Many people believe that the Chinese steal lots of American jobs because they have low wages, low environmental standards, and various unfair subsidies. As far as I know no serious economist holds that view. But there are very serious economists who believe Chinese policies are costing many American jobs. For instance, Paul Krugman has argued that China’s large current account surplus ($201.1 billion) effectively steals jobs from American workers. As anyone who has read Pop Internationalism knows, Krugman doesn’t buy into the vulgar protectionist argument that low wages/government subsidies/weak environmental protections, etc, give countries an unfair advantage. Indeed he believes that the Chinese current account surplus only costs jobs when US interest rates are at zero, not otherwise.
The Swiss current account surplus ($95.7 billion) is nearly half as large as the Chinese CA surplus, suggesting that the Swiss are stealing about half as many American jobs as the Chinese. (By the way, bi-lateral imbalances don’t matter in the Krugman model.) I’ve mentioned this fact before, but today I’d like to address it from a different direction. What is the intuition here? When most people visualize the Chinese stealing our jobs, they picture tens of millions of low paid workers slaving away in sweatshops. But Switzerland has a tiny population, most of whom aren’t even employed in export industries. The few who are earn wages much higher than those of American factory workers. So how can Swiss workers be stealing nearly half as many jobs as Chinese workers?
The answer is simple; Chinese workers aren’t stealing jobs for the reasons most Americans imagine. The real problem with large current account surpluses (in the Krugman model) is that they add a big blob of savings to the global economy, just when we need more “spending,” and less saving. In other words, they worsen the liquidity trap. That’s why the Swiss steal so many American jobs. As do the Norwegians, with their $70.7 billion CA surplus. And let’s not even talk about Germany ($188.1 billion), they are already being blamed for nearly every problem in Europe.
Now as we all know, this model is wrong. It predicts that core inflation will plummet steadily lower when in a liquidity trap. If the Fed is targeting inflation, then there is no liquidity trap, no paradox of thrift, no paradox of toil, no fiscal multiplier, no “Depression economics.” And as we saw in 2010, when the Fed observes core inflation fall below their 2% target they do policies like QE, and extended promises of low interest rates, in order to raise core inflation back up near 2%.
So the good news (for world peace, love and understanding) is that the Chinese and Swiss workers aren’t stealing any American jobs at all! We are all in this together, and we all benefit from policies that boost economic growth in any one country.
Planet Earth: it’s a positive sum game.
PS. The CA data is from the most recent issue of The Economist. They also report that the consensus forecast for RGDP growth in the US is 2.1% in 2012 and 2.2% in 2013. Because we are in a recovery, that’s obviously higher than the consensus forecast of trend growth. In other words, most economists now see the US trend rate of RGDP growth as being something like 1.5%. After 150 years of 3% trend, that’s a startling downshift. Tyler Cowen is no longer a contrarian; The Great Stagnation is now conventional wisdom.
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