoverished vocabulary of the substitution-obsessed Heckscher-Ohlin model.  The skill is in the combination not in the people themselves.  "Capital-intensive" vs. "labor-intensive" or "skilled" vs. "unskilled" are not simple either/or questions.   

So I think Krugman is confused on the semantics, but in the final analysis this perspective supports and perhaps even strengthens his point.  If the paper looked at wages and employment in northern Mexico, following the move of China onto the world stage, the revisionist conclusions would fall more easily into place.  On one hand Chinese competition hit Mexico (a home of unskilled but relatively cooperative labor) very hard; on the other hand northern Mexico responded successfully by moving up the value chain rather than by folding and losing.  Both developments suggest that the Chinese competition is not just a simple example of skill-intensive labor.

You might say: "Chinese competition with northern Mexican textiles and plastics isn’t at all like Chinese competition in the hi-tech sector."  I would sooner say: "The Chinese are applying common production techniques across the board."  Of course the phenomenal Chinese levels of both personal savings and labor migration to urban areas also support the overall interpretation of complementarity.

Addendum: Here is a good paper on the changing nature of Chinese exports.

Ron Bailey

Here is the story, via Megan McArdle; an excerpt:

“On global warming, the problem is
ideologically I suspect it did cause me to …discount evidence which cut
against the way I wanted it to be in that case. My justification to my
self would be that I had seen [the environmentalists] be so wrong so
many times before, why should I trust them this time?” he says.

But when the science appeared irrefutable, Bailey changed.

It is important to distinguish two claims.  The first is that a revenue-neutral carbon tax is, in expected value terms, a good idea.  If nothing else, we cannot emit accelerating rates of carbon forever. 

The second and more dubious claim is "a carbon tax is likely to solve the problem."  That’s not so clear.  China and India may not follow suit, the oil may be pumped and used anyway, and the elasticities may be working against us.  I give the carbon tax about a thirty percent probability of significantly ameliorating global warming and that is assuming that we engage China in a constructive manner.  A pessimistic view, however, does not refute the case for trying.

Addendum: Here is an interesting post on whether more information about global warming causes people to worry about it less.

The real estate bubble, local government style

Over the last year, percentage increase in the tax assessment value of the land beneath our Fairfax house: > 50 pct.  The new valuation arrived yesterday.

If the real estate markets gets any worse, our tax bill may not be able to stand it.  Fortunately reassessments may be in order.  The lesson is that when revenue is at stake, the rule of law is fragile indeed.

Why I am not a Rawlsian

The Difference Principle is not so much excessively risk-averse as excessively jerry-rigged.  OK, we can’t aggregate as utilitarians but then we resort to some notion of primary goods with intersubjective validity.  OK, the size of the worst-off group is itself endogenous to the contractarian process.  But just how big is that group supposed to be?  Can it be 99 percent of society?  OK, people behind the veil don’t know their particular identities, but just how "thin" is their knowledge supposed to be?  And must their choices be purely self-interested?  All these criticisms are well-known.  You might try to shore up Rawls on any one of these points but the entire apparatus is simply too wobbly. 

The bottom line is that you can’t get lexical orderings out of a moral theory unless you build them in upfront.  And without lexical orderings, well, Rawls, like many illustrious minds before him, does not succeed in
sidestepping the dirty mess of aggregation.  The critical moral question is how we should compare the interests of some people to others in a real world setting; don’t expect to find an easy way out of that one. 

Rawls’s Principle of Equal Liberty is if anything on weaker ground than the Difference Principle.  Equal Liberty?  Who says?  At what margin?  At what cost?  Lexicality can’t plug all the leaks in this shaky boat, and no it can’t save Robert Nozick either.

The biggest problem is simply why the imaginary agreement behind the veil of ignorance should have moral force.  Now I like preferences as much as the next guy, but imaginary preferences take me only so far.  That is just one piece of information in a much broader comparison of plural values.  I’m not even sure that imaginary preferences should override the very real preferences of very real people in very particular situations.  Why should they?  "Fairness" is just one value of many.

I read Rawls as a very very smart and intellectually honest guy, determined to resurrect Kant, avoid the aggregative problems of consequentialism, and move at least one step beyond Sidgwick.  He knew how hard it was to even attempt such a success and he makes all the requisite moves to get us there, albeit without, in the final analysis, squaring the circle. 

Matt Yglesias adds commentary; he notes, correctly, that for the current Left Rawls doesn’t offer such an inspiring vision.  I’ll put it this way: if you have to work that hard to establish "Sweden is great," you should be spending more money on plane tickets.

Just to clarify, there are at least three Rawls doctrines: "Justice as Fairness," TJ, and Political Liberalism.  I like the first one best, but won’t cast my lot with any of the three.  At the end of the day I come away thinking that it is Sidgwick (and
maybe Kierkegaard?) who is the central moral theorist of the last two