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03/13/2006

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anon

amen on "the new Lou Dobbs"

Cavuto (Fox), Kudlow (CNBC) and others are eating CNN's dinner. I do not watch a lot of Dobbs after his role during the Arthur Andersen meltdown. To be more positive, Dobbs was at his best when he focused people on the growth of medicare and govt health care expenditures.

The U.S. fed govt has lost a bunch of credibility. Bush's most recent State of the Union did not help either. So people do not feel like they can trust Bush or the Bush administration, and people (democrats and republicans) have to double-check stuff to avoid looking silly or wrong after-the-fact.

The Economist recently pointed out that Democrats are often perceived as weak on national security and defense, and this whole Dubai ports thing was possibly a political ploy for the Democrats to posture as the party of a strong national defense (kind of ironic, materially hypocritical, and not very inclusive).

John

Good points in favor of being, at the very least, cautious of the greater implications of the DP World deal. As for the substitution effects of Unocal oil vs. that of other suppliers, Posner's argument that diversion of Unocal oil to China would only free up supply for the U.S. would be true if demand were stagnant. As it stands, China's oil appetite increases at a much faster pace than the U.S. Consider also the enormous costs of boosting production and it is certainly conceivable, in the short run, that a diversion of Unocal oil to China would provide less for the U.S.

Arun Khanna

Re: "How serious is the risk that this government-owned Dubai company, headed by an American, would either intentionally or through lax management of the ports, have allowed terrorists or major weapons to enter America through the ports they would have operated? This risk is not zero, but I do not believe it is strong enough to justify blocking the transaction. It is doubtful that any information provided to headquarters of the company by American dockworkers, or even by any of the very few Muslim managers of the company, would be of greater value to terrorists than information about port security that can be picked up from media reports, surveillance, and the internet."

Risk of any major terrorist attack in the U.S. is low but conditioned on the occurrence of a new major terrorist attack in the U.S., the political risk of allowing a government-owned Dubai company to manage U.S. ports is quite high.

On a different note, Lou Dobbs should be renamed Low (blows) Dobbs.

Jeff

I think that the current administration has made some boneheaded decisions, but the 45 day waiting period they wanted to impose would have been a good one. It would have given some time to investigate how the ports would have been policed, and allowed cooler heads to prevail.

It is sad when a bunch of politicians can use stereotypes and emotion to thwart a deal that may or may not be harmful to the United States.

Historically, America does not do well when we embrace protectionist themes. It is an undercurrent in political language today with immigration, jobs, the war on terrorism, and now it is infecting the way we do business.
Where does it stop?

ben

Arun

I don't really understand what you are saying. Why is the conditional probability relevant? The decision has to be made ex ante.

Also, unless a terrorist attack actually came through one of the acquired ports, politicians, however irrational, could hardly pin the attack on this acquisition.

Mr. Econotarian

On 9/11, an American company allowed hijackers through security at airports run by other American companies. The hijackers boarded planes owned and operated by American companies, and the pilots proceeded to follow instructions given to them by those American companies on how to deal with hijackers.

Altogether, it looks like perhaps American companies should not be running U.S. ports!

Corey

"This is presented as anti-Islam or anti-terrorist, but is I believe at heart anti-free trade and anti-globalization."

Yeah, this may be a suprise to people with nice academic jobs, but a large portion of the American public is very worried about outsourcing, globalization, and free trade. Their kids need to be fed, and the cost of groceries doesn't go down when the port re-organizes them out of their jobs.

Three cheers for protectionism. We need more of it.

Arun Khanna

Ben asked: "I don't really understand what you are saying. Why is the conditional probability relevant? The decision has to be made ex ante."

You make a good point. British P&O would (and should) only use ex-ante risk in accepting a takeover bid from Dubai Ports World. Political decisions (like U.S. allowing takeover of its ports by Dubai Ports World) can typically be voted on by voters only ex-post. Therefore, politicians (of either party) on an ex-ante basis tend to be extremely risk averse on national security issues since the ex-post downside risk for their career is much higher than any ex-post upside return.

"Also, unless a terrorist attack actually came through one of the acquired ports, politicians, however irrational, could hardly pin the attack on this acquisition."

Look at the 9/11 commission report, do you seriously think they only addressed airport security or airport security at the East Coast airports involved in 9/11? After another major terrorists attack in the U.S., allowing a government owned Dubai company to manage U.S. ports is nearly certain to be viewed as a bad national security decision.

Ben

Like Posner, I fail to see how protectionism comes into play when one foreign company is sold to another.

I think the motivation behind the opposition was mostly political. The president's political enemies saw an opportunity to win for once and jumped on it.

Bastiat

Corey... why would changing the operator of a port lead to a change in employment? If DP is more efficient then by all means let's free people to work elsewhere. I doubt, however, that this will occur.

And if in fact DP World can manage cargo processing more efficiently using a different mix of capital and labor, then the price of imported groceries will decline ceteris paribus.

Certainly people worry about outsourcing and job losses. The data, however, clearly show that our economy creates far more jobs than it destroys.

Over the past 20 years, for example, manufacturing employment in the US decreased by 2 million jobs while the economy added 40 million jobs elsewhere. (And no, these aren't the apocryphal burger-flipping service jobs.) Oh, and by the way manufacturing output in the US actually increased during that period.

Certainly eliminating the ridiculous quotas we place on textile imports will severely affect a 50-year-old textile worker in the Carolinas with a high-school education. But the $$ that Americans will save via access to cheaper clothing dwarfs the economic loss that she and her co-workers will suffer. And those saved dollars will be spent or invested elsewhere, creating increased employment.

Public policy can (and IMO should) address her diminished future prospects. Can it also compensate her for a lost sense of place and community? Should it? That's a subject for spirited argument.

Protectionism is nearly always a bad idea.

anon


I like my Alden shoes from New England...

ben

Corey

Why is the sale of a port owned by the British to Dubai owners going to cost jobs?

Does this have any relevance to national security?

Corey

"Why is the sale of a port owned by the British to Dubai owners going to cost jobs?"

Dubai wouldn't be buying a port without a plan. British company wants out, maybe they can't make the ports turn a profit with current policy. Dubai company has a business plan that says they can make ports XX% more cost effective. How? Union busting, layoffs, decreasing employee benefit costs.

When doesn't a buyout cost jobs? I've never been around one that didn't.

"But the $$ that Americans will save via access to cheaper clothing dwarfs the economic loss that she and her co-workers will suffer. And those saved dollars will be spent or invested elsewhere, creating increased employment."

Excellent, you seamlessly shifted from a personalized harm into an abstract and diffuse benefit. 55 Economist-points for you! (Except prices don't drop in the really real world when labor is converted offshore, I've been buying clothes for the same real price for several decades now.) Those dollars were wages in the hands of a skilled worker, now they are profits in the hands of an industrialist, and it all seems so neutral and obvious. Industrialist invests and makes his economy grow, and then he buys cake for all the unemployed textile workers. (I like lemon cake, I hope they have lemon cake.)

"Certainly people worry about outsourcing and job losses. The data, however, clearly show that our economy creates far more jobs than it destroys."

Sure it does. And of course the new jobs pay the same, transitions into them are costless, the magic data took into account immigrants and other new entrants into the market, and there is a Santa Claus.

Corey

"Does this have any relevance to national security?"

I don't know, how low can Bush's approval rating go before there is a crisis in governance and people start to gather in the streets?

Bastiat

Corey... Study some credible data and then we'll talk.

My jobs creation data is from, among other sources, a McKinsey Global Institute study published last autumn. And also from the Bureau of Labor Statistics. And from the research and popular writing of the well-known reactionary columnist and crypto-fascist economist Paul Krugman.

What's the source of your data? Oh, yeah. You don't have any. Good luck with that one.

Thanks, however, for the reminder about why politicians like Dick Gephardt have such staying power. As if we needed one.

BTW, you forgot to insert the obligatory comment about "exploitation of the proletariat." Yawn.

Chris

If we want to transform Middle Eastern countries from backwards economies that foster terrorism to Western-style economies that are integrated with the rest of the world, the ports deal was a step in the right direction. It's hard to imagine how the Middle East can be integrated with the West if the West simply refuses to do business with them.

I believe that the ports deal fiasco in Congress was politically motivated to give Democrats an edge in the 2006 election. It is easy to play upon America's fears of terrorism by slamming the deal in a 30 second sound-bite. What is more difficult is to explain to America why the ports deal is a good, rather than a bad, thing. Simply disgusting.

Corey

Come on, you need "data" to know that transitioning between jobs has cost? That's one for common sense. But I will indulge you on the job creation issue:

Lets look at BLS statistics with a helpful spreadsheet to sum monthly changes:

The "Employment level" has increased 34,563,000 since 1986
The "Employment level" has increased 17,691,000 since 1996
The "Employment level" has increased 8,256,000 since 2000

The "Civilian Labor Force Level" has increased 33,799,000 since 1986
The "Civilian Labor Force Level" has increased 17,642,000 since 1996
The "Civilian Labor Force Level" has increased 9,976,000 since 2000


The "Unemployment level" has decreased 773,000 since 1986
The "Unemployment level" has decreased 48,000 since 1996
The "Unemployment level" has INCREASED 1,760,000 since 2000

So, if we add decreases in unemployment to increases in the size of the labor force, we get the total employment level... very simple.

Your "40 million new jobs" number sounds impressive, except that it is actually 34.5 million, and 33.8 million of THOSE jobs went to new entrants into the job market. Leaving 773,000 jobs for displaced workers... oh, but you said there were 2 million displaced manufacturing workers during that period... well darn, I guess they can go on the dole.

But job numbers averaged over 20 years are kind of misleading. Look what has happened since 2000... almost 10 million NEW employees entering the labor force, but only 8.2 million new jobs.

Wes

I believe that the ports deal fiasco in Congress was politically motivated to give Democrats an edge in the 2006 election.Possibly, but it is interesting to look at who they are targeting.Personally, I think the US invasion of Iraq violated internation law which, in my view, makes it a war crime. Given that I don't vote for war criminals and given that the Republican party was the ruling party in a government that, in my view, committed war crimes, the only way I would vote Republican is by mistake. Rightly or wrongly, the democrats aren't targetting people like me because they think they already have my vote.It is easy to play upon America's fears of terrorism by slamming the deal in a 30 second sound-bite.It's not really "America's" fears. It's the fears of people who voted for Bush because they were "played" by the Bush administration's "30 second sound bites" about "terrorism" - for example, insinuations that Iraq was planning a major attack on the USA using (nonexistant) weapons of mass destruction.I agree that Bush voters need to quit being played by their fears of "terrorism" but if they don't want to be played then it's up to them to not let themselves be played. Otherwise, the Democrats will be like, "Hey, if you vote for whoever plays most effectively on your fears of terrorism then that is what we will do."

F.E. Guerra-Pujol

Dear Professor Becker:

I agree with your analysis of the ports fiasco; however, I would like to bring to your attention a possible inconsistency in your thinking. As I compare and contrast your blog on the ports fiasco and your blog on illegal immigration, I notice that, on the one hand, you are rightly against all forms of 'economic' protectionism (i.e. measures that obstruct the free flow of goods and services); but at the same time, you seem to favor 'human capital' protectionism (i.e. measures that impede the free flow of unskilled labor).

Although I understand your point about what is and what is not politically feasible in terms of the liberalization of immigration controls, would it not be more principled to favor the free flow of all forms of capital, whether they be goods, services, or peoples?

Bastiat

Corey: you found the correct BLS data but use it incorrectly. Also, it's absolute, not average, job data.

Compare the changes between Dec 1985 with Dec 2005 in:

Total Civilian Labor Force: +34.1M
Employment: +35.0M
Unemployment: -0.9M

We can deduce only that the economy created a NET 35 million jobs during this 20-year window. This is NET creation, not absolute, because jobs are constantly created and eliminated and the composition of the labor force changes. You can't conclude, as you did, that 900k jobs are available for X million manufacturing workers who lost their jobs.

Consider 1Q99. BLS data show that the economy created 840k and eliminated 952k manufacturing jobs during that three-month period. It created 2.0 million and eliminated 2.1 million goods producing jobs. And, most tellingly, it created 6.7 million and eliminated 6.2 million service-providing jobs. During the quarter employment increased by 345k; unemployment decreased by 249k; and a net 671k people decided to leave the labor force.

Some people decide to leave the labor force or re-enter it. Displaced workers move to new jobs. Some, indeed, become unemployed for several months. A few are unemployed for long stretches. Fewer still get discouraged drop out. Most, however, don't. They get back to work fairly quickly.

Nearly all of the '85 unemployed went to work elsewhere. Some left the workforce; many will have by now retired; some will have died. Meanwhile, legions of young people have entered the workforce. Mothers choosing to stay home with small children in '85 will have gone (back) to work. Immigrants have joined the workforce. These are two data points a generation apart.

What we can conclude, however, is that manufacturing became the new agriculture 25-30 years ago. I don't know of anyone sane who sits around lamenting the fact that we produce astronomically more food with a tiny fraction of farm labor compared with 1900. Or that the loss of jobs screwing caps on the tops of toothpaste tubes is a grave problem.

Certainly human beings feel job losses acutely. Unemployment when one wants to work is a terrible thing. But our economy works well; it produces jobs in abundance and responds flexibly to technological and economic change. For those who work in an obsolete sector, we either encourage them to work in another industry or, if we are GM, capitulate to the UAW and pay them not to work, hastening the bankruptcy of a corporation and the permanent loss of tens of thousands of jobs.

Try living in France: 10% endemic unemployment; 23% among the young; over 50% among immigrant young; rigid labor laws that guarantee lifetime employment to a lucky few and effectively freeze the young and jobless out of the labor market. I'll take 5% unemployment, steady growth, a relatively open economy and the flexible US system.

As for comparing US jobs in 2006 with 2000, remember that unemployment in early 1999 was 3.8%, which was a 35-year low at the peak of an expansion. That's a UE rate below full-employment.

Of course unemployment has risen since 2000. In addition, the labor force participation rate has fallen by one percent. Some people who were working during the boom, probably enticed by temporarily high wages, have chosen to exit the labor force. And, yes, some have become disillusioned and dropped out.

The McKinsey study I cited found that weak domestic demand caused 90% of mfg job losses during 2000-2003. My earlier post clearly stated my belief that public policy should help those who lose their jobs, which is especially tough on older workers.

ben

Corey

Among your usual litany of mistakes is an assumption that change in ownership causes job losses. But sales often occur when a company is in distress, and in these cases downsizing is the usual remedy. It is the distress, not the sale, that causes job losses.

Job cuts per se as an explanation for the sale is not satisfactory because P&O could have cut jobs itself. More likely is that the Dubai company sees synergies with its other assets, something P&O cannot (easily) replicate, hence sale becomes necessary to realize those benefits.

You are right that changes in job composition is costly, but that is no reason to prevent that change occuring. Clearly, we would all be poorer if the same proportion of the economy were dedicated to the production of horse whips as was employed a century ago. You may think this is a silly example but it illustrates the point that mismatching labor supply with demand by preventing change in labor force composition is wasteful and only delays change that must eventually occur anyway.

Corey

Yes ben, I do think that is a silly example. I don't think this discussion is about people being technologized out of jobs, it is about people being underbid.

"It is the distress, not the sale, that causes job losses."

No, it is the sale. If the original company could solve the problem by firing 10,000 workers and staying viable they would. However, mass layoffs in the regular course of business tend to annoy regulators and unions. Thus, the trick is to provoke a restructuring event... Chapter 11, leveraged buyout... reset button. Old owners get the blame but don't have to deal with the fallout of the layoff because they are cashed out...

I'll be very clear. I think American workers should be held in their jobs EVEN IF firing them indiscriminately would be more efficient. I would prohibit job terminations except for cause (as most of Europe has done.) Let employers take the risk that they might have to pay salaries from their standard dividend in hard times. Let employees rely more on the career they selected and trained for.

My dad always dreamed of being a forester, and he was for 30 years until that career moved to other countries. After considerable expense and stress, he got a second degree and now is an accountant, but he would still rather be taking care of a forest, or have his full pension back.

There are competing interests here. You all are supporting economic growth, and those who benefit the most from it. I am arguing that some raw efficiency should be sacrificed in order to preserve vested interests in continued employment.

Ports are after all a vital public enterprise. They may have been privatized in the Reaganite zeal for free markets, but it is still an industry at the center of our economy. The populists and socialists might wonder why ANYONE gets to make a profit off of core infrastructure. They might suggest the price of every good that came though the port would be lower if not for the profit margin taken on each container. And if there has to be a profit margin, why should those dollars be exportable to the UK or Dubai?

Today I saw a 10 second FOX news report on my Indiana governor's plan to solve the budget shortfall that he created... by selling a freeway to an overseas company. FOX's conclusion? I couldn't be sure, but the commentator shouted something about that sort of thing happening all the time as they cut to commercial.

Corey

Yes Bastiat, I understand that the 40 million... oops, I mean 35 million jobs are net and that the market is dynamic and that people die.

We both want to draw inferences from the numbers. Example: "that manufacturing became the new agriculture 25-30 years ago." Your comments betray your decisional bias as clearly as mine do.
However, we seem to agree that manufacturing workers lost jobs that were not replaced with manufacturing jobs.

You may not know anyone sane that laments bygone days of handcrafted goods and organically grown food, but I do. Thoreau has been dead for some time, but nostalgia never truly goes out of style. And it isn't just the crunchy hippie people... many of the best most expensive luxury goods are obstensively handcrafted. People don't like having to buy efficiently produced generic cr*p at WalMart or having to eat enough corn syrup each day to give an elephant diabetes.

"Some people who were working during the boom, probably enticed by temporarily high wages, have chosen to exit the labor force. And, yes, some have become disillusioned and dropped out."

Oh, I see, now the extra 1.7 million unemployed since 2000 are all just marginal contributors who have gone back to relying on their trust funds, or else they are cynics who should try harder?

You can characterize all you want, doesn't mean the people actually chose to exit. Nor does the fact that people successfully navigate the career disruption mean that it was harmless. I know a lot of talented engineers that were literally forced into bankruptcy by downsizing. Some of them ended up working at Home Depot. $150K worth of college, maybe it helps them remember that screen doors are in aisle 8.

The labor market has ugliness all around the edges. People have gotten so good at adapting to harsh changes, economists and politicians forget to ask why it is that people have to.

ben

mass layoffs in the regular course of business tend to annoy regulators and unions. Thus, the trick is to provoke a restructuring event... Chapter 11, leveraged buyout... reset button.

There is no suggestion P&O or the ports it is selling is in distress. So your explanation is irrelevant here.

I think American workers should be held in their jobs EVEN IF firing them indiscriminately would be more efficient.

The problem with this argument is that it only delays the inevitable. If you prevent labor force composition from shifting in response to changes in demand for labor then sooner or later the employer of labor in unfavored occupations will be unable to meet rival bids for his labor from more favored occupations. The horse whip problem mentioned above is inevitable. Whether it is caused by changes in technology or taste is irrelevant.

You disagree, so please explain what precisely is wrong with this analysis.

ben

I would prohibit job terminations except for cause (as most of Europe has done.)

It is close to universally accepted that such rules make firms more reluctant to hire in the first place, that unemployment is increased by firing constraints, and those most disadvantaged by such rules are the unskilled and the young (i.e. the poor). Even the French, who are introducing 2 year trial employment periods to combat 23% youth unemployment, disagree with you.

So what exactly is your rule supposed to achieve? There is a good probability your father would never have been a forester in the first place under anti-firing rules. Furthermore, such rules provide no guarantee of employment in a field, because firms fail.

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