March 8, 2008


Doing a Job on NAFTA: Obama’s criticism of the trade deal reflects either a willful disregard of the facts or a poor command of economics (Philip I. Levy, March 6, 2008, The American)

If nothing else had happened after NAFTA came into force in 1994, we could just look at the overall change in jobs since then. In 1993, U.S. civilian employment was 120 million. Last year it was 146 million. [...]

If we want to find the true consequences of NAFTA, we need to disentangle this mess of events. We could be guided by the wisdom of economic theory, but it says, loud and clear, that trade agreements have no impact on overall employment. Trade substitutes better jobs for worse jobs, but leaves the job total unchanged.

This is the type of answer that drives politicians berserk. Economic policies are loved or loathed by the public on the basis of how many jobs they create. How can trade policies not affect overall employment?

The number of jobs in an economy is set by the size of the work force, the health of the labor markets, and macroeconomic fluctuations. Trade can certainly create new jobs with export opportunities or cheaper inputs. It can also destroy jobs when firms succumb to import competition. Lots of job creation and destruction occurs every year in the U.S. economy. In an average year, 17 million jobs are created and 15 million are destroyed, with a net job creation of 2 million. When net job creation matches growth in the labor force, the unemployment rate stays constant.

So why couldn’t trade push the unemployment rate up or down? Among other reasons, the Federal Reserve is watching and would offset any trade-driven economic swings. In the decade before 1994, unemployment averaged 6.6 percent in the United States. In the decade after, it averaged 5.1 percent, which is near the level at which central bankers begin to worry about inflation. he lying or ignorant?

Posted by Orrin Judd at March 8, 2008 6:46 AM

Lying and ignorance go together like a horse and carriage. When the ignorant opens his mouth he is misrepresenting an implied premise that his words are worth listening to. Humility, that virtue whice disposes to thing rightly of our own worth and competence, and due deference should dispose us to silence, if our speech is as devoid of content as that of Effendi Obama.

Posted by: Lou Gots at March 8, 2008 12:17 PM