Brad DeLong’s website is one of my regular visits and has been for about as long as I’ve been reading blogs. He’s a damn smart liberal economist (yes, Dorothy, they do exist) and knows one of my old professors from there, Steve Cohen, pretty well to boot.
So when I read this, I put it aside for a bit to see if it made any more sense.
Just came back to it, and it doesn’t. This raises three possibilities:
# I’m not salvageable when it comes to economics and shouldn’t read or discuss it any more;
# Brad wasn’t paying attention and phoned this post in;
# There’s something subtle I didn’t understand that someone may be able to explain to me.In the hopes that it’s #3, let me wade in. Brad says, in response to Dan Gilmour’s post on ‘outsourcing our future‘:
First of all, the number of jobs in the United States is not set by what happens on the sea lanes–on what exports and imports the container ships carry from port to port. The number of jobs is set in the Eccles Building, by the Federal Reserve, which tries to hit the sweet spot: high enough demand to produce effective full employment, without so much demand that vacancies become so abundant as to lead inflation to run away. Sometimes the Federal Reserve does a good job and is lucky, and we have full employment with price stability. Other times the Federal Reserve is unskillful or unlucky, and we have accelerating inflation or high unemployment. It is certainly true that what happens in international trade affects employment in America. But the Federal Reserve can and does offset and neutralize impacts of trade that push employment away from where the Federal Reserve thinks the sweet spot of full employment is.
To which my response is sha-WHAT?? Last time I checked, we weren’t an autarky. The world economy is, as I visualize it (and yes, I do spend all too much time visualizing trade flows when I ought to be thinking about, say, Uma Thurman…) a complicated network, with a linked series of subnetworks each of which has some measure of control over itself – but that is firmly bound within the larger. If the Fed can unilaterally set monetary policy and interest rates, with no regard to world markets, there are a whole lot of people working on international currency trading floors who have been faking it for a long time.
I simply can’t imagine any condition under which this is correct; my plea here is for someone to either confirm my impression or correct me, if possible.
He then goes on to discuss international trade:
So what, then, is the impact on the American economy when Singapore educates its people to become competent network developers, or India educates its people to become competent help-center technicians? It’s not that jobs leak away. Remember: trade balances. Indians want rupees, not dollars: they will only sell us as much as we can pay for in rupees, and the only way we get rupees is by selling things to Indians. Either way (if the Federal Reserve does its job) Americans’ demand for imports made in other countries is recycled into foreign demand that employs Americans in industries that export goods, export services, make producers equipment, or build structures. This is a consequence of Say’s law–an economic principle which is usually true, sometimes false, but which it is the Federal Reserve’s business to make as true as possible as much of the time as possible. This means that nightmare scenarios–3.3 million high-tech jobs moving overseas–are beyond the bounds of short-run probability. The current account plus the capital account must balance: if the work that used to be done here by 3.3 million people is to be done there, that means that our export industries here must employ an extra 3.3 million people as well.
I can’t think of the appropriate Snoop Dogg response except to say one simple word here: “eurodollar”.
As I recall, they’ve found a couple hundreds of millions in U.S. cash in Iraq recently…what was Saddam doing with that, if what he really wanted was dinars?
This is a kind of important issue, because in my mind, the ‘global averaging’ taking place in the economy and the consequences on jobs is one of the most pressing issues that faces us today; lots of the other issues fall out from causes rooted in this one.
I’m not advocating a return to Smoot-Hawley; in fact I’m not far enough through this issue to begin to know which path makes sense, except that any path we take must somehow deal with the issue, rather than ignore it.
And DeLong’s post somehow seems to ignore it.
So help and clarification from all quarters welcome.