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Will Any Ideas to Help Rust Belt Workers Really Do the Trick?
British journalist and think-tanker Gavin Kelly blogs about the various calls to “compensate the losers” from globalization (though he acknowledges automation as the more important macro trend). And Kelly finds the answers lacking any systemic approach and failing to provide an overarching policy regime. More of a unsatisfying jumble, with many ideas on the moldy side. Policies that promote geographic mobility, re-skilling, and a more robust safety net may have merit but hardly add up to a “big idea.”
And whatever their substantive merits, Kelly argues that you “can’t fight big lies like ‘mines will be re-opened’ or ‘manufacturing jobs re-shored’ with small pledges to retrain displaced workers.”
Of course Kelly himself trots out the hardly novel idea of greater infrastructure investment, though with an emphasis on judging projects on more than just their cost-benefit analysis. So a bit of a twist: Where the money is spent should be a key consideration. He refers to the work of economist Diane Coyle, who wrote thusly in the Financial Times about the infrastructure ideas of then-Chancellor of the Exchequer George Osborn:
For example, Mr Osborne is committed to strengthening the economy of the north of England. He made its transport infrastructure one of the first things for the commission to assess.
This is welcome, given the geographic imbalance of the UK economy. But conventional cost-benefit analysis makes returns on south-eastern and London projects look more attractive because that is where the economic growth is. Strategic choices require vision and courage.
Cost-benefit analysis is the main tool economists provide for assessing projects, but it is inadequate for long-term infrastructure projects. The Victorians did consider costs and benefits, but knew these could be dramatically different if a plan went ahead.
Modern cost-benefit analysis does not do this. It is a method for looking at incremental changes, not system-wide ones. It does not try to account for the significant changes in behaviour that new infrastructure causes. It does not take full account of social externalities, positive or negative, even when they are captured in private markets — for example, house prices near stations on the new London Crossrail line.
Now the idea of thinking harder about location very much fits with a recent proposal put forward by my AEI colleague Paul Kupiec who wants to move some federal agencies to hard-hit regions. Maybe move the FBI or Labor Department to Detroit, for instance. But I think Kelly is too hard on the sorts of policy proposals economists are currently offering. I think there is a big idea: work is important, and jobs are about more than just a paycheck. And supporting work will require a broad policy portfolio. Here is AEI’s Mike Strain:
Public policy can help reinvigorate these norms by supporting and encouraging work; and these norms can help make public policy more effective by better predisposing citizens to respond in a productive way to policy incentives. We should increase earnings subsidies. By subsidizing labor market earnings, policy can help a paycheck go further, and can pull people into participating in the workforce who otherwise would not in light of the wages they can command in today’s economy. Policy should help workers build skills that businesses actually demand and that the market will reward. Apprenticeships are a particularly promising option. Policy should get government out of the way by deregulating the labor market, creating more opportunity. And policies with significant unintended consequences that suppress workforce participation — like disability insurance — need to be reformed.
Oh, and thanks to McKinsey’s Susan Lund for a Twitter pointer to the blog post.
Published in Economics
Will any ideas help? Yes, so watch and learn.
Massive war in Europe would do the trick. Encourage the EU and Russia to continue escalating their conflict. Giant mushroom clouds rising over European cities with only yelping hordes of Muslims left to sift through the rubble would do the trick. After all it was the massive destruction of Europe in the first half of the 20th century that built the Rust Belt before it got rusty.
Jim, you fail to make what are highly relevant distinctions.
First, there are the actual pure losers from globalization, automation, and other technological improvements (e.g., that just eliminated an industry like floppy disks). These are people who became economically uncompetitive objectively and fairly.
The next two (I split them up but you might combine) are different stories. These are people who artificially became uncompetitive.
There are plenty of industries being taxed and regulated out of competitiveness.
Then there are plenty of industries where our workers objectively are competitive but various foreign trade practices either prevent them from competing or artificially make them uncompetitive.
The fact is we can do things about the second and third.
Also, that the third exists renders moot all alleged solutions that ignore it. It is laughable to discuss retraining, etc. If you retrain for an industry that is at all potentially profitable/productive, it will be killed in its infancy by foreign trade practices.
In the present world, we need a massive thermonuclear war between Russia and China.
The *companies* became uncompetitive (at least the relevant divisions of them did in the case of multidivisional companies), but the *people* didn’t necessarily become uncompetitive. Most electrical and mechanical engineers probably remained quite employable, ditto for manufacturing engineers, procurement people, etc. Among production workers, employability probably was mainly a matter of what other employers existed in the area: probably relatively few of them had specialized skills that were relevant only to floppy disks.
Could you name a couple? Particularly the third example?
One easy way of identifying the third is to identify industries against which foreign countries have trade barriers, etc. Thus, low hanging fruit includes the auto industry, aviation, movies, etc. where China imposes significant barriers.
Regarding the second, these are harder to identify, so I’ll cop out and say the auto industry if we take Mark Fields at his word.
How often have economists and before that social commentators, public philosophers, journalists when we had them, been right about policy prescriptions meant to deal with the consequences of unforeseen changes? How often have their prescriptions done more harm than good, especially though time? How prescient have their predictions been? What can we learn from this about our inability to see and then shape the ever changing future. On the other hand how often have simple good transparent laws allowed us to healthily accommodate changing reality? Policies tend to do harm. Good laws allow accommodation to the unforeseen. There are very good, human, practical reasons for limited government and freedom under law. Why is this not obvious?