New Study Shows that Establishment Economists are Wasting Our Time

January 27, 2016


Establishment economists will defend to the death the idea that trade does not destroy jobs. Yes, I'm serious. They believe that. Really.

Instead, they say, job losers move into other jobs so there is no net job loss.  They also assume that trade deals cause no change in the balance of trade.

This matters because when economists study the TPP and other trade deals, their models find no job losses and no future trade imbalances because those bad things are simply assumed away. Those net negatives cannot happen and are not even worth inquiring about. If you think you observed trade deficits and job losses in the real world, you are simply mistaken.

That is why we cannot trust the trade deal cheerleaders at the Peterson Institute or the World Bank.

Happily, an important economic study was just released showing - GASP! - that there are net job losses, reduction in lifetime incomes for workers, and trade imbalances that result.

The authors are economists from the Massachusetts Institute of Technology (MIT), the National Bureau of Economic Research among other places. The paper is titled: "The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade."  A summary is below.

Adjustment in local labor markets [after trade liberalization] is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences. Exposed worker experience greater job churning and reduced lifetime income. At the national level, employment has fallen in U.S. industries more exposed to import competition, as expected, but o􏰀setting employment gains in other industries have yet to materialize.

As wonky as this summary sounds, it basically destroys every opinion ever uttered on trade by Lawrence Summers, the Peterson Institute, Stephen Rattner, Paul Krugman, the Cato Institute, the American Enterprise Institute, the US International Trade Commission and other when projecting future impacts from trade deals.

Yes, I know you did not believe those guys before, but this paper does actually help within the profession. Future economists can increasingly write scholarly works challenging the past dumb assumptions and not lose their university jobs.

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