Globalization and the Elite Chasm

 

I read with great interest David Frum’s piece on the Great Republican Revolt, Jon’s reply to it, and all of your comments. I’m very frustrated by my inability to find good polling data — as opposed to impressionistic and obviously partisan sketches — about who Trump’s supporters really are and what their political preferences really are. I don’t know whether it’s true, as Frum suggests, that there’s an important equivalence between between them European populist parties, as Frum believes:

You hear from people like them in many other democratic countries too. Across Europe, populist parties are delivering a message that combines defense of the welfare state with skepticism about immigration; that denounces the corruption of parliamentary democracy and also the risks of global capitalism. Some of these parties have a leftish flavor, like Italy’s Five Star Movement. Some are rooted to the right of center, like the U.K. Independence Party. Some descend from neofascists, like France’s National Front. Others trace their DNA to Communist parties, like Slovakia’s governing Direction–Social Democracy.

These populists seek to defend what the French call “acquired rights”—health care, pensions, and other programs that benefit older people—against bankers and technocrats who endlessly demand austerity; against migrants who make new claims and challenge accustomed ways; against a globalized market that depresses wages and benefits. In the United States, they lean Republican because they fear the Democrats want to take from them and redistribute to Americans who are newer, poorer, and in their view less deserving—to “spread the wealth around,” in candidate Barack Obama’s words to “Joe the Plumber” back in 2008.

I hear this a lot in France, too, from friends who are sure that Trump and the National Front represent the same phenomenon. If Frum’s description were all I had to go by, I’d say, “Yep, that sounds about right.”

But I suspect it’s far too superficial. France and America are different countries, with different histories. I’ve never found it useful to draw analogies like this, and indeed I find that it often leads to catastrophic analytic mistakes. (In intelligence analysis, it’s called mirror imaging.)

Frum’s diagnosis — much like Bernie Sanders’ — is that we’re seeing a war of the ultra-wealthy against the middle class: “The GOP donor elite planned a dynastic restoration in 2016. Instead, it triggered an internal class war.”

John concedes that he doesn’t personally believe that illegal immigration is the biggest issue facing the country. Nor do I. But he suggests that it’s “become a proxy for the chasm that divides the elite from everyone else,” and thus recommends the GOP focus on proving that no matter what the elites want, the GOP sides with “everyone else.”

I’m not so sure. I’m wondering if the undiscussed elephant in the room here, intellectually speaking, is globalization.

Joseph Eager left a comment beneath Jon’s post that seems worth exploring a bit more:

Frum also seems to be underappreciating the importance of immigration policy, the point of which is to shift distributional policy away from redistributing income directly and towards redistributing capital (in the sense of stuff that makes people more productive).

The evidence that income-based redistribution is ineffective goes back centuries, while policies that redistribute capital are probably what caused the Industrial Revolution. It’s not like we don’t have a great deal of historical experience with this stuff. Use immigration to tighten labor markets; create a fiscal surplus to increase the supply of financial capital (so employers can invest in productive capital for their workers) and voila, rising wages for the masses. It’s not hard.

Well, it is hard. Because you can tighten the labor markets all you like, but you can’t prevent capital from moving to countries where labor’s cheaper without imposing capital controls.

I agree: Policies that redistribute capital are part of what caused the Industrial Revolution. But what we seem to be forgetting is that China and India are now going through the Industrial Revolution, as are many other countries. Until the whole world is as wealthy as the United States and Europe, labor will continue to cost less overseas than it will in the highly-developed world. As the moneyed elite knows perfectly well:

Not long ago, Apple boasted that its products were made in America. Today, few are. Almost all of the 70 million iPhones, 30 million iPads and 59 million other products Apple sold last year were manufactured overseas.

Why can’t that work come home? Mr. Obama asked.

Mr. Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

The president’s question touched upon a central conviction at Apple. It isn’t just that workers are cheaper abroad. Rather, Apple’s executives believe the vast scale of overseas factories as well as the flexibility, diligence and industrial skills of foreign workers have so outpaced their American counterparts that “Made in the U.S.A.” is no longer a viable option for most Apple products.

The manufacturing jobs will not come back. Nor will mine: My skills are now mostly obsolete. The massive and rapid transformations of the digital age, globalization, and the global Industrial Revolution have changed the world of everyone alive. My own industry was creatively destroyed, along with those of many Americans my age. I expect that my life will from now on be characterized by economic insecurity bordering on terror. This grows more frightening with age and the prospect (and ultimate inevitability) of illness. So you bet I fully understand why other once-secure middle-class Americans do not appreciate being creatively destroyed. Creative destruction sounds great on paper. It doesn’t when it really happens to you.

But I’m not sure that the chasm is a class war so much as it’s an intellectual war between those who think rapid technological change and globalization can be controlled and those who see these forces as, literally, unstoppable absent the imposition of totalitarian measures, and ultimately futile even with them. Of course we can limit the flows of legal and illegal immigrants to the US. But to keep capital from flowing out of the US and toward countries with a competitive advantage in low-cost labor, we’d have to stifle and criminalize the very economic activities in which we do have a competitive advantage.

We lead the world in technological innovation. And the fact is, this is an elite pursuit. Only those who fall on the outer-edge of the Bell Curve in intelligence can fully participate in it. And given this, I genuinely don’t know whether a large and thriving middle-class can come back.

In this sense, even though I’ve personally joined the ranks of economically terrified Americans, I agree, intellectually, with our monied elites. (Marxists would say I’m suffering from false consciousness. But I’m not a Marxist. I’m just someone who has concluded that you can only suppress capitalism by trampling on liberty, and that the effort will anyway be doomed to fail.)

Enter some ideas about globalization that might be worth discussing here.

Dani Rodrik is a Turkish-born economist whose work I discovered because he was, at the time, writing about politics in Turkey in a more truthful way than most Americans seemed to be. He had a personal reason to do so: His father-in-law was ensnared in the Balyoz show trial, one of the more horrifying events I personally saw in Turkey. Because I respected his writing about the country I was living in, I started reading his work in economics.

I confess that at the time, I didn’t find them particularly compelling. But since the beginning of the Eurozone crisis, and in light of the way this election campaign has been developing, I’m beginning to think his Big Idea — the trilemma of globalization — has been vindicated.

You can read The Globalization Paradox here; and if you don’t have the time, you can read an article here in which he simplifies it nicely. In brief, he posits an “impossibility theorem” for the global economy: “Democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full.”

He sums it up with this illustration:

Globalization_Rodrik_Trilemma_Oct202014

“To see why this makes sense,” he writes,

note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings. Nation-states are a fundamental source of such transaction costs. They generate sovereign risk, create regulatory discontinuities at the border, prevent global regulation and supervision of financial intermediaries, and render a global lender of last resort a hopeless dream. The malfunctioning of the global financial system is intimately linked with these specific transaction costs.

So what do we do?

One option is to go for global federalism, where we align the scope of (democratic) politics with the scope of global markets. Realistically, though, this is something that cannot be done at a global scale. It is pretty difficult to achieve even among a relatively like-minded and similar countries, as the experience of the EU demonstrates.

Another option is maintain the nation state, but to make it responsive only to the needs of the international economy. This would be a state that would pursue global economic integration at the expense of other domestic objectives. The nineteenth century gold standard provides a historical example of this kind of a state. The collapse of the Argentine convertibility experiment of the 1990s provides a contemporary illustration of its inherent incompatibility with democracy.

Finally, we can downgrade our ambitions with respect to how much international economic integration we can (or should) achieve. So we go for a limited version of globalization, which is what the post-war Bretton Woods regime was about (with its capital controls and limited trade liberalization). It has unfortunately become a victim of its own success. We have forgotten the compromise embedded in that system, and which was the source of its success.

So I maintain that any reform of the international economic system must face up to this trilemma. If we want more globalization, we must either give up some democracy or some national sovereignty. Pretending that we can have all three simultaneously leaves us in an unstable no-man’s land.

I’m wondering if this idea, more than the idea of class war, could be a useful tool in trying to understand what’s at the heart of the so-called elite-base schism.

I’ve even been thinking, lately, that the idea might be applied to foreign policy and national security, as well. We can be a global hegemon — the so-called world’s policeman — at huge cost to ourselves. Or we can form alliances with countries that share some part of the burden. Try looking at the diagram above, but exchanging “guarantor of global order” with “powerful nation state.” Exchange “deep economic integration” with “regional military alliances.” Keep “democratic politics” in the same place. NATO and other regional defense pacts could be seen, perhaps, as analogues to the Washington Consensus. If we share the burden of global security with allies — deep military and political integration — it necessarily means a reduction in our sovereignty. If we don’t, we bear an unfair burden.

I don’t believe the globalization genie can be put back in the bottle, economically or militarily. We live in an age of ICBMs, nuclear weapons, biological and chemical weapons, and cyber warfare. If we retreat from the hegemonic role that brought the Pax America, it means losing our sovereignty in matters of national security and praying that the rest of the world may be trusted to do us no harm. If we want our allies to “pull their weight,” however, and minimize the burden on us, we have to accept that our allies will not be as concerned with our security — or our values — as we are, nor as competent at securing it.

Democracies being what they are, all of our politicians (in both parties) are now assuring us that they have what it takes to “keep us safe,” and that they know how to offload this defense burden onto our “allies.” The place where they lie — everyone one of them — in selling this plan is in failing to stress the implications of expecting “allies” like Saudi Arabia to act in our interests.

I don’t trust the Saudis to put my national security at the top of its agenda. Why should I? Nor do I want to pay for a huge and wasteful military. Why should I? Nor do I want to sacrifice American lives. Why should I? Who would? To what voter would any of that sound appealing? Not many.

So our politicians campaign on foreign policy lies, fantasies, and fairy tales. To be elected, it seems, you have to lie about foreign policy — because the truth is not what voters want it to be. This pushes much of the conduct of our foreign policy underground, into the realm of secrecy, where voters can neither see it nor appraise it. They wouldn’t vote for it if politicians spoke the truth about it. And this is, fundamentally, undemocratic.

I see the trilemma at work here, too: We can only have two out of three.

I doubt this idea explains everything. Perhaps it doesn’t explain much at all. No one theory about the workings of politics does.

But I thought I’d run it up the Ricochet flagpole and see what salutes. What do you think?

There are 102 comments.

  1. 1
  2. 2
  3. 3
  4. 4
  1. Member

    The cost of actually physically building the iPhone is pretty minimal. The miracle of modern silicon electronics is that compared to the design of the hardware the manufacturing cost are small. Further, the hardware design is a small fraction the labor that goes into the software that runs on the iPhone.

    This is not to disparage your piece, just that the iPhone and electronic gadgets are a poor example.
    My feeling is that anti-immigration sentiment is really about cultural rather than economic motivations. Middle Americans feel uncomfortable when they see more and more sections of their cities becoming Mexican enclaves. This is why the Muslim immigration ban proposed by Trump has only increased his standing.
    As for economic security, while it is true that right of center Middle Americans are insecure they generally aren’t looking for increased handouts. They are looking for continued opportunity for work at a fair wage and to make sure that the economic pain of the coming entitlement crisis is shared fairly.

    • #1
    • December 23, 2015 at 7:09 am
    • Like
  2. Inactive

    Thank you for your very thoughtful piece. I can’t imagine having an opportunity to read this anywhere else but here.

    Claire Berlinski, Ed.: Only those who fall on the outer-edge of the Bell Curve in intelligence can fully participate in it. And given this, I genuinely don’t know whether a large and thriving middle-class can come back.

    This made me laugh out loud bringing to mind my life experience where some of the dumbest people have been far more successful making money than the smartest.

    I truly believe all we really need is just to get the big brains in government out of the equation with their heavy handed regulations (staggering costs of incorporation, tax compliance et al) and allow the free markets at the smallest level to work. It’s just not much more complicated, to my simple mind, than that. Europeans are so far away from this model that they can’t see it. Conversely, American innovation & entrepreneurial know how is close at hand.

    I love that you shared your response to this terrifying new verbiage where “globalization” is our new normal. Who can’t relate to feeling unsettled by such an amorphous flow chart graphic?

    In this sense, even though I’ve personally joined the ranks of economically terrified Americans , I agree, intellectually, with our monied elites.

    Even monied elites know they aren’t safe from the pitchforked revolt without a middle class. A thriving middle class is inextricably linked to successful capitalism.

    • #2
    • December 23, 2015 at 7:10 am
    • Like
  3. Listener

    The populist left sees war and bailouts taking from the largesse which is theirs to dole out.

    incoming

    The populist right is confused about who pays for what.

    GovtHandsOffMyMedicare

    The permanent bipartisan fusion party rolls on.

    permanentbipartisanfusionparty

    • #3
    • December 23, 2015 at 7:19 am
    • Like
  4. Editor
    Claire Berlinski, Ed. Post author

    Z in MT: at a fair wage

    What’s a fair wage? Who gets to decide?

    I’m not rejecting out of hand the idea of government intervening in this decision. But once you’ve conceded it should, you’ve rejected the idea of free markets in a very fundamental way. I’m willing to entertain a radical left-wing idea like this, but it is radical. It would require me to accept that I’ve been wrong about markets being better at making this kind of decision than central planners.

    And as I said: I am willing to entertain this idea. But let’s first admit how different it is from what anyone who used to call him or herself “conservative” believed. It means saying, “We’ve been deeply wrong on fundamental principles for most of our lives.”

    If I have been, I’ll change my mind. Make the case, I’ll listen.

    • #4
    • December 23, 2015 at 7:20 am
    • Like
  5. Inactive

    Sorry, but you lost me when you stated that illegal immigration is not a primary problem. It is the root of many issues, and is not some cultural bogey man that strikes unreasoning fear and loathing into the hearts of ordinary citizens, like me. Our country is being swamped by third-world losers. It is not an economic issue involving ethereal global trade issues.

    Again, I implore all to read Coulter’s latest.

    • #5
    • December 23, 2015 at 7:21 am
    • Like
  6. Member

    In other words, in the competitive world market the US (and by extension most other developed nation) are losing.

    How many politicians understand this? If they did they would be actively reducing costs to do business by streamlining processes or getting rid of layers of regulation. They aren’t, in fact they continue to add layers.

    Monetary policy inflates necessary assets like housing out of reach of people, And encourages removal of competition by cheap buyout money. Education policy raises the price of gaining necessary skills. Environmental policy adds layers of costs driving activity offshore. Health policy drives up costs and hinders or stops innovation, and guarantees monopoly provision and administration. Security policy is built on the idea of us and them within the country, isolating the elites from reality. Food policy is about subsidy and control. Fiscal policy is bread and circuses.

    The competitive advantage in the west is the ability to borrow to maintain an overhead too expensive to maontain otherwise, and consumption that couldn’t be afforded otherwise.

    • #6
    • December 23, 2015 at 7:26 am
    • Like
  7. Inactive

    Claire, regarding this topic, Brent nails it: the issue is that you cannot have a country without defined borders. If we are willing to, every twenty or thirty years, allow people who have come here illegally to eventually gain full citizenship, then we do not have a country. This is mainly the case because there will be no rule of law (I would ask you to look into other areas of the law that are also flouted or skirted aside from immigration law). No borders and no rule of law are really the issues that I think many in Middle America are upset about.

    Why people like Frum do not understand this is because they have a protected status in some form or another. They are never going to be effected by this arrangement they seek to solidify. Frum is never going to know what it is like to watch his neighborhood where his family is deteriorate into a slum. Frum is never going to have to worry about his profession being handed over to someone willing to do it for half the cost. He is never going to have to worry about the crime that comes with the depreciation of property values. And the biggest difference is that if he does have to experience any of this, he has the wealth to move to where he doesn’t have to deal with it. That is the chasm. That is why Middle America is “pissed,” to use his term.

    • #7
    • December 23, 2015 at 7:33 am
    • Like
  8. Inactive

    Also, I would agree with Frum that many in Middle America are not intellectually dedicated to any particular ideology. But where I think he stops is that they are very dedicated to knowing that the law works for them. I will give you an example. Black Americans, whether they be in the ghettos of Leftist run cities or living a Middle Class life in suburbs, have zero faith in the justice system and it is going to take a huge effort to change this in even a sliver of the population. This lack of faith in the justice system has caused them to align themselves with a political party dedicated to the fundamental destruction and reconstruction of this nation as it was founded.

    If there is no attempt to mitigate the spread of this sentiment, there is going to be much more destruction sooner rather than later. IF the majority population in the US no longer feels that the law applies to everybody equally, then there is going to be a mass increase in flouting the law in more areas than just simply immigration. Frum is advocating capitulation which will open us up to some other form of rule of law and I am afraid we are not going to like it.

    • #8
    • December 23, 2015 at 7:39 am
    • Like
  9. Inactive

    Okay, what is the number one reason for labor costs rising to the point where a company decides to move production lines overseas into cheaper labor markets? Government intervention artificially increasing the cost of labor for these companies. The answer is to restrict, as best as possible without destabilizing, the artificial cost of labor in the United States, particularly in the manufacturing sector. And here’s a hint, Obamacare is a massive increase in the cost of labor.

    Edit: I needed some commas in there.

    • #9
    • December 23, 2015 at 7:48 am
    • Like
  10. Inactive

    Any projection of European politics on US politics is doomed to be wrong and distorted. It is an old tradition carried on by the likes of Sinclair Lewis in It Can’t Happen Here. He meant the title sarcastically and then wrote the book to show that a movement like Nazism (the Corpos as he called them) could in fact take over America. But he was more right in the title: it can’t happen here. We just don’t take politics that seriously.

    On Apple manufacturing, we should not want those jobs but aim at higher value added jobs. The size of our workforce is going to stagnate because of retiring boomers and the pressure to create jobs will be less than in the past.

    • #10
    • December 23, 2015 at 7:52 am
    • Like
  11. Member

    If that trilemma has some basis in fact, then seems the American should be opting for national sovereignty and democratic politics. Deep global economic interests, on the other hand, would be the factor driving the intensifying of the U.S. immigration issues since this is of great interest to the economic elites. Since the economic elites have been the foundation of the U.S. recent governing politics, a rule of law approach to immigration policy has been abandoned in service to those elites. American national policy has been behaving as if what we actually favor is deep economic globalization. Rule of law immigration policy looms important to the average non-elite American and so Trump rises in popularity even though some of his own personal economic success results from economic globalization. There enters also a major cultural/religious element that complicates and obscures thinking and analysis of what the causes and effects are. And if you don’t have deep technical education background on economic issues, which I and many others don’t, you can look silly trying to figure it out. I have had a deep suspicion that economic globalization, when coupled with our ongoing long-term destruction of constitutional federalism, was a bad direction in terms of its effect on America from the first understanding I had that it was happening.

    • #11
    • December 23, 2015 at 8:08 am
    • Like
  12. Member

    In all the various discussions on this topic, I don’t believe folks are accurately diagnosing the underlying issue. Plenty of research has shown that the net loss of jobs due to international trade or “globalization” is quite minimal. The reality is that automation in domestic factories has been the overwhelming factor in them”loss” of jobs. Manufacturng output in the U.S. In 2014 was the highest it has ever been in total real and per capita terms. We still produce a lot of stuff…cars, planes, components, capital equipment, etc. the difference is that these sectors have become much more productive and therefore require much less human labor. Look at any car factory today versus 30 years ago.

    There is a very positive story to be told here.

    • #12
    • December 23, 2015 at 8:14 am
    • Like
  13. Inactive

    Claire Berlinski, Ed.: What’s a fair wage? Who gets to decide?

    The market always has to decide.

    The failures in our economy are born of failed, socialist policies.

    Humans will work hard to profit our families, but will not work 60 hours a week to redistribute income to those who don’t. Liberals in DC have made profit taking a dirty word, and their redistribution ideology places onerous taxation on innovators and small business while giant corporate partners thrive.

    There will be challenges in the new world order, but none of them will provide a better incentive for work than providing for our own families. The middle class American has a wonderful work ethic, but needs to take home profit rather than just carry a burden of taxation.

    Is it any wonder they resent having to work several days each week for government profligate spenders who treat them with disdain? Trump effectively exploits political unrest which comes from Americans knowing this thin gruel fed to them by DC is destroying the middle class.

    Watch how quickly the job market rebounds when taxes are reduced on the small business job makers in America. The giant corporations can afford their compliance and burden and offshore inversions are a direct result of high taxation. This isn’t hard to fix.

    All that is required is a return to policies that incentivize productive Americans to keep the money they earn for themselves.

    Government spending is the rot in our economy.

    • #13
    • December 23, 2015 at 8:21 am
    • Like
  14. Inactive

    Big Green:In all the various discussions on this topic, I don’t believe folks are accurately diagnosing the underlying issue. Plenty of research has shown that the net loss of jobs due to international trade or “globalization” is quite minimal. The reality is that automation in domestic factories has been the overwhelming factor in them”loss” of jobs. Manufacturng output in the U.S. In 2014 was the highest it has ever been in total real and per capita terms. We still produce a lot of stuff…cars, planes, components, capital equipment, etc. the difference is that these sectors have become much more productive and therefore require much less human labor. Look at any car factory today versus 30 years ago.

    There is a very positive story to be told here.

    I felt like this case would be made. Manufacturing in the US is not doing well, unless I am reading these stories wrong:

    http://www.cnbc.com/2015/11/16/manufacturing-is-clearly-in-recession.html

    http://www.wsj.com/articles/troubles-in-u-s-manufacturing-can-still-weaken-economy-1446404638

    I think the WSJ piece speaks more to what you are talking about, but regardless the manufacturing outlook is not looking very good.

    • #14
    • December 23, 2015 at 8:25 am
    • Like
  15. Member

    Claire Berlinski, Ed.: Until the whole world is as wealthy as the United States and Europe, labor will continue to cost less overseas than it will in the highly-developed world.

    Would you still have the trilemma if labor costs came to some kind of equilibrium? If at some point, the benefits of doing business overseas becomes a wash because the standard of living improves overseas, would that solve some of the problem?

    • #15
    • December 23, 2015 at 8:28 am
    • Like
  16. Member

    I think everybody is willing to accept change, but you can make the patient comfortable until they die. Mercy isn’t necessarily cutting them more to help them bleed out. That’s cruel.

    • #16
    • December 23, 2015 at 8:40 am
    • Like
  17. Member

    Claire Berlinski, Ed.:

    Z in MT: at a fair wage

    What’s a fair wage? Who gets to decide?

    I’m not rejecting out of hand the idea of government intervening in this decision. But once you’ve conceded it should, you’ve rejected the idea of free markets in a very fundamental way. I’m willing to entertain a radical left-wing idea like this, but it is radical. It would require me to accept that I’ve been wrong about markets being better at making this kind of decision than central planners.

    And as I said: I am willing to entertain this idea. But let’s first admit how different it is from what anyone who used to call him or herself “conservative” believed. It means saying, “We’ve been deeply wrong on fundamental principles for most of our lives.”

    If I have been, I’ll change my mind. Make the case, I’ll listen.

    Not government bureaucrats.

    Unions have did themselves a huge disservice when they chose to focus their bargaining on non-cash compensation. For your ordinary Joe-blow what is most important to him is his take-home pay. That’s what buys his beer, cigarettes, and gasoline for his toys.

    • #17
    • December 23, 2015 at 8:41 am
    • Like
  18. Editor
    Claire Berlinski, Ed. Post author

    Big Green: There is a very positive story to be told here.

    Why is it a positive story, as opposed to one that should cause us to wonder whether increased productivity gains have killed the American middle class? Because if the latter is so, we’re operating off an economic theory that deserves to be challenged — to wit, that productivity gains will benefit everyone.

    • #18
    • December 23, 2015 at 8:42 am
    • Like
  19. Inactive

    Don’t ignore the technological revolution that is at the heart of the creative destruction and which isn’t really a globalization story. This is setting up a generational divide that shows up in both the job skills and the job prospects dependent on those new skills in the entirely new industries that are cropping up.

    The technological revolution is also part of the social and cultural upheaval that is destroying traditions, institutions and norms faster than anyone can keep up with. The cultural anxiety is as big a story as the economic anxiety. Technology is central to both.

    • #19
    • December 23, 2015 at 8:45 am
    • Like
  20. Member

    RabbitHoleRedux: Is it any wonder they resent having to work several days each week for government profligate spenders who treat them with disdain?

    This is a huge part of the TEA party movement. In the US today the easiest (and least risky) path to a comfortable middle class lifestyle is to get a government job (or a job that is directly dependent on government). Middle Americans in the truly private sector have to hustle to stay ahead and they resent having to support both themselves and those government workers in their cushioned government jobs.

    • #20
    • December 23, 2015 at 8:49 am
    • Like
  21. Moderator

    Claire Berlinski, Ed.: But to keep capital from flowing out of the US and toward countries with a competitive advantage in low-cost labor, we’d have to stifle and criminalize the very economic activities in which we do have a competitive advantage.

    We already do criminalize, or at least penalize the economic activities that would allow us to create more jobs. How about fixing our corporate tax code such that corporate capital is actually allowed to be put to use? How about reforming our regulatory regime so that it’s actually easier to create jobs here? Wages are a part of the picture (a huge part to be sure), but making stuff here in America is expensive across all fronts. My own business is paying somewhere on the order of 40% of its profits out as taxes. Imagine what I could do with that money – more capital equipment, more jobs, lower prices.

    How about ending the penalties for capital repatriation? The USA is the only industrialized nation that penalizes capital repatriation – and this actually drives large firms to globalize ever faster.

    • #21
    • December 23, 2015 at 8:51 am
    • Like
  22. Editor
    Claire Berlinski, Ed. Post author

    BThompson: The technological revolution is also part of the social and cultural upheaval that is destroying traditions, institutions and norms faster than anyone can keep up with. The cultural anxiety is as big a story as the economic anxiety. Technology is central to both.

    Absolutely sounds right to me. I mentioned that but perhaps didn’t stress it enough.

    • #22
    • December 23, 2015 at 8:52 am
    • Like
  23. Listener

    skipsul:

    Claire Berlinski, Ed.: But to keep capital from flowing out of the US and toward countries with a competitive advantage in low-cost labor, we’d have to stifle and criminalize the very economic activities in which we do have a competitive advantage.

    How about ending the penalties for capital repatriation? The USA is the only industrialized nation that penalizes capital repatriation – and this actually drives large firms to globalize ever faster.

    This…we focus way too much on wages as the driver of offshoring. In my experience, tax efficiency is a much bigger driver.

    • #23
    • December 23, 2015 at 9:00 am
    • Like
  24. Member

    derek: How many politicians understand this? If they did they would be actively reducing costs to do business by streamlining processes or getting rid of layers of regulation. They aren’t, in fact they continue to add layers.

    Some do, but they are not in the leadership of either party now, so that is one needed change.

    • #24
    • December 23, 2015 at 9:03 am
    • Like
  25. Thatcher

    Claire,

    The manufacturing jobs will not come back. Nor will mine: My skills are now mostly obsolete. The massive and rapid transformations of the digital age, globalization, and the global Industrial Revolution have changed the world of everyone alive. My own industry was creatively destroyed, along with those of many Americans my age. I expect that my life will from now on be characterized by economic insecurity bordering on terror. This grows more frightening with age and the prospect (and ultimate inevitability) of illness. So you bet I fully understand why other once-secure middle-class Americans do not appreciate being creatively destroyed. Creative destruction sounds great on paper. It doesn’t when it really happens to you.

    Claire,

    Lower the corporate tax rate. All regulatory & tax policies to be leveled making small business competitive with large. Enlarge and enhance HSAs while accepting more Federal burden for emergency room care of the undocumented. Reduce the huge burden of environmental obsessive legislation on energy production and transport.

    The economy will take off for the middle and the lower classes. It doesn’t matter what the businesses are doing, manufacturing or not, as long as they are successful and provide the opportunities as needed.

    One last thing. My dear Dr. Berlinski, you are ‘ascaert’ of the internet. (Please consult Casey for the full Pittsburghese etymological derivation of ‘ascaert’.) As soon as you realize that the internet simply requires a totally different marketing scheme, both for publisher and writer, you’ll realize that your skills are anything but “obsolete”.

    We can come through the storm into bright sunlight & calm ocean if we know the course to hold to and don’t give up hope.

    Regards,

    Jim

    • #25
    • December 23, 2015 at 9:04 am
    • Like
  26. Member

    There is a lot going on in the article and post. Really good. I suggest a reading of Mancur Olsen, an economist too often ignored. He wrote a piece in the 60s, perhaps 70s, in which he unwinds his own theory of how groups form and give rise to cultures the purpose of which is to defend themselves against the same self interested behavior that drives markets, but which in institutions gives rise to entropy. When rapid technological, economic or demographic change erodes the economic interests that gave rise to the existing cultural artifacts, the culture begins to unravel and the unraveling tends to be complete because all these practices, mores, attitudes about sin and goodness, proper behavior, which fill in all the nooks and crannies that private goods do not, i.e. everything that can be called a collective good, public good or a good or bad externality, are what glue civilization together. Also very Hayekian. So when the Pasha tried to use the new oil wealth to modernize Iran, it destroyed artisan agriculture, artisan fabrication and all the guild rules, relationships, interwoven with Islam, family structure, marriage, etc. etc. that was at the heart of their culture. The place disintegrated and can’t adjust because Islam doesn’t allow the rule of secular law and property rights. The solution is not a centralized fix. Exactly the contrary, let her rip, so that community, economy, civilization can re-ravel and it will, if there is individual freedom.

    • #26
    • December 23, 2015 at 9:04 am
    • Like
  27. Member

    One thing that could help bring a change in middle class attitudes is to make more transparent the overhead costs associated with paying an employee. Most employees only look at their net take-home pay, if your ordinary Joe Blow actually saw and understood all the overhead that goes on top of his pay he would demand extreme changes.

    This includes: Employer contribution to SS 6.2%, Employer contribution to retirement 2% – 6%, Employer contribution to healthcare 5% – 30% depending on wage, unemployment insurance 1%-10% depending on industry, workman’s compensation insurance, 1% – 50% depending on industry. Adding up to 25% – 100% of gross wages. These are all costs that the employee doesn’t see, and these overhead costs tend to be highest in the “higher” paying blue collar men dominated jobs like heavy manufacturing, extraction industries, and construction.

    If Joe Blow knew about these costs he would be angry and be more on the side of employers.

    • #27
    • December 23, 2015 at 9:08 am
    • Like
  28. Member

    To add another observation. Try to think of a really vigorous revolution or regional upheaval that did not follow a period of rapid change.

    • #28
    • December 23, 2015 at 9:10 am
    • Like
  29. Inactive

    Claire Berlinski, Ed.:

    [A] The manufacturing jobs will not come back. Nor will mine: My skills are now mostly obsolete… My own industry was creatively destroyed, along with those of many Americans my age. I expect that my life will from now on be characterized by economic insecurity bordering on terror. …once-secure middle-class Americans do not appreciate being creatively destroyed. Creative destruction sounds great on paper. It doesn’t when it really happens to you.

    [B]…But to keep capital from flowing out of the US and toward countries with a competitive advantage in low-cost labor, we’d have to stifle and criminalize the very economic activities in which we do have a competitive advantage.

    A) Don’t you think you have a few more good books in you left? Team up with Michael Totten and you could sell well (IMIgnorantO).

    Also, are you sure you tapped out the commercial world? You could join a company and sell products with your writing skills and country savvy. Maybe even make lots of bucks in the process.

    B) This economics stuff of yours needs to be run by a good economist. Zeihan says the US will be a capital magnet when China tanks, and demographics tsunami hits EU. And capital invested outside US means other countries can buy more US goods. It is not a zero-sum game. Would like a second opinion here, please.

    Zeihan (again): Manufacturing will come back to US in a big way: 3D printing.

    • #29
    • December 23, 2015 at 9:18 am
    • Like
  30. Inactive

    PS. We hamstring our economy in so many ways (we couldn’t even sell oil to Europe until just a week ago!). We don’t have vocational training in high schools anymore. Etc. Wait until these constraints are lifted before getting too depressed.

    • #30
    • December 23, 2015 at 9:21 am
    • Like
  1. 1
  2. 2
  3. 3
  4. 4