Unions, Trade and Robots

As I recently discussed in the context of Trade Adjustment Assistance, the economic effects of free trade are strikingly similar to those of technology advances:

As economists like Cafe Hayek's Don Boudreaux frequently note, the beneficial job churn associated with import competition is no different from that associated with technology gains:

Would it have been appropriate, for example, for the White House to prevent Americans from buying iPods and Kindles until and unless Congress funded the retraining of workers who lost their jobs at Tower Records and Border’s? Should government have stopped automakers from improving the quality of their vehicles until and unless the public fisc was tapped for funds to retrain auto mechanics and tow-truck drivers? Ought government restrict consumers’ access to Lasik surgery until and unless taxpayers pay to retrain workers who make eyeglasses, contact lenses, and saline solution?

In short, people lose jobs due to import competition and they lose jobs due to new technologies (a lot more of the latter than the former, by the way), and while those job losses are obviously tough for the affected workers, American society as a whole is clearly better off by letting the free market work. So why do we treat globalization so differently than mechanization? Boudreaux reasons that it's because "the only thing unique about international trade is its ability to be demagogued by politicians seeking votes from the economically uninformed"...

The same concepts apply to protectionism: those who oppose free trade are just as misguided as those who oppose mechanization.  So with this in mind, I invite you to read the following obituary of inventor George Devol (emphasis mine):

George C. Devol, 99, a self-taught tinkerer whose invention of the robotic arm revolutionized factories around the world, died of a heart ailment Aug. 11 at his home in Wilton, Conn.

The robotic arm, which Mr. Devol dreamed up in the early 1950s, was originally called the “programmed article handling device.” It was a long name for a relatively simple and very smart machine that, in the coming decades, would become a fixture on modern assembly lines.

The Unimate, as the product became known, was designed to perform jobs that were dangerous or costly for human workers. Mr. Devol sold the first of his robotic arms in 1961 to a General Motors plant in Trenton, N.J., where it was programmed to handle the hot metal used in die casting.

Other early customers included Chrysler and Ford. Partly because of the influence of labor unions, which saw the robots as a threat to U.S. jobs, sales did not take off in the United States.

Mr. Devol’s product was wildly successful in countries such as Japan, however, and in the late 1960s the company signed a deal with Kawasaki Heavy Industries. In 2006, the Institute of Electrical and Electronics Engineers estimated that there were more than 950,000 industrial robots in operation worldwide....

Mr. Devol was inducted into the National Inventors Hall of Fame this year. “Devol’s patent for the first digitally operated programmable robotic arm represents the foundation of the modern robotics industry,” his induction citation reads. “Today, industrial robots have transformed factories into safer places and improved products with precision and consistency.”...

But like most odd couples, Engelberger and Mr. Devol had something important in common. They believed in the potential of robotics for the United States, even at a time when U.S. clients weren’t buying.

“We’re handing it to the Japanese on a platter,” Mr. Devol told The Washington Post in 1983. “I just can’t understand America.”

When he was in his 70s, Mr. Devol began dreaming up an automatic factory that he would lease to companies.

“How can we afford to let a country as big as this go down the drain in manufacturing capability?” he said in a 1984 interview with the Miami Herald. “I’m the perpetual Don Quixote. Always flailing my arms.”

This really explains a lot, doesn't it?

Two TAA Thought Experiments

Richard Epstein's typically insightful comments on TAA got me thinking more about the abject irrationality of a special program that compensates workers for economic activity (free trade) that overwhelmingly benefits the nation as a whole.  As you'll recall, Epstein wrote:

So conduct this little thought experiment: what would be the state of play in the United States if every time a new firm opened up in one state it was required to fund trade assistance for workers at other firms who lost their jobs as a result? The need to compensate incumbent workers would drive out all new firms, and thus entrench inefficient firms in a near monopoly position. It is for that reason that the proper response is always to ignore these losses, and to deal with the question of unemployment through a generalized system of unemployment insurance that, of course, has massive difficulties of its own.

The "international-versus-intranational protectionism" thought experiment is a favorite of AEI's Mark Perry (among others), and he frequently applies it, with great effect, to demonstrate that protectionism across national borders is just as harmful and irrational as protectionism across state (or county or city or neighborhood) borders.

So it got me thinking: if TAA is, as its advocates in the White House and Congress routinely claim, an absolutely essential "core value" of American trade and economic policy, then why don't we have state-level TAA when, say, freely traded imports of Florida oranges into New York end up putting the Empire State's nascent orange growers out of work, or when imports of South Carolinian BMWs displace Michigan autoworkers?  I mean, if we need to compensate workers due to import competition across national borders, then why don't we do the same thing across state and local borders?

Because it's clearly a ridiculous policy, that's why.  (I know, I know, I shouldn't give our politicians any ideas.)

Perry often demonstrates this ridiculousness by creatively converting a news story on barriers to international trade into one on barriers to intranational trade.  I haven't seen Perry do one on TAA, so with apologies in advance for stealing his awesome idea, I think a simple example is in order.  Here's a sympathetic article on Sen. Sherrod Brown's (D-OH) fight to extend TAA back in February.  Now let's re-imagine the story with state-level TAA (STAA) based on free trade among the US States:

One Ohio lawmaker plans to make the extension of a program that benefits Ohio workers displaced due to free trade among the American states one of his top priorities during this congressional session, according to The Youngstown Vindicator.

Sen. Sherrod Brown (D-OH) plans to begin lobbying fellow members on an extension of state trade-adjustment assistance benefits, which provides Ohio workers displaced due to trade with other American states with reemployment assistance and training, income support and job search and relocation allowances.

Brown said that STAA benefits are “lifelines for tens of thousands of Americans Ohioans who, through no fault of their own, lost their job or their pensions and health-care benefits due to imports of goods and services from places like New York, Alabama and California.” 

With a new Republican majority in the House, however, Brown acknowledges that it will be an uphill battle....

Passing an extension of STAA benefits would be a good step toward helping those Ohio workers that have fallen on hard times due to America’s failed state-level trade policies. But to continue with those trade policies at a time with unemployment already hovering around 10 percent would be foolish.

“We can’t pass trade agreements allow imports from other US states that undermine Ohio workers, and then turn our backs on those workers when they lose their jobs,” Brown said.

Pretty silly, isn't it?  As Americans, we inherently understand the benefits that state-level import competition and specialization bring our economy, so we naturally reject policies to inhibit such helpful economic activity, despite the fact that it necessarily causes some job losses along the way.  But when we move beyond US borders, our brains shut off and the government meddling and handouts begin.

But, hey, let's not stop there and instead conduct another thought experiment to further reveal the irrationality of both TAA and the Obama administration's current TAA/FTA demands.  As economists like Cafe Hayek's Don Boudreaux frequently note, the beneficial job churn associated with import competition is no different from that associated with technology gains:

Would it have been appropriate, for example, for the White House to prevent Americans from buying iPods and Kindles until and unless Congress funded the retraining of workers who lost their jobs at Tower Records and Border’s? Should government have stopped automakers from improving the quality of their vehicles until and unless the public fisc was tapped for funds to retrain auto mechanics and tow-truck drivers? Ought government restrict consumers’ access to Lasik surgery until and unless taxpayers pay to retrain workers who make eyeglasses, contact lenses, and saline solution?

In short, people lose jobs due to import competition and they lose jobs due to new technologies (a lot more of the latter than the former, by the way), and while those job losses are obviously tough for the affected workers, American society as a whole is clearly better off by letting the free market work.  So why do we treat globalization so differently than mechanization?  Boudreaux reasons that it's because "the only thing unique about international trade is its ability to be demagogued by politicians seeking votes from the economically uninformed," so let's go back to that Sherrod Brown TAA article and help inform the distressingly-large group of uninformed Americans with a little more creative editing:

One Ohio lawmaker plans to make the extension of a program that benefits workers displaced due to free trade robots and other innovations one of his top priorities during this congressional session, according to The Youngstown Vindicator.

Sen. Sherrod Brown (D-OH) plans to begin lobbying fellow members on an extension of robot trade-adjustment assistance benefits, which provides workers displaced due to trade new technologies with reemployment assistance and training, income support and job search and relocation allowances.

Brown said that RTAA benefits are “lifelines for tens of thousands of Americans who, through no fault of their own, lost their job or their pensions and health-care benefits due to robots or other innovations.” 

With a new Republican majority in the House, however, Brown acknowledges that it will be an uphill battle....

Passing an extension of RTAA benefits would be a good step toward helping those that have fallen on hard times due to America’s failed mechanization trade policies. But to continue with those trade policies innovating and modernizing at a time with unemployment already hovering around 10 percent would be foolish.

“We can’t pass trade agreements create new technologies that undermine Ohio workers, and then turn our backs on those workers when they lose their jobs,” Brown said.

Hopefully after we've conducted these thought experiments it's easier to see why the White House stance on TAA - i.e., it is the multi-billion dollar price that America must pay to get new, economically-beneficial trade agreements with Panama, Korea and Colombia - is so distressing.  It would be patently offensive and irrational for the President to block intrastate trade or to prohibit further technological advances until Congress agreed to fund workers allegedly displaced by that trade/mechanization, and it's just as offensive and absurd for the White House to do it for international trade and TAA.

Yet here we are.

On Outsourcing, Protectionism and Robot Insurance

About a week ago, Princeton's Uwe Reinhardt wrote in the New York Times about the amazing victory that is the almost-universal acceptance among economists of "the theory that every country gains by unfettered international trade."  Reinhardt explains:

Relative to a status quo of no or limited international trade, permitting full free trade across borders will leave in its wake some immediate losers, but citizens who gain from such trade gain much more than the losers lose. On a net basis, therefore, each nation gains over all from such trade.

Economists assert that over the longer run, the owners of businesses that lose their markets in international competition and their employees will shift into new economic endeavors in which they can function more competitively.

Yet despite these benefits, Reinhardt asserts that there may be a problem with free trade, even among some economists, when national boundaries and identity are considered:

In their work, economists are typically are not nationalistic. National boundaries mean little to them, other than that much data happen to be collected on a national basis. Whether a fellow American gains from a trade or someone in Shanghai does not make any difference to most economists, nor does it matter to them where the losers from global competition live, in America or elsewhere.

I say most economists, because here and there one can find some who do seem to worry about how fellow Americans fare in the matter of free trade.

In a widely noted column in The Washington Post, “Free Trade’s Great, but Offshoring Rattles Me,” for example, my Princeton colleague Alan Blinder wrote:

"I’m a free trader down to my toes. Always have been. Yet lately, I’m being treated as a heretic by many of my fellow economists. Why? Because I have stuck my neck out and predicted that the offshoring of service jobs from rich countries such as the United States to poor countries such as India may pose major problems for tens of millions of American workers over the coming decades. In fact, I think offshoring may be the biggest political issue in economics for a generation. When I say this, many of my fellow free traders react with a mixture of disbelief, pity and hostility. Blinder, have you lost your mind?"

Professor Blinder has estimated that 30 million to 40 million jobs in the United States are potentially offshorable — including those of scientists, mathematicians, radiologists and editors on the high end of the market, and those of telephone operators, clerks and typists on the low end. He says he is rattled by the question of how our country will cope with this phenomenon, especially in view of our tattered social safety net.

“That is why I am going public with my concerns now,” he concludes. “If we economists stubbornly insist on chanting ‘free trade is good for you’ to people who know that it is not, we will quickly become irrelevant to the public debate. Compared with that, a little apostasy should be welcome.”

While Blinder's concerns certainly sound plausible enough, they're actually rife with problems.  First, I don't know what free traders Blinder's been talking to, but I simply can't imagine that a single one of them would react with shock and horror at the basic idea that an increasing number of Americans will face international competitive pressures in the next few years.  It seems far more plausible, however, that those free traders would respond with the totally obvious observation that, while those job pressures might occur and might make many Americans nervous, the economist's job is to explain, through empirical, anecdotal and historical evidence, why such anxiety is unfounded.  Of course, this is a difficult challenge, but it's no different from what occurs now with respect to American manufacturing jobs, and the alternative (protectionism) has proven again and again to be an abject failure.

Second, Blinder's concerns ignore reality: while there might be 30-40 million "potentially offshorable" services jobs out there, those jobs aren't, you know, actually being outsourced.  For example, the WSJ's political diary noted last week that fears of Indian outsourcing are far more fiction than fact:

NBC's "Outsourced" is a situation-comedy about an American call center that's been relocated to India. The show is ranked No. 85 on Nielsen's recent list of prime-time network television programs, suggesting perhaps that the theme of jobs shipped to India isn't resonating with American viewers. Maybe that's because the Indians are sending us more work than we're sending to them.

During a recent visit to The Wall Street Journal, Indian Ambassador to the U.S. Meera Shankar pointed out that America actually runs a small trade surplus -- yes, a surplus -- in services with India. Total two-way trade between the countries amounts to roughly $38 billion annually in services, with U.S. exports of financial, accounting and other business services slightly exceeding India's famous provisioning of information technology assistance, call centers and the like. Meanwhile, the roughly $50 billion two-way trade in goods yields a modest surplus for India, putting the overall U.S.-India trading relationship in almost perfect balance, for those who fret about such things.

Yet Washington continues to restrict a particular Indian import that carries enormous benefits for America: talent. Ms. Shankar reports that for Indian engineers applying for a so-called H-1B visa, reserved for those with high-tech skills wishing to work in the U.S., the application is so lengthy that "it's almost a novel that you have to write." Policy makers would be wise to give skilled engineers an easier path to join our labor force. The innovations they create will encourage India and the rest of the world to outsource even more production to the U.S.

Other studies show that outsourcing has proven, in the aggregate, to be beneficial for the American economy.  In short: yes, outsourcing occurs, but it's nothing to be worried about from both a theoretical and practical perspective.  So any attempts to stop or mitigate it waste valuable resources and distract us from far more important issues (like our very real failures re: education or high-skilled immigration).

In this way, Blinder's dire warnings, and any protectionist responses based on them, remind me of that classic SNL skit where Old Glory Insurance shows horrible/hilarious scenes of robot attacks in order to sell elderly citizens insurance against such acts of (again, hilarious) robo-violence.  Blinder and many protectionists are peddling fake anxiety and, unsurprisingly, the only solutions are the unnecessary (indeed, costly!) insurance that they're selling.



Awesome.  The same goes for outsourcing and trade (although not nearly as humorously).  Yes, it's real and it happens every day, but it's hardly the great menace that some would have us believe, and in both theory and practice it's a net plus for the American economy.  So until economists have some actual proof that free trade is harmful, maybe it's best for them to, you know, tell the American people the truth about trade and outsourcing rather than placate their misplaced fears and sell them insurance against an extremely unlikely calamity.

Doing "The Robot" - Literally

Breakdancing + Robot + Japanese Screaming = Video Gold



Pop-n-lockers everywhere just got served. (Whatever that means.)