Cold Economics Doesn’t Apply to Everything
Steven E. Landsburg, a columnist for the New York Times, thinks that the two Republican front runners, McCain and Romney, are too liberal. At least in one case.
In the last few days, there has been a lot of talk from McCain and Romney about how to deal with jobs disappearing due to globalization and outsourcing. Because they were campaigning in Michigan, the issue was particularly relevant, a state where the automobile industry was once an enormous employment provider. Now, however, the migration of factories overseas has resulted in an unemployment rate in Michigan that is the highest in the country. McCain and Romney, despite having different outlooks on the future of the automobile industry in that state, are both proposing government programs that would be available to downsized employees that would retrain them for new work opportunities.
In an attempt to show how ridiculous these programs would be, Landsburg applies cold economic reasoning to the plight of these unemployed workers. First, he gives us the standard free trade zealot response, namely, that Americans as a group benefit so much from cheap, foreign labor that it more than makes up for the loss of a few, insignificant American jobs. Now, as ugly as this fact is, there is some truth to it. The goods that we consume so vigorously do, in many cases, owe their low prices to outsourcing and foreign labor. Obviously, this is a touchy subject. There are many valid arguments on both sides of this issue, and the answer is not completely clear.
But what is clear, to even the Republican presidential candidates, is that the situation that middle class workers are put into when their factories or offices are moved to another, more profitable country, is dangerous to their livelihood, and that there should be some measure of safety from complete financial collapse for them. This view is pretty standard on the left, but with the rising number of instances in which this occurs, even pro-business, free trade conservatives have been forced to face this fact. However, Landsburg disagrees: he believes that we owe nothing to workers who are downsized and find themselves without an income to support them and their families. These, according to him, are the necessary casualties of economic progress:
All economists know that when American jobs are outsourced, Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices. In other words, the winners can more than afford to compensate the losers. Does that mean they ought to? Does it create a moral mandate for the taxpayer-subsidized retraining programs proposed by Mr. McCain and Mr. Romney?
Um, no. Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born.
Here Landsburg insinuates what has become an increasingly common idea within the discipline of ecomonics, both inside and out of the academy: that economists know everything. They have, through their in depth studies, found a higher awareness and a more lucid insight into the workings of the world. In the game of global economics, the losers deserve nothing from those who have profited greatly from their loss, except a casual, “sorry, man, that’s the way the world works. You should be grateful for what you’ve gotten this far.” In this case, we are not even talking about the foreign “losers” in this game. He is not referring to citizens of the third world, who work in slave-like conditions and are compensated with poverty level wages. They do not even factor into his analysis in this piece. The losers he is referring to are our fellow Americans. Even they, according to Landsburg’s worldview, matter little. It’s dog-eat-dog, baby.
If Landsburg would just come out and admit that in his mind, some must suffer for the benefit of others, and that he really doesn’t care about what happens to the losers of economic progress, it would be, however reprehensible, a technically valid viewpoint. Instead, he tries to justify this phenomenon with, at best, skewed logic:
One way to think about that is to ask what your moral instincts tell you in analogous situations. Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonald’s, should you compensate the owners of the diner next door? Public policy should not be designed to advance moral instincts that we all reject every day of our lives.
Landsburg would like to think that these situations are analogous to the ones downsized workers face, but they simply are not. If you stop buying shampoo from your neighborhood pharmacy, how much of an impact is that really going to have on the success and profits of the store as a whole? Maybe they lose four dollars of business, maybe once a month. Even if every single person that used to buy shampoo at this establishment suddenly decides that they will switch to the internet for their hair product needs, its a safe assumption that this pharmacy will not go bankrupt. In the same way, most landlords own multiple properties, so if you decide to move to a cheaper apartment or house, they will most likely still have other places to collect rent from. And, if they do only own one property, I think its fair to assume that this is not their only source of income. Plus, in most areas (this is definitely true for my college town), landlords have no problems renting out properties once they are uninhabited. Landsburg’s final “analogy” is to the restaurant business. The same problems prevent it from being an accurate representation of what happens to laid off workers. Even if you do eat at McDonalds, instead of a diner nearby, not everyone is going to choose the fast food, and you yourself will probably not eat at McDonalds every time you dine out. There really are no meaningful comparisons in Landsburg’s analysis.
When a worker is downsized, their job moved to a foreign land or replaced by cheaper labor, they are completely cut off from all income, all at one time. Even if the situations that Landsburg posits do, eventually, lead to the pharmacy closing, the landlord losing all their tenants, or the restaurant failing, it would happen gradually, allowing the owner in question the time and some amount of income to invest in educating themselves and attempting to find a new career opportunity. This is not the case with people who just lose their jobs. It is fundamentally different when you own your own business and the prospect of losing all your income at the very worst can be seen coming through various signals (less and less shampoo sold over time, might want to think about getting out of the pharmacy business). Of course, in Landsburg’s calculating, free market economics-trained mind, there is no disctinction between these vastly different situations.
When someone is downsized, they immediately face a very serious crisis. They may have worked at the same factory for thirty years, in which time they have become highly specialized at a distinct skill that is not always transferable to another career. They may have spent years working up to the wages they now enjoy, and because of this, many of them have mortgages, car payments, and insurances premiums out for themselves and their families that are in line with the income they are now getting. If they lose this job and have no other skills with which to find a similar paying career, they have to start at the bottom. They can kiss their home, car and health insurance out the window. Despite whatever Landsburg may think, it IS society’s moral obligation to make sure that those who have spent years of their life working hard for an employer who has now made a profit-based decision to leave them jobless can still provide food, shelter and health care for themselves and their children. Or, if not all that, we should at least give them some education and training in order to make their transition from one job to another easier (you would think that someone who disdains government hand-outs would support a program that helps people get off unemployment). This is not just an indictment of businesses that decide to outsource: it is their right to do so, and as Landsburg keenly points out, it may be for the better of this country in some circumstances. But this does not mean that we have to forsake our own citizens in the process.
Something is often lacking in the recent wave of economists’ attempts to apply their discipline to all aspects of society (Landsburg himself released a book called More Sex is Safer Sex: The Unconventional Wisdom of Economics). They seem to feel less than content applying their methods to finances and want to branch out into other realms, from dating to parenthood. Why should we listen to them? What gives them the authority to comment on everything under the sun? Certainly not their degree in microeconomics. The real world has endless layers and subtleties that do not always fit into formulas and economists’ “rational” thinking. Sometimes, people would rather behave humanely (that is, like humans) rather than as machines engaged rational, cold decision making.
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Update: A little while after I published this post, I went to Slate.com. What do I find? This piece, which is an excerpt from Tim Harford’s book, The Logic of Life. The specific section they have published here is titled “The Economics of Marriage.” Read it for yourself and let me know what you think of this new-found love for applying economics to everything.
There is also a BBC documentary called The Trap (by Adam Curtis) that deals, in part, with game theory (originally championed by John Nash, of A Beautiful Mind), its origins and application to economics, and since then, to many aspects of social life.






good. It is infuriating, to me personally, that the whims of two states representing a tiny fraction of the American public can have such a substantial effect on the fate of the presidential race, and thereby the republic as a whole. But these frustrations, as much as I would like to now expand on them, are currently irrelevant, and should be reserved for a later date. What I do want to discuss, however, is what the Edwards campaign contributed to the general direction of the Democratic struggle for the presidency, and, vastly more important, the consciousness of the nation.
All the major news outlets in this country are owned by a handful of corporations: the television channels, the newspapers, the magazines, and many important websites. The reporters and journalists employed by these powerful conglomerates are often forced to report what they are told, to shape the issues and the reality of American life into the vision that their bosses have. The alternative is often the loss of their job (see the documentary The Corporation, one version is 