Economists, free trade and the TPP

A writer named Michael Goodwin and an illustrator named Dan E. Burr have come up with a clear and complete explanation of the problems with free trade in general and the Trans Pacific Partnership in particular.  Click on Economix Comix to read it.

An economics lesson from a kangaroo

This is true, although in terms of purchasing power, the Australian minimum wage for fast-food workers is more like $12 in the United States. Click on Australia minimum wage for details from the Real News Network.

Many economists say, without any empirical evidence, that an increase in the minimum wage will automatically result in increased unemployment.  This is because it is a basic principle of economics that if you increase the price of something, people will buy less of it, and so it is with wages.

Under certain conditions, that would be true.  Fewer people would be hired for minimum wage jobs if, say, the U.S. minimum wage was raised to $72.50 an hour.  But there is no evidence that any of the actual increases in the minimum wage have had any adverse measurable effect on U.S. employment.  Indeed, the number of minimum wage and near-minimum wage jobs has increased dramatically since 2007-2009, when the minimum wage was increased from $5.15 to $7.25 an hour.

The basic concept of economics—that the law of supply and demand describes how people respond to economic incentives—is true as far as it goes.  This concept has such beauty and explanatory power that it is easy to forget the other dimensions of human behavior.   Economists who forget this wind up like the physicist in the joke, who could infallibly predict the outcome of horse races, provided there were spherical horses racing in a vacuum.

‘I regard the moral environment as pathological’

Jeffrey Sachs is a well-regarded American economist, who is director of the Earth Institute at Columbia University.  Last week he took part in a conference sponsored by the Drexel University at the Federal Reserve Bank of Philadelphia on how to fix the banking system.  This is part of what he had to say.

Jeffrey Sachs

I regard the moral environment as pathological.  And I’m talking about the human interactions that I have.  I’ve not seen anything like this, not felt it so palpably.  These people are out to make billions of dollars and nothing should stop them from that.  They have no responsibility to pay taxes.  They have no responsibility to their clients.  They have no responsibility to people, counterparties in transactions.  They are tough, greedy, aggressive, and feel absolutely out of control, you know, in a quite literal sense.  And they have gamed the system to a remarkable extent, and they have a docile president, a docile White House, and a docile regulatory system that absolutely can’t find its voice.  It’s terrified of these companies.

If you look at the campaign contributions … … the financial markets are the number one campaign contributors in the U.S. system now.  We have a corrupt politics to the core, I’m afraid to say, and no party is—I mean there’s—if not both parties are up to their necks in this.  This has nothing to do with Democrats or Republicans.  It really doesn’t have anything to do with right wing or left wing, by the way.  The corruption is, as far as I can see, everywhere.  But what it’s led to is this sense of impunity that is really stunning, and you feel it on the individual level right now, and it’s very, very unhealthy.

I have waited for four years, five years now, to see one figure on Wall Street speak in a moral language, and I’ve not seen it once.  And that is shocking to me.  And if they won’t, I’ve waited for a judge,  for our president,  for somebody, and it hasn’t happened.  And by the way it’s not going to happen anytime soon it seems.

The significance is not so much the content of what he is saying, which has been obvious for some time, as that he as a member of the American economics establishment is saying it.

When do we believe the experts?

Belief in anthropogenic global warming is a sort of political signifier for American liberals – if you don’t think human activity is changing the Earth’s climate, they’re probably not going to take you very seriously. This is not because every leftist has independently verified the Intergovernmental Panel on Climate Change’s findings and concluded that people who disagree are blinkered or stupid. Instead, liberals quite sensibly think that when a critical mass of scientists arrive at a certain conclusion, we should take that conclusion as a given and proceed accordingly. … …

Barring real evidence of systematic bias or incompetence, I’m willing to accept the consensus view of specialists in most fields. … … So here’s my question … : Why don’t we accord the same level of deference to economists? Shouldn’t the pro-free trade consensus within the field of economics be as bullet-proof as belief in global warming?

It’s not a partisan issue – in my opinion, the best introduction to the benefits of international trade was written by Paul Krugman. And the strength of the pro-free trade consensus in economics is at least as robust as the consensus view among climatologists. There are a few high profile dissenters, but those exist in every field, including climatology.

via The League of Ordinary Gentlemen.

Some 20 years ago, I had doubts as to whether global warming was real, and I thought the North American Free Trade Agreement was a good idea.  I changed my mind in both cases because of the evidence.  All of the predictions in regard to global warming have come true.  None of the predictions of the benefits of the free trade agreements have come true.

I write “free trade agreements” instead of “free trade” to sidestep the question of whether the pure theory of free trade has ever been implemented in practice.

A bipartisan disaster in finance

Here is an interview with Charles Ferguson, director of the documentary movie “Inside Job,” about the roots of the 2008 financial crash.  It begins with pointed comments about conflicts of interest and Wall Street influence on the economics profession.

“Inside Job” is an excellent movie

Last night I saw an Charles Ferguson’s “Inside Job,” a documentary movie on the Wall Street crisis.  It is excellent journalism and excellent cinema.   Most people who see this movie will leave it not just angry, but better-informed.  Ferguson both names the culprits behind the crisis, and clearly explains the deeper systemic problems.

Ferguson makes the point that there has been no criminal prosecution of financial manipulators, unlike in the lesser savings and loan crisis of an earlier era.  Maybe there is not only such a thing as “too big to fail,” but “too powerful to prosecute.”  The Charles Keatings of that era had much less clout than the Henry Paulsons of today.

Ferguson does not go easy on the Bush administration, but he shows origins of Wall Street’s capture of the government in the Reagan and Clinton administrations and its continuation in the Obama administration which, as in so much else, continues the Bush policies with many of the Bush appointees.

He shows the conflicts of interest among top economists, who receive big consulting and directors’ fees from the financial industry they supposedly are analyzing impartially.  Long ago there was a scandal when radio disc jockeys accepted payola from record companies to play certain records.  We ought to be equally scandalized about payola to academics.  But in fact, these economists are still treated with respect by officialdom and the press, while the economists whose warnings proved true are still regarded as marginal figures.