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Home Publications Blogs Beat the Press Thomas Friedman Is Flat: More Nonsense on Economics In the NYT

Thomas Friedman Is Flat: More Nonsense on Economics In the NYT

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Saturday, 10 December 2011 23:57

The NYT continues its policy of affirmative action for people ignorant of the world by allowing Thomas Friedman to write two columns a week on whatever he chooses. Today he talks about the job crisis.

He does get some things right in pointing out that we have a huge shortage of jobs. He also notes the growing crisis posed by long-term unemployment in which millions of people are losing their connections to the labor market and risk being permanently unemployed.

However he strikes out in his dismissal of manufacturing as a source of jobs and calling for more high tech centers like Austin, Silicon Valley and Raleigh-Durham. When the dollar falls to a sustainable level it will have an enormous impact in improving the competitiveness of U.S. manufacturing. We stand to gain more than 4 million manufacturing jobs once we get the dollar down to a sustainable level.

To take this a step further, if we followed the German model (of which Friedman often speaks fondly) we would create another 3 million jobs in manufacturing by shortening the average length of the work year. The seven million new manufacturing jobs that would be added due to a more competitive dollar and shorter workyear is only a bit over 4 percent of the work force, but it is still a far larger number than those employed in Austin, Silicon Valley and Raleigh-Durham.

In addition, those seeing Austin, Silicon Valley and Raleigh-Durham as the future of the United States have not kept up with the present. Just as China and other low-wage countries can undercut the United States in manufacturing goods with their lower wages, so can developing undercut the United States in high tech production with their lower wages. India already has a large and growing trade surplus in software with the United States.

It is difficult to see how this trend will be reversed in the decades ahead, no matter how much we tax ordinary workers to subsidize the centers that Friedman advocates. The arithmetic is straightforward, high tech workers in the United States will not be able to compete with comparable skilled workers in the developing world making one-fifth as much. Furthermore, it is much cheaper to send software programs half way across the world than it is to send cars.

Friedman also wants to cut Social Security and Medicare for retirees as advocated by the co-chairs of President Obama's deficit commission, former Senator Alan Simpson and Morgan Stanley Director Erskine Bowles. This policy will make Wall Street deficit hawks happy, but it is difficult to see how it will help the future strength of the economy.
Comments (7)Add Comment
Tough Love
written by diesel, December 11, 2011 9:45
“Steel mills that needed 1,000 employees are now able to do the same work with 100 employees, so layoffs too often became permanent, not just a temporary part of the business cycle"

So gains in productivity have outstripped our imagination's capacity to conceive of ways in which to redistribute the work load and concomitant monetary reward to all persons and consequently some sit idle while other's continue to labor forty hours (or more) per week. God forbid that we should all have some leisure time in which to cultivate our personal dreams. The five day work week is sacred. Already we take one day more off per week than God did when He created the entire Universe.

When I am King, as God's living embodiment here on Earth, I will decree that anyone caught working (for profit) more than 24 hours per week will be sent to reeducation camps and forced be "idle" in reading and cultivating a rewarding hobby that involves some measure of manual dexterity--such as learning to throw a clay pot. Also, you will be required to learn a foreign language and some of your cohorts will be persons from another culture. Your daily regimen will include some period of physical exercise such as canoeing on a lake, swimming, biking or walking in the woods. There will be no TV and no internal combustion engines will be allowed.

Cruel? Yes, I know, but that's the kinda guy I am.
...
written by skeptonomist, December 11, 2011 9:58
Cutting hours is a good idea in many respects but it amounts either to increasing labor costs, if workers get the same amount weekly, or cutting wages, if they get the same hourly pay. If competitiveness is not to be decreased, it will presumably be the latter, which workers will oppose (through unions). Employers will also oppose cutting hours if they have to pay for health care and other benefits for additional workers.

Cutting hours could increase employment, just as cutting nominal hourly wages could, but presents some of the same difficulties. Germans are apparently more amenable to such authoritative actions than Americans. Note that the trade imbalance in Europe is largely a result of real wages in Germany being kept constant over the last 12 years while those in virtually all other countries have been rising (http://fatasmihov.blogspot.com/).
Free Trade myth
written by Patrick Tchou, December 11, 2011 11:19
The most important means for this country to create jobs is to move towards balancing our trade. To put in a simple analogy (something Mr. Baker does well), lets say there are two businesses, U and C selling their products and C gets to set the price of the products sold by U. Guess who is going to sell more products on the "free" market? Even the workers for business U will be buying their stuff from business C, if those U employees have a job for any duration! For Friedman to suggest that high tech is the way to go, we just need to look at some examples. Look at the IPAD. That's pretty high tech. That's very innovative, an innovation designed right here in the US by Apple, Inc. So, where is it manufactured? For every "innovation" job there should be hundreds if not thousands of producer jobs created. One reason why the Stimulus has not been as effective recently as, say, back in the 1930s, is that the production stimulus generated by spending that money is much diminished. Some of that stimulus effect is lost due to the stimulus of imports. Yes, we stimulate sales jobs and transportation jobs, but the stimulus to the manufacturing sector is much dampened as a results of our huge trade deficit. The only way I see to reverse that trend is to insist on long term trade balance as the main driver of our trade policy. A truly free trade in currency would do that. But, barring this happening, the alternative is to tax imports and subsidize exports in an equal manner. This should be done irrespective of which products or services and where it is coming from. For trading partners who have a balanced trade with the US, this would become a wash, as the export subsidies balance out the import taxes. This needs to be implemented, of course, in a gradual manner, ratcheting up the percentage over time to bring a balance to our trade.
better than usual
written by Peter K., December 11, 2011 11:58
The column is good for a Friedman column. He focuses on the job crisis and says the problem is one of demand. He calls for stimulus. But then he goes back to his tired, obfuscating "world is flat" hobbie-horse mantra.

...
written by PeonInChief, December 11, 2011 12:24
Remember, diesel, that your plan will be creating some new jobs--"hobby consultant", for instance, for those who need help in finding suitable activities for their spare time.
Or We Could Do What Keynes Advocated
written by Paul, December 11, 2011 5:33
Increase jobs by increasing consumption.

"The propensity to consume and the rate of new investment determine between them the volume of employment, and the volume of employment is uniquely related to a given level of real wages — not the other way round. If the propensity to consume and the rate of new investment result in a deficient effective demand, the actual level of employment will fall short of the supply of labour potentially available at the existing real wage . . . ." The General Theory, p. 30.

Why is this so hard to understand, people? Consumption and investment drive demand and employment, period. End of story.
Software jobs across the world
written by ezAl, December 12, 2011 11:51
Here are some important differences between automobiles and software:
1. The software market is, in some sense, a whole lot more difficult to saturate than the automobile market. Each time a new platform (e.g. the iPod/iPad/iPhone, the Android, Facebook and its demand for apps, or whatever) comes into being, the need for software that works on it (and programmers who understand it) suddenly springs into existence -- as if from nowhere.

2. The specifications for software that works is ethereal and mysterious. Plenty of doubt exists each time a new platform is readied for market. To paraphrase William Goldman, who famously said of the entertainment industry that nobody knows anything, the software world is also somewhat unpredictable and characterized by quick disruption. So, the fact that a lot of jobs are outsourced to India, though important, is not as important as the corresponding fact in the auto industry.

I don't think that economists have really understood this difference very well. Or, if they have, show us where.

As is so often the case, economists apply poor analogies to industries they don't understand, and then spew those analogies out as if they were the gospel truth.

Meanwhile, the real world, which is already three steps ahead of the field of Economics, moves on.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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