Globalization’s Overlooked Economic Benefits

Antiglobalist ideas have motivated many Trump voters, but free trade benefits the average American

Letter to The WSJ.

"In his column “What Happened to the Pragmatic Trump of the First Term?” (Editor At Large, May 5), Gerard Baker wisely decries President Trump’s second-term pursuit of a misguided and extreme ideological agenda. Mr. Baker points out that antiglobalist ideas motivated voters in 2016—views that globalism “facilitated mass migration and the elevation of international capital that ravaged communities at home.”

A better name for “the elevation of international capital” is “free trade.” This term reveals the increased freedom of ordinary people to spend their incomes as they choose, while avoiding the mistaken suggestion that lowering trade barriers benefits only Davos-vacationing capitalists at the expense of the masses.

And where are these “ravaged communities at home” that voters were so worried about? Politicians and pundits still talk incessantly about these communities, but scholars who make serious attempts to locate them encounter difficulties. Economist Jeremy Horpedahl studied the 10 metropolitan statistical areas in the U.S. that suffered the largest negative hits during the infamous “China Shock” of the early 2000s. According to Mr. Horpedahl, all of the metropolitan statistical areas “hit hard by the China Shock still managed to have significant and positive real wage growth across the distribution since 2001 . . . Wage gains in several of these places, in fact, are better than the national trends.”

Whenever economic change occurs, some particular workers lose jobs, and some particular locations lose business and population. Economic growth requires economic change and adjustment. This has always been and will continue to be the case. But the story of America is that ordinary people recover over time and become wealthier. It’s an error to single out the freer trade of the past few decades as a unique source of economic change that justifies greater skepticism of globalization.

Prof. Donald J. Boudreaux

George Mason University

Fairfax, Va." 

Affordable manufactured housing versus unaffordable climate regulations

By Ben Lieberman of CEI.

"The Biden administration had a field day piling on one costly climate-related regulation after another, not knowing – or caring – that affordability would emerge as a much more pressing concern for Americans than climate change ever was. But now, the Trump administration and Congress have the opportunity to undo these ill-advised rules that are driving up costs for everything from utility bills to cars and light bulbs. We have already seen some progress, but there is much more to do. Next on the list should be Department of Energy (DOE) regulations targeting manufactured housing.

The housing affordability challenges are real, and government is a big part of the problem.  According to the National Association of Home Builders, regulations at all levels of government account for almost 25 percent of the cost of a new single-family home. This includes a growing contribution from federal climate measures, such as those raising the price of major home appliances like air conditioners and furnaces. Worst of all are rules that make the most affordable homes less affordable, thus threatening the dream of homeownership for low-income and younger households. That is why the 2022 DOE energy efficiency rule for manufactured housing warrants a second look. 

The DOE sets energy efficiency standards for manufactured housing. And, as with appliance standards, the agency has a knack for rules that raise up-front costs beyond what is likely to be recouped through energy savings. In this case, the agency admitted that the 2022 rule raised home prices up to $4,500, though manufacturers fear higher costs will outweigh any energy savings.

For perspective, estimates suggest that every $1,000 increase in a median-priced home disqualifies about 156,000 prospective homebuyers. And the effects may be more severe at the lower end of the home spectrum, including manufactured homes, which are the choice of the most price-sensitive buyers. Indeed, it is quite possible that the DOE rule alone is enough to place the dream of homeownership out of reach for hundreds of thousands of lower-income Americans.

As was often the case for the Biden DOE, climate change was a finger on the scale favoring its draconian energy limits on manufactured housing. In fact, the final rule mentions the social cost of carbon dioxide and other greenhouse gases a whopping 50 times. By the agency’s own estimates, the rule’s climate benefits fell short of the claimed consumer savings. Even so, they undoubtedly played a role in the agency’s decision to adopt such stringent standards, despite their effect on prices.   

Fortunately, the president and Congress have not ignored the regulatory plight facing manufactured homes and their prospective purchasers. President Trump’s March executive order titled Removing Regulatory Barriers to Affordable Home Construction, specifically mentions manufactured housing in its section urging regulatory reforms.

Both the House and Senate have passed bills addressing housing affordability, and both contain provisions specific to manufactured housing. Importantly, both bills eliminate the costly and unnecessary requirement that manufactured homes have a steel chassis, however they also fell short of repealing the DOE rule.

A separate House-passed bill, H.R. 5184, the Affordable HOMES Act, would have completely repealed the DOE rule, but it has not been taken up by the Senate. Total repeal deserves consideration if Congress is serious about addressing housing affordability."

Are Neoliberalism and Globalization Undermining Democracy?

By Jeffrey Miron.

"From recent research:

Neoliberalism and globalization are two distinct yet interrelated processes that began to spread across the world in the 1970s and 1980s. Neoliberalism aims to limit the role of the government in the economy; globalization creates an interconnected world and removes barriers between countries. Some scholars argue that these processes have contributed to the democratic recession—the current weakening of democratic institutions around the world—by giving rise to populism. Our research evaluates this claim using data from more than 140 countries between 1980 and 2022. … [We] finds no evidence to corroborate this claim. In fact, increases in economic freedom and globalization are positively correlated with several measures of democracy.

The research emphasizes that its results may not be causal; and the research does not address whether democracy is “better” than the alternatives; see here, here, and here for discussions of this issue.

The new research nevertheless undermines a standard critique of neoliberalism and globalization; at a minimum, the critics have not made their case, given their assumption that promoting democracy is the right goal."

Manufacturing Went South

By Alex Tabarrok.

"Excellent piece by Gary Winslett in the Washington Post. As I pointed out in my piece on Manufacturing and Trade, the US is a manufacturing powerhouse. So why did the rust belt rust? Because manufacturing went South.

The Rust Belt’s manufacturing decline isn’t primarily about jobs going to Mexico. It’s about jobs going to Alabama, South Carolina, Georgia and Tennessee…In 1970, the Rust Belt was responsible for nearly half of all manufacturing exports while the South produced less than a quarter. Today, the roles are reversed, it is the Rust Belt that hosts less than one-fourth of all manufactured exports and the South that exports twice what the Rust Belt does.

Why the move? Better policies:

Economic research suggests that labor conflict drove much of the decline of the Rust Belt. Right-to-work laws in the South, by contrast, created more operational flexibility and attracted capital. The average unionization rate in the Rust Belt is 13.3 percent; in the South, it’s 4.3 percent. Southern states’ political leaders are quite open about how they see right-to-work as foundational to their competitiveness.

But that’s far from the only factor. The South offers cheaper electricity, a critical input for energy-intensive manufacturing. Ten states in the South have industrial electricity rates under 8 cents per kilowatt-hour; zero states in the Rust Belt do. Ohio has some of the country’s most restrictive wind-energy setback regulations. You know who doesn’t? Texas.

Despite the economic growth, Southern states have built so much housing that they kept costs from becoming unaffordable. Last year, both North Carolina and South Carolina each built more than four times as much new housing per capita as Massachusetts, according to U.S. census data. Florida, Georgia, Texas, Tennessee, South Carolina and North Carolina, all built more housing per capita than all of Illinois, Ohio, Michigan, Pennsylvania, California, New York and Massachusetts. That is not just a 2024 dynamic. That is true for every single year going all the way back to 1993. Comparatively low-cost housing makes it easier to attract and retain workers, which further attracts capital, which adds yet more investment and jobs, and the virtuous cycle spins upward.

…Immigration helps a lot, as well. More immigrants live in the South than any other region of the country. The region with the fewest immigrants? The Midwest. Immigrants promote growth, makes the workforce more robust, and create the goods and services that support manufacturing.

Right-to-work laws, cheap energy, affordable housing, low-cost land, fast permitting, low taxes, immigration. That’s a powerful combination…

Neither party wants to face these realities. The Republicans are mired in victimology and don’t see that the South’s success is built on exporting and immigration, both of which they are cutting. The Democrats don’t want to acknowledge right to work laws, cheap energy and low taxes.

Both parties prefer simple villains, whether it’s China or greedy corporations. But what’s needed isn’t more warm fuzzies about the way things used to be or globalization scapegoating. It is a clear-eyed approach that understands why companies choose Alabama over Ohio and that embraces the choices made by Southern states. That means leaning into globalization, right-to-work, all-of-the-above energy policy, permitting reform, immigration and low taxes. America’s economic future depends on embracing this reality rather than in indulging in turn-back-the-clock fictions."

Globalization Is No Unique Source of Economic Change

By Don Boudreaux. 

"Here’s a letter to The Free Press:

Editor:

Rupa Subramanya diminishes the excellence of her defense of high-skilled immigrants by writing, without evidence, of “the American working class left behind by globalization” (“A MAGA Attack on a Trump Nominee—and the Problem with the Woke Right,” December 29). Although incessantly repeated as if it’s a reality as indisputable as gravity, in reality it’s a myth that crumbles beneath logic and facts.

Some particular jobs are, of course, ‘destroyed’ by imports. But so, too, are some particular jobs destroyed by labor-saving technology and changes in consumer tastes. How many jobs for workers making crutches and wheelchairs were destroyed by the polio vaccine? How many clerical jobs were destroyed by the personal computer? How many jobs for auto mechanics were destroyed by improvements in automotive technology? (When did you last have your car tuned-up?) How many jobs in local hardware, book, and clothing stores were destroyed by innovations in retailing brought by the likes of Home Depot, Amazon, Walmart, and FedEx? How many cashiers were put out of work by technologies that enable customer self-checkout? How many workers in baby-food and diaper plants are losing jobs because of the decline since 2007 in the U.S. birthrate? How many jobs for railroad workers were destroyed by the automobile and the Interstate highway system? How many jobs for bus drivers and motel maids were destroyed by commercial aviation – and, starting in the late 1970s, by the successful deregulation of the latter? How many lumberjacks lost jobs as a result of the rising popularity of e-books and electronic documents? How many jobs at tobacco companies were eliminated by the reduced popularity of smoking?

Globalization is merely one of many sources of economic change. And in a country as large and as diverse – in both population and geography – as the United States, globalization is a relatively small source of such change. From 1976 (when America’s unbroken string of annual trade deficits began) through today, imports as a percentage of annual U.S. GDP averaged 12.7%. During these years they were never higher than 17.4% of GDP and are today (2023) 13.9% – numbers too small to support the insinuation that an entire, large class of Americans have been “left behind” by globalization.

If ordinary Americans for centuries – starting with the improvements in agricultural technologies in the 19^th century – have not been “left behind” by the stupendous technological progress, demographic transformations, and changes in consumer preferences that have incessantly marked our national existence, what reason is there to think that the relatively small amounts of imports that Americans choose to buy pose a categorically different and uniquely insurmountable economic challenge?

The answer is none. Globalization requires no more in the way of economic adjustment than do any other market-driven sources of change. And globalization, no less than other sources, fuels economic growth. Unsurprisingly, therefore – at least to those persons who attend to the facts – the material standard of living of ordinary Americans is today higher than it’s ever been."

The Moral Case for Globalization

The Moral Case for Globalization

By Tom Palmer. 

• Globalization has had tremendous net benefits for humanity, and the freedom to move, trade, accept influences from far away, and incorporate those influences into your experience and identity is central to being human. Every person should enjoy the equal presumption of liberty to travel and of liberty to exchange, just as there is a presumption of the liberty to think, speak, and live.

• Consequentialist condemnations of globalization only have force if they are based on evidence. The evidence shows that the world has improved during, or more strongly, because of globalization, so consequentialism should lead us to embrace globalization rather than condemn it.

• Wealthier populations can afford to invest more in maintenance of cherished traditions than can poorer populations. The human experience and appreciation of diversity has grown enormously because of globalization. Attempts to maintain “pure cultures,” free of “pollution” from others, are doomed to fail. Cultural purity is a myth; it has never existed.

• There is a causal relationship between globalization and war, but not in the way the critics think. The greater the globalization of commerce, the lower the likelihood of armed conflict. The causes of freedom of trade and of peace have long been closely entwined. Those who prefer peace over war should embrace globalization.

Globalization’s Race to the Top: A Case Study from Bangladesh

By Johan Norberg. 

"In my essay Globalization: A Race to the Bottom – or to the Top?, part of Cato’s Defending Globalization project, I show that the belief that an open world economy would hurt working conditions turned out to be false. On the contrary, trade and investment are associated with higher wages, less child labor, safer working conditions, and better environmental performance. Between 2000 and 2016, the global rate of deaths related to work declined by 14.2 percent.

One of my examples is the effect of Bangladesh’s garment export industry in reducing poverty and creating better jobs, especially for women.

 

An interesting new study by Laura Boudreau of Columbia Business School, recently featured on the excellent podcast Trade Talks, sheds light on one transmission link between globalization and progress: how businesses and consumers in the West put pressure on suppliers to improve working conditions.

After the collapse of the Rana Plaza building, which killed at least 1,260 textile workers in 2013, foreign multinational apparel buyers decided to oblige every factory they bought from to introduce an Occupational Safety and Health Committee. Boudreau conducted a year‐​long field experiment with 84 supplier factories, randomly enforcing the mandate on half. She found that the commitment was not just PR. Because factories did not want to miss out on business, they formed committees, and these also correlated with small improvements in workers’ health and safety in those factories.

The conclusion is the complete opposite of what critics of capitalism have warned about for decades, when claiming that Western multinational companies (MNCs) take advantage of countries with weak governance to put downward pressure on standards. On the contrary, they often step in when governments fail. Boudreau writes: “In weaker states … it may be MNCs or multi‐​stakeholder coalitions with MNCs’ participation that provide enforcement. This research suggests that in such contexts, MNCs can contribute to increasing compliance with labor standards.”

For more on globalization’s race to the top and related issues, be sure to check out my full essay and all the other content on Cato’s Defending Globalization project page."

The Misplaced Nostalgia for a Less Globalized Past

The “Great Again” Economy Wasn’t so Great 

Americans have traditionally been optimistic about the future, but a strain of thinking across the political spectrum today seeks to recapture a time when life was supposedly better for most Americans.

By Daniel Griswold of Cato via Cafe Hayek. Excerpts:

"This “nostalgianomics” is misplaced. The American economy is certainly more globalized today than it was decades ago, and just as certainly, most Americans are better off today by any real measure of economic well‐​being than their counterparts were a half century ago. In fact, increased globalization is one of the main reasons why Americans today have higher living standards than they did in the over‐​idealized past.

…..
Nostalgianomics’ depiction of American “wage stagnation” since the 1970s is fundamentally flawed in several key ways. First, the most typical indicator of such stagnation—U.S. production and nonsupervisory workers’ average inflation‐​adjusted hourly earnings—relies on an overstated measure of U.S. inflation that makes Americans’ real‐​wage gains seem smaller over time. As authors Phil Gramm, Robert Ekelund, and John Early explain in The Myth of American Inequality, properly accounting for inflation turns American wage “stagnation” into significant gains:

If the inflation adjustment for real average hourly earnings for production and nonsupervisory employees were to incorporate both the Chained [Consumer Price Index for All Urban Consumers] to remove the substitution bias and more accurate adjustments for new and improved products, real average hourly earnings would have risen 74.0 percent over the last fifty years rather than the official reported number of 8.7 percent. That is an additional $7.50 per hour.

Second, examining only wages excludes nonwage benefits—bonus pay, health insurance, paid leave, contributions to retirement savings, etc.—that have made up an increasing share of total compensation in recent decades. As Figure 3 shows, including these benefits and more, properly accounting for inflation shows substantial upward progress in workers’ total compensation since the 1950s or 1970s.

…..

Even these adjusted income data understate the gains enjoyed by American workers in our more globalized era. In Superabundance: The Story of Population Growth, Innovation, and Human Flourishing on an Infinitely Bountiful Planet, Cato scholars Marian Tupy and Gale Pooley compare time prices (i.e., how many hours people must work on average to acquire various goods and services) across decades and find that American workers have experienced dramatic gains since the 1970s. In particular, they calculate that the number of hours an average U.S. blue‐​collar worker would have to work to afford a basket of 35 consumer goods fell by 72.3 percent between 1979 and 2019 (Tupy and Pooley, p. 171). For example, in 1979, a coffeemaker cost $14.79 while the average blue‐​collar worker earned $8.34 per hour, meaning he would have to work 1.77 hours to buy the coffeemaker. By 2019, a comparable coffeemaker sold for $19.99 while the average blue‐​collar worker earned $32.36 an hour, translating to a time price of 0.62 an hour—a 65 percent decline. Using the same methodology, the authors found similar improvements for other household goods: the time price of a dishwasher had fallen by 61.5 percent; for a washing machine, by 64.6 percent; for a dryer, 61.8 percent; for a child’s crib, 90 percent; for a women’s blazer, 69 percent; and for women’s pants, 44.6 percent (Tupy and Pooley, pp. 454–56).

…..

Populists on the left and right claim to champion the interests of blue‐​collar workers, yet they criticize the increased competition and lower barriers to trade since 1980 that have delivered a greater abundance of goods and services to those same people. A lower time price for popular goods means that American workers today need to work fewer hours to bring home a dishwasher, crib, TV set, or new outfit. That means more of their time and money can be devoted to acquiring other goods or services that further enhance their quality of life.

…..

The story of manufacturing in our more globalized era is not that “Americans don’t make things anymore” but that U.S. manufacturing workers have become so much more specialized and productive. In particular, fewer Americans are employed in manufacturing today compared to the 1970s, but inflation-adjusted U.S. manufacturing output has increased dramatically over that same period, and the United States remains the world’s second-largest manufacturing nation. From 2000 to 2021, real manufacturing value-added in the United States rose by 36 percent to a record $2.56 trillion. The U.S. economy has been able to create more manufacturing value-added with fewer workers because of dramatically rising worker productivity, driven by more sophisticated equipment, more efficient production methods, a more skilled workforce, and a shift to the production of more capital-intensive goods. Today, U.S. manufacturing productivity (value-added per worker) exceeds that of Germany, Japan, and South Korea and dwarfs that of China and Mexico."