The wisdom of David Brooks

As Tyler Cowen reports in a fantastic article in The American Interest called “What Export-Oriented America Means,” American exports are surging.

Here is much more, read the whole thing.  Here is one more bit:

A rift is opening up. The first, globalized sector is producing a lot of the productivity gains, but it is not producing a lot of the jobs. The second more protected sector is producing more jobs, but not as many productivity gains. The hypercompetitive globalized economy generates enormous profits, while the second, less tradable economy is where more Americans actually live.

Comments

Is it just me who finds the phrase "The hypercompetitive globalized economy generates enormous profits" a bit odd? If it's hypercompetitive, surely the profits should be squeezed to almost nothing.

The profits are in fact squeezed to almost nothing, for the workers who are replaced by outsourcing. For the people moving the capital, it is winner-take-all.

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He's using "hyper-competitive" in the colloquial sense, not the strict economic sense of low barriers to entry, many firms, and non-diverse products. Some of them are "competitive" in the economic sense, and you do see profits being squeezed to almost nothing (or less than nothing, in the case of the HD TV manufacturing sector).

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It's odd that Brooks doesn't mention the primary benefit of the global marketplace to Americans -- cheaper goods. Supply is produced to fulfill demand; consumers don't buy things at WalMart because they like the Chinese, they do it to raise their standard of living.

It's particularly good for lower-income Americans, who have to spend a higher fraction of their income on food, clothing, and perishable goods. A 15% drop in the price of those kinds of goods is a big boost in income for them (which unfortunately then tends to get eaten up by other expenses, such as housing).

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I think it's easier to think of it in terms of power.

People on the dole, or doing drudge labour for little money might end up with more material wealth if their purchases become cheaper. But they still lose power relative to others, and they lose status. People don't like that.

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I think Brett and Adrian are both right. Lower-income Americans will be the big beneficiaries of lower prices for goods AND they will feel even more marginalized. These are not mutually exclusive propositions.

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If exports increase as a result of anti-competitive trade policies, rising exports may not be such a good thing.

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Very enlightening Tyler. Thanks for thinking of this in the first place and also for the pointer to Brooks.

The article asks which coalition will win. Can't the political economists create a theory for that? Seems to me that Economy II has more people and should therefore be able to hijack democracy. But Economy I could just leave, for example by moving to New Hampshire, Honduras, or the Pacific Ocean.

Exploring these outcomes would make for interesting political fiction. Does anyone have recommendations for a good novel along these lines?

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Matt Yglesias ‏: Seems like only yesterday that @TylerCowen was warning us against simplistic good vs evil narratives

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Is he wise for calling your article fantastic? :)

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The comments to the Brooks column are so monolithic. Maybe I shouldn't be surprised, but I am. Times readers are like Pod People, they really all do think the same way.

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On the one hand, there is the globalized tradable sector — companies that have to compete with everybody everywhere. These companies, with the sword of foreign competition hanging over them, have become relentlessly dynamic and very (sometimes brutally) efficient.

On the other hand, there is a large sector of the economy that does not face this global competition — health care, education and government.

In other words, we have a mixed economy. The globalized bit is capitalism. Efficient and profitable. The rest is socialism. Inefficient, irresponsible, and a net loss.

Yes. We really shouldn't have any health care, education, or government at all. It's irresponsible and a net loss.

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The war is now on for our understanding of Economy II in which the Pod Masters want us to believe government can print money to infinity to pay for service sector jobs. Fine, but it would be better if people had a chance to understand how their income actually works in the scheme of things, instead of being told the nominal realm does not matter for measurement or anything else.

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Be careful about the export data. Much of the recent growth is exports of refined petroleum.

As of January the y/y change in real non-petroleum exports was only about 5%.
That is slower than it was in most of the early 2000 cycle..

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Great article in the American Interest - and good review by Mr. Brooks.

But I wonder if Tyler did not go far enough. Is the second sector really a single sector, or is it two sectors that have vastly different interests and futures.

Public sector workers in that group are relatively well off - good wages - good benefits and relative job security - at least for the present. But the private sector service workers are stuck in low wage, low benefit, dead end jobs. The struggles of the first group to keep what they have and the second group to find a path out of their particular circumstances is likely to be a major factor in both our politics and our economics in the next 5 to 10 years

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Thought Dean Baker was right on this one. Those wanting competition are those protected from it.

I'll second that, although I suspect that Brooks was referring - as many Republicans do these days - to unionized jobs in the Public Sector.

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IMHO in economics it is the deltas that cause problems and so it is all Mao's fault. If China had not been communist it would not have fallen so far behind and so it would not have so fast catch up growth and so change here would be slower and so fewer people would be whining about globalization destroying jobs.

Great point.

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Nobody whined before Mao?

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It's not Mao's fault -- it's Deng's fault. Mao kept China isolated from the global economy and he stifled private enterprise. If Deng had continued Mao's policies, then Walmart would still carry a lot of Made-in-USA products along with Made-in-Mexico-Taiwan-Japan-Brazil.

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So, hum, the S&P500 average employee is now generating $420k for its employer. How nice. He/she is still getting paid only $33.2k - maybe a bit more as big companies tend to be somewhat more generous than the average. Let's call it $42k for simplicity sake.

Pre-tax income a tenth of your contribution? Hmmm. It seems to me feudal lords were less greedy...

On a more serious note, that's my issue with the economic outlook for 2012. Yes, numbers have been a bit rosier and I hate to argue with the data but, but, but... How are Americans consuming, when their salaries seem stuck? And, if Americans don't keep on increasing their consumption, how will the economic machine achieve escape velocity?

What's generated is revenue, not profit.

+1

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Great Article. I've never seen a more explicit acknowledgement that the goal of the investing class is to revert the United States to a Mexican economic and social model, except with an even larger military than we have now. Just no explanation of why any of this is in The American Interest.

....Or any explanation of why the tiny hydrocarbon extraction technology sector will somehow produce significant GDP contribution, why "smart machines" will be dominated by the US in the future when that is clearly a target of China's technology strategy, or why 90% of Americans will accept another 30 years of income decline without serious political disruption (unless that's the real point of Cowen advocating further military buildup).

Cowen should move on to science fiction. Even futurists require some numbers behind their fantasies.

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David Brooks is right about the economy rift and wrong in the political rift. Simply put, his analysis on the politics is way over-simplified and thereby inaccurate. Neither party can say they are for one or the other economy.

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I read the entire David Brooks piece and I'm underwhelmed. The only statistics were two debateable numbers about revenue per S&P-500 employee. The article is mostly sweeping speculation with a flattering reference to Professor Cowen's B+ article (not "fantastic", in my opinion) on Exporting America.

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