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Hoisted from the Archives:
Interview:
“
NAFTA Is Just Not a Big
Deal for the U.S
….”
J. Bradford DeLong
Economics and Blum Center, UC Berkeley; WCEG; and NBER
http://bradford-delong.com
| @delong |
delong@econ.berkeley.edu
June 4, 2019
Joseph Ford Cotto
: J. Bradford DeLong
says "NAFTA is just not a big deal for the
U.S.", explains why: "Support for Bernie
Sanders and the Donald did not rise out of
nowhere, after all. In such turbulent
waters as these, it is important to seek the
guidance of a wise, seasoned captain.
Insofar as the sea of dollars and cents is
concerned, J. Bradford DeLong is just that
fellow. He is "a professor of economics at
UC Berkeley, a weblogger for the
Washington Center for Equitable Growth
http://equitablegrowth.org/blog, a research
associate of the National Bureau of
Economic Research, and former deputy
assistant secretary of the U.S. Treasury in
the Clinton administration .... He also
writes the weblog Grasping Reality: http://
bradford-delong.com," as DeLong's
U.C.B. biography explains. Dr. DeLong
recently spoke with me about many topics
relative to our nation's economy. Some of
our conversation is included below....
Joseph Ford Cotto
: Prominent
economists and politicians often say that
free trade will benefi t America in the long
run. Many Americans disagree strongly.
What is your take on this situation?
J. Bradford DeLong
: Well, typically and
roughly, the average import we buy from
other countries we get for 30
%
off—we
use foreign currency that costs us 1.40 to
J. Bradford DeLong
NAFTA
purchase goods and services made abroad
that would cost us 2.00 worth of time,
energy, resources and cash to make at
home. But there's more.
Typically and roughly, we sell the typical
export to foreigners for about 40
%
more
than we would get if we had to fi nd a
market for it at home: it costs us 1.00
worth of time, energy, resources and cash
to make stuff that we can sell to foreigners
for 1.40 worth of foreign currency. Thus
for the country as a whole our foreign
trade sector—exports and imports—is a
way to get 2.00 worth of value for 1.00
worth of work.
That's a very good deal.
Our foreign trade sector takes advantage
of this good deal on a mammoth scale: in
the fourth quarter of 2016 we were trading
goods and services at a rate of 2.8 trillion
a year—17.5
%
of national income. That
means that in a typical year we sell
exports that we could get 2 trillion for if
we had to sell them here at home and get
imports that would cost us 4 trillion. That
makes us 2 trillion per year—25,000 per
family each year—richer and more
prosperous.
That is a big deal.
Now you can complain that the benefi ts
from international trade are inequitably
distributed. And they are. But they are less
inequitably distributed than what we
produce here at home: serous worriers
about economic equity do not start with
foreign trade, only non-serious worriers
do.
If you ask me why many Americans
"disagree strongly" that trade benefi ts
America, my answer is that they have
been successfully grifted by some of the
many, many grifters we have at all levels
of our society.
Think of it: If international trade is bad—
if we should be self-reliant at the national
level—then the same argument applies at
the state level. If interstate trade is bad—if
we should be self-reliant at the state level
—then the same argument applies at the
municipality level. If inter-municipality
trade is bad—if we should be self-reliant
at the municipality level—then the same
argument applies at the neighborhood
level. And so we get all the way down to
the basic bedrock of human society: the
hamlet or band community of less than
100, say 75. How much could any 75 of
us produce as a group if we couldn't trade
with outsiders? About 1,000 a year per
worker. A United States that tried to be
self-suffi cient at the hamlet or band level
would be lucky to have a national income
of 160 billion, one hundredth of the 16
trillion we have.
Now we certainly can manage our
international trade account badly—the
Reagan administration, in particular, was
especially disastrous. But Americans who
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J. Bradford DeLong
NAFTA
"disagree strongly" that trade has benefi ts
have been misled. Perhaps "free" in your
question is supposed to serve as a weasel-
word escape hatch?
Cotto
: Libertarian economic theorists
tend to believe that trade defi cits are of
minimal importance. Do these defi cits
really have a great impact on America's
economy?
DeLong
: If the president and congress are
not doing their job through fi scal policy—
regulating government spending and
taxing—and the Federal Reserve is not
doing its job through monetary policy—
regulating the supply and price of liquid
purchasing power—in order to maintain
full employment, then, yes, a trade defi cit
can make matters much worse.
Given that President Obama was much
too cautious in 2009-10 when he had
congressional majorities, that
congressional majorities over 2011-2016
were focused mostly not on keeping
America great but on making Obama look
like a failure, that Fed Chair Bernanke
was much too cautious over 2008-2014,
and that Fed Chair Yellen has been
somewhat too cautious since, yes, the
trade defi cits have made our problems
signifi cantly worse.
But before 2009 and going forward into
the future in which the unemployment rate
is—we hope—6
%
or below, the trade
defi cit was not and will not be among the
fi ve biggest errors of economic
management the U.S. government was
and will be making.
Cotto
: Since it went into effect during late
1995, the North American Free Trade
Agreement has formed a trilateral
commerce bloc between Canada, the
United States, and Mexico. From your
research, has this proven to be of benefi t
to our country?
DeLong
: NAFTA is just not a big deal for
the U.S. We import 100 billion of goods
and services a year from Mexico—that's
1,250 per family per year. If NAFTA had
never been negotiated, we would, roughly
and approximately, be importing about
$75 billion of goods and services from
Mexico—$940 per family per year. Since
we get a good deal on the stuff we buy
from Mexico, shrinking that down would
make use poorer, but only by about 100
per family per year. If we did not have
NAFTA, we would have about 400,000
fewer people working in—for the most
part good, high-paying—manufacturing at
jobs that sell goods to Mexico, and we
would have about 600,000 more people
working in—for the most part bad, low-
paying—manufacturing at jobs making
things that we buy from Mexico because
of NAFTA.
If you want to say that NAFTA is not a
benefi t to America, you have to believe
that (a) getting an extra 600,000 mostly
bad, low-paying manufacturing jobs is
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J. Bradford DeLong
NAFTA
worth (b) losing 400,000 mostly good,
high-paying manufacturing jobs plus (c)
lowering the annual income of the typical
family by 100 per year—that's total
income losses of $80 billion a year. For
the country as a whole to pay more than
400,000 a year per job to increase the
number of bad, low-paying manufacturing
jobs... that looks like a very bad deal to
me...
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