Americans ready to stop the world and shut out reality Alan S. Blinder* | International Herald Tribune | 06 January 2008
http://www.iht.com/articles/2008/01/06/business/blinder.php?WT.mc_id=newsalert In the early 1960s, a Broadway musical called "Stop the World, I Want to Get Off" was all the rage. But you hear the sentiment of that title a lot these days. Opinion polls show that Americans are both weary with and wary of the rest of the world. It's as if they wish it would all just go away. Naturally, this sentiment is reflected in the current presidential campaign. Among Democrats, it may manifest itself in attitudes toward international trade that range from lukewarm support to outright hostility. Among Republicans, it shows up in attitudes toward immigration - and most things foreign - that border on xenophobia. Part of the stop-the-world syndrome clearly stems from despair over the Bush administration's foreign policies, especially in Iraq and Afghanistan. But part of it seems to have economic origins. Increasingly, Americans seem to be losing faith in globalization. Why? One very old reason is that the jobs destroyed by international trade are far more salient than those it creates. And with our huge trade deficit, imports do seem - as a matter of arithmetic - to be destroying more jobs than exports are creating. But think about that simple arithmetic for a moment. We do not yet have full data for 2007, but in 2006 imports exceeded exports by a whopping 5.5 percent of real gross domestic product. Because jobs are roughly proportional to real GDP, it is tempting to conclude that trade "destroyed" 5.5 percent of all American jobs. Yet the unemployment rate in 2006 averaged 4.6 percent. Are we to believe that, if trade had been balanced, the unemployment rate would have been 5.5 percentage points lower - making it minus 0.9 percent? Many Americans are justifiably distressed about rising income inequality, but foreign competition gets far too much of the blame. In fact, the best and most comprehensive studies of the inequality question assign international trade only a bit part in the drama. The main protagonists are all domestic, including changes in technology, the decline of unions, failures of public policy and changing social attitudes toward inequality. Americans who want to stop the world fear that the nation either already is or is destined to become a victim of globalization. Such pessimism seems downright un-American. It is also fundamentally illogical. After all, much of globalization amounts to Americanization - as numerous foreign critics have ruefully observed. The United States has long been the biggest, most open, most market- oriented and most competitive economy on earth. Globalization is now spreading these practices to the rest of the world, creating a huge, open, competitive global marketplace. But Americans are past masters of this game. How can we lose if the rest of the world decides to play on our field? Fortunately, the stop-the-world syndrome has had only limited effects on U.S. policies so far. We have not yet succumbed to isolationism. On immigration, our bark has been frightening, but our bite has not yet gone very deep. On trade, we have lost our enthusiasm for liberalization, but we have not yet turned protectionist. The key word here is "yet." Our country may now be approaching the danger zone in all three dimensions. If so, the next president faces a huge challenge. Briefly put, she or he will need to find ways to make Americans more comfortable with globalization. One part of the task involves using the presidential bully pulpit - not to bully, but to explain why globalization is both inevitable and more an opportunity than a threat. She or he must find the right language to explain, first, that the world will not stop to let us off and, second, why we should not want to disembark anyway. Economists have long recognized that increased trade creates both winners and losers. So the United States has a variety of Trade Adjustment Assistance programs that are intended, at least putatively, to cushion the blow for trade's victims. Unfortunately, we have never taken the job seriously. The program has been around since "Stop the World" played on Broadway, but it has always been embarrassingly small and weak. It needs to be expanded, improved and, indeed, generalized so that workers who are displaced for any reason - not just trade - have a stronger safety net to catch them. That, in turn, means expanding some existing programs, like making unemployment insurance more comprehensive, and vastly increasing - and improving - job retraining programs. It also means enacting new programs like universal health insurance, guaranteed pension portability and so-called "wage insurance." *Alan S. Blinder is a professor of economics and public affairs at Princeton and former vice chairman of the U.S. Federal Reserve. He has advised many Democratic politicians.
