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Trade Arithmetic for David Brooks

Friday, 02 September 2011 05:02

The NYT has been sponsoring a competition between Thomas Friedman and David Brooks to see who can say more silly things about the economy. Brooks has a couple of good entries in today's column. Brooks told readers that:

"There’s strong evidence to suggest that the rate of technological innovation has been slowing down."

Actually there is zero evidence to support this assertion. The standard measure of technological innovation is productivity growth. This was close to 3.0 percent annually from 1947 to 1973. It fell to about 1.5 percent from 1973 to 1995. It then increased to 2.5 percent in the years since 1995. Brooks might have a point if he were writing in the late 70s or early 80s, but he isn't.

He then tells readers the distressing news that:

"nearly all of the job growth over the past 20 years has been in sectors where American workers don’t have to compete with workers overseas."

This is true and it implies the exact opposite of the sort of genuflection that we get in the rest of Brooks' piece. Suppose that the United States produces both manufactured goods and professional services (e.g. physicians' services, lawyers' services, etc.). Suppose that we prohibit the importation of professional services but promote the importation of manufactured goods with "free-trade" agreements. We would expect that we lose jobs in manufactured goods, although we might continue to generate jobs in professional services.

Let's take it a step further and imagine that we then jack up the value of the dollar because the tough guys at the Treasury believe in a "strong dollar." This will make U.S. manufactured goods even more expensive relative to their foreign competition, causing manufacturing employment to decline even further.

There are two simple remedies to the plunge in employment in manufacturing. One would be to open the professional services to international competition. This means eliminating the barriers that protect highly paid professions (e.g. doctors, dentists, lawyers)  from international competition. This will make the services that they produce (i.e. medical care) much cheaper for the rest of the country, thereby raising real wages.

Increased imports of professional services will also put downward pressure on the value of the dollar, which gets us to the other simple remedy: get the dollar down. The dollar is the main determinant of the relative price of foreign and domestically produced goods. If we want to generate more jobs in sectors that compete internationally then the key is to make our goods relatively less expensive. This is very simple, although the politics of bringing about a lower valued dollar might be somewhat difficult.

So there you have Brooks' entries. He has a tirade about a decline in the rate of innovation that does not exist,  and he fails to notice the impact of trade barriers and an over-valued dollar on trade. This is pretty good in the missing the boat category, but he doesn't hold a candle to Thomas Friedman.

Comments (18)Add Comment
A Flat Earth Begat Technological Innovation
written by izzatzo, September 02, 2011 7:36
This is pretty good in the missing the boat category, but he [Brooks] doesn't hold a candle to Thomas Friedman.

Exactly. Friedman understood that flat earth competition was the key to technological innovation and Brooks is merely coasting on the coat tails of Friedman ... infringing even ... on Friedman's intellectual property rights with plagiaristic theft.

Futher, since Friedman himself plagiarized the Teabaggers by stealing their patented flat earth framework and applying it to competition and innovation in the first place, that makes Brooks a second order crook compared to Friedman.

Stupid liberals.
written by Mark Viste, September 02, 2011 9:09
It's just one column. Give Brooks some time to catch up.
lower dollar
written by lee, September 02, 2011 9:49
I do not understand why -- aside from the difficult politics -- bringing down the dollar is "very simple." A weaker dollar would be a wonderful thing and I am all in favor of it. But a weaker Euro would be wonderful wonderful thing given the euro banking mess and debt burdens of the peripheral euro countries. The UK is implementing idiotic austerity measures and may be entering a double dip. How can every country devalue at the same time? How do we decide which currencies should fall?
Lawyers in Mexico and China Writing Our Contracts?
written by Paul, September 02, 2011 10:05
Yes, that sounds like a great idea for reducing our trade deficit. I am just sure those Mexican and Chinese lawyers can do a better job of clearly stating rights and remedies.

Or we could follow the wisdom of Keynes:

"But if nations can learn to provide themselves with full employment by their domestic policy (and, we must add, if they can also attain equilibrium in the trend of their population), there need be no important economic forces calculated to set the interest of one country against that of its neighbours. There would still be room for the international division of labour and for international lending in appropriate conditions. But there would no longer be a pressing motive why one country need force its wares on another or repulse the offerings of its neighbour, not because this was necessary to enable it to pay for what it wished to purchase, but with the express object of upsetting the equilibrium of payments so as to develop a balance of trade in its own favour. International trade would cease to be what it is, namely, a desperate expedient to maintain employment at home by forcing sales on foreign markets and restricting purchases, which, if successful, will merely shift the problem of unemployment to the neighbour which is worsted in the struggle, but a willing and unimpeded exchange of goods and services in conditions of mutual advantage."

The General Theory of Employment, Interest and Money, p. 382-383.

If our leaders focused on full employment, we wouldn't need trade wars.
written by shortale, September 02, 2011 10:06
Is there a good site where anyone has tracked productivity growth versus R&D, particularly military R&D, spending?

Also, does anyone else suspect that Brooks puts about as much effort into his columns as Andy Rooney's "stuff that got stuck to the bottom of my shoe as I walked over here" epics?
written by Jay, September 02, 2011 11:39
Lawyers aren't making that much money. All attorneys don't have the lucrative corporate, patent, and finance work that pays the outrageous dollars. There is a lot of social stratification within the profession.

Tell a person working as a legal aid or government attorney or personal injury mill for less than $50,000 or sometimes less than $40,000 with thousands of dollars in student loans that they make too much money.
How Much
written by Gary Fitzgerald, September 02, 2011 11:55
Can you tell us what the ratio is between the fall of the dollar and an increase in exports? Also, can you tell us how many jobs that would be expected to create?
written by Scott ffolliott, September 02, 2011 12:48
"Brooks might have a point if he were writing in the late 70s or early 80s, but he isn't."

Ah, but he is, like those many others that still subscribe to Thatcherism.

There is no alternative!

Yes, and keep saying that Milton Friedman is an economist, too.
written by diesel, September 02, 2011 2:58
Dean quotes David "nearly all of the job growth over the past 20 years has been in sectors where American workers don’t have to compete with workers overseas."and comments,"This is true and it implies the exact opposite of the sort of genuflection that we get in the rest of Brooks' piece.", and scores a bullseye.

Brooks doesn't come right out and say "all the stupid-low lives in America are out of work because they just can't compete with the Asians or Europeans and only the brighter, higher sort of guys (like me) still have jobs". But that's implied by how he goes on about the importance of education, moral fiber, responsibility etc.

There are other similar misconstructions in the column, and its tempting to pick them apart, but what's the use? Brooks will never run out of Brooksisms.
Comparing performers of absurdist pundit theater...
written by StanR, September 02, 2011 4:16
Let's be honest: their economic nonsenses are just backfill for the ideologies they're peddling.

In Friedman's case, the ideology is "green + globalization = renewal," with extraneous mention of other issues thrown in to seem worldly. In Brooks' case, the ideology is neoliberalism + a virtue conservatism in which the root of every problem is someone else's lack of personal responsibility, and the first step to a meritocracy is pretending you're in one.

Between the tired narratives that keep the paychecks coming, Brooks occasionally has a remarkable performance, such as his recent "This fiscal crisis is about many things, but one of them is our inability to face death." It's a sickening masterpiece.*

While Friedman's fluff-headed pomposity may more consistently deliver entertainment, he cannot touch Brooks' skill at insidious dark comedy.

*cliff notes version: "Lord Brooks, the poor cannot afford health care and most have none at all."
"Well then, let them learn to face death."

Innovation vs. productivity growth
written by govt wonk, September 02, 2011 4:44
I have no idea whether Brooks's statement that the "that the rate of technological innovation has been slowing down," but your statistics about productivity growth do not disprove it. Productivity growth generally lags technological innovation, because it takes time for firms and workers to incorporate new technologies. For example, the post-1995 increase in growth is often attributed (at least in part) to the delayed effects of computers, which made their first significant inroads into workplaces in the 1970s and 1980s.
The dollar is strong??
written by Ian, September 02, 2011 5:32
Dean, if the dollar is so strong, why do all my friends that return from Europe and Asia complain how expensive everything is over there?
The value of the dollar and trade
written by Dean, September 02, 2011 5:58

the value of the dollar adjusts to bring trade into balance. if we have a trade deficit, then it is almost definitional that the dollar is too high. It's just like a house that isn't selling after being on the market for a year. The price must be too high.
That doesn't mean that your friends will be happy about the prices they pay when they travel overseas.
Value of the dollar
written by Ian, September 02, 2011 9:55
Thanks Dean. A Big Mac meal in Zurich is close to $20. I'd hate to see the price after the necessary weakening of the dollar.
written by Union Member, September 03, 2011 12:26

Friedman has a better mustache. (That 70's Porn Star look.)
Productivity growth
written by (Not That) Bill O'Reilly, September 03, 2011 9:46
Mr. Baker,

Productivity is a measurement of how much output the economy is getting from the employed, correct? So if one were to export a variety of moderately-productive jobs in, say, manufacturing (or even just reduced its share of the economy vis-a-vis more "productive" jobs in finance), wouldn't that also lead to a growth in measured productivity?

Or am I missing something?
written by Norman Harruff, September 03, 2011 12:18
A lower dollar would increase the price of goods but would it increase wages when unemployment is at high levels? Jobs are created by sales so it seems to me that the opposite, high wages and the low cost of goods would be the best scenario. How do you obtain that? --beats me, but didn't Henry Ford do something like that with his $5 day?
@Norman Harruff
written by J, September 04, 2011 12:45
A lower dollar would increase the price of imports, not all goods. It would lower the price of our exports to other countries. Those two outcomes would result in greater sales of domestic products across the board, both domestically and through exports.

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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.