Saturday, March 1, 2008

Robert Reich on NAFTA and Trade

A thoughtful approach to trade by Democrat Robert Reich--take note Obama and Hillary!

Hillary and Barack, Afta Nafta

... It’s a shame the Democratic candidates for president feel they have to make trade – specifically NAFTA – the enemy of blue-collar workers and the putative cause of their difficulties. NAFTA is not to blame...

NAFTA has become a symbol for the mounting insecurities felt by blue-collar Americans. While the overall benefits from free trade far exceed the costs, and the winners from trade (including all of us consumers who get cheaper goods and services because of it) far exceed the losers, there’s a big problem: The costs fall disproportionately on the losers -- mostly blue-collar workers who get dumped because their jobs can be done more cheaply by someone abroad who’ll do it for a fraction of the American wage. The losers usually get new jobs eventually but the new jobs are typically in the local service economy and they pay far less than the ones lost

Even though the winners from free trade could theoretically compensate the losers and still come out ahead, they don’t. America doesn’t have a system for helping job losers find new jobs that pay about the same as the ones they’ve lost – regardless of whether the loss was because of trade or automation. There’s no national retraining system. Unemployment insurance reaches fewer than 40 percent of people who lose their jobs – a smaller percentage than when the unemployment system was designed seventy years ago. We have no national health care system to cover job losers and their families. There's no wage insurance. Nothing. And unless or until America finds a way to help the losers, the backlash against trade is only going to grow.

Get me? The Dems shouldn't be redebating NAFTA. They should be debating how to help Americans adapt to a new economy in which no job is safe...
Lane Kenworthy makes a similar case in his call to "embrace economic change."


  1. Definitely agree....but instituting a European or Australasian-style safety net would presumably entail raising taxes which might not go down too well at the ballot box?

  2. Maybe so, but the political alternatives (i.e. various forms of protectionism) would be far worse.

  3. I agree too, but would be more interested if the politicians left it up to the corporations. Maybe in some form of tax benefit for helping people find new jobs. This could potentialy create new businesses and new jobs.

    I also think this topic raises a lot of other issues about the education (or lack of) of American citizens.

  4. Anonymous,

    I think your are right that many Americans simply do not understand the trade debate. That means economic educators like myself need to do a better job!

  5. You have to wonder why the US is such an outlier compared to Europe and others in regard to providing the sort of safety net you suggest.
    One suggestion from the political economists is because of the racial make-up of the US. In more homogeneous societies, people are more willing to pay taxes because the benefits accrue to people "like themselves". Protectionism is then a substitute for a functional welfare state. The US is trapped into a sub-optimal political equilibrium