When your only tool is a hammer…

October 7th, 2016 at 1:44 pm

Over at the WaPo, Greg Sargent posts a video of Donald Trump answering a question from someone who’s a college grad without a job:

“I recently graduated magna cum laude with a BS in chemistry and I’m having a lot of trouble finding a job. What’s your plan to bring jobs back to America?”

Greg focuses on the candidate’s difficulty staying on topic, and wonders if this could create a challenge for him in Sunday night’s town hall debate, where I expect we’ll hear a number of questions like this one.

I’d like to focus on what Trump said during the few moments wherein he actually addressed the question.

To Trump’s credit, he starts by acknowledging the college-debt problem, which is of course most serious when you can’t get a job (or when you fail to graduate from a real school). For the record, I’m not aware of a Trump plan to deal with student debt burdens beyond getting the government out of the lending business and “doing something with extensions and low-interest rates.” (Hillary Clinton has a plan, of course, accompanied by—you guessed it!—a fact sheet.)

But he quickly pivoted to trade: “Our really good jobs are gone and they’ve gone to other countries. And so many countries are making our products…I want to see the day when Apple will make their iPhones in this country instead of making them in China and Vietnam and all over the place.”

OK, hold up there. I’ve been a strong critic of our trade policy and the impact of our decades of trade deficits. But both in theory and practice, the costs of these problems tend not to fall on those with advanced degrees, particularly those in STEM fields. When we trade with low-wage countries like the ones Trump mentioned, the workers most likely to get hurt are those who can be replaced by factory workers abroad. The “factor price” in the rich country—in this case, the US blue-collar wage—is pushed down by such competition.

It’s one of the ways you get the pattern you see in the figure below, where real, blue collar compensation here has been flat for thirty years. The folks in that slide are not high-end chemistry grads. The other line in the figure is the trade deficit as a share of GDP, so Trump is not wrong to raise these concerns. No question: a smaller trade deficit would deliver faster growth and stronger labor demand, which would be helpful to all workers, though Trump’s vague plans to get there–35-45 percent tariffs–are far more worrisome than reassuring.

Source: BLS, BEA

Source: BLS, BEA

Consider also China’s role in iPhone production: they assemble them (more precisely, workers at the Foxconn plant in Shenzhen assemble them). Is that the big plan: let’s bring those assembly jobs back here? And again, how does that help the questioner? (Though to be fair, that is the way the questioner teed up the question, asking Trump how he was going to “bring jobs back to America.”)

None of this is to deny the problem of trade deficits that are today -2.7 percent of GDP at a time when slow growth is real problem for us, the Federal Reserve is thinking about raising rates (which, by further strengthening the dollar, is likely to deepen the trade deficit), and the Congress is doing nothing to help. Nor is it to deny challenges facing college graduates. As wage analysts at EPI recently wrote: “While young graduates’ economic prospects have brightened in recent years, they still face elevated unemployment rates and stagnant wages.”

But even he could do so, which he can’t, Trump’s plan to bring back consumer electronic assembly jobs from China won’t help people like the person who asked this question, anymore than it will help factory workers who’ve lost higher value-added jobs than what they’re doing at Foxconn (what will help them? Read this). Just because your only tool is a hammer doesn’t make every problem a nail.

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8 comments in reply to "When your only tool is a hammer…"

  1. Smith says:

    The questioner’s dilemma is representative of the glut of college graduates. Ironically, the reconnect agenda would produce more college graduates, which I favor, but hardly solves the problem of an already over educated over credentialed workforce.
    Calls for increasing this problem by attracting more foreign STEM workers doesn’t help either.
    http://www.cjr.org/essay/it_doesnt_add_up.php This link specifically addresses chem majors:
    “In June 2012, for instance, the American Chemical Society’s annual survey found record unemployment among its members, with only 38 percent of new PhDs, 50 percent of new master’s graduates, and 33 percent of new bachelor’s graduates in fulltime jobs.”
    Chemical Engineers and Chemists combined show about 30,000 job openings over the next ten years, that’s 3,000 per year. http://data.bls.gov/projections/occupationProj
    To be sure those at the bottom with the least education and income suffer the most, because college graduates take jobs that would otherwise be available to them.
    Something like freezing the current levels of immigration instead of Democrats grand bargain expansion, and phasing out all requirements for employer sponsorship (which creates a workforce with no labor rights) seems a no brainer. Increasing funding for STEM research jobs would be a good idea.
    But manufacturing Iphones here would also encourage high skill job growth. Krugman and others have written about the proximity of research, building factories, and importance of a manufacturing eco system. Germany doesn’t allow their factories to just close and move. Force Americans to pay $650 for their iphone instead of $600 and you won’t see them blink an eye. They pay premiums far above that for German and Japanese cars.


  2. Kevin Rica says:

    The real tragedy of the Trumpster is that we have been deprived of a much-needed, honest policy debate about two things that depress wages: trade and immigration. Even when Trump gets it right, he doesn’t seem to know why.

    When someone who graduated magna cum laude with a BS in chemistry can’t find a job, Trump doesn’t know enough to remind everyone that the whole STEM shortage is a fraud used to justify H1-B visas that allow employers access to cheap, low-level, foreign professionals.

    And STEM is hardly the only fraud used to justify higher levels of immigration. Nothing better illustrates the perfidy of the Western elites than the bogus, designer economic theories used to circumlocute the law of supply and demand and justify the denial of the obvious depressive effects of immigration on unskilled labor.

    Out at the University of California, there is one unnamed joker that was dropped from a deck of crooked cards and claims in Orwellian deceit that imperfect substitutes are complements.

    That’s right:

    War is Peace.
    Freedom is Slavery.
    Ignorance is Strength.

    And

    Imperfect Substitutes are Complements.

    By that logic, I can prove the Earth is flat.

    Because the Earth is not a perfect sphere, therefore it must be a cube.

    And a cube has six flat faces. ∴ The Earth is flat! QED

    But while reducing the trade deficit may not bring back assembly of salad shooter, by definition, reduction of the trade deficit will require some combination of increased exports and import reduction. That will increase the demand for labor in the tradeables sector and, by multiplier analysis, the non-tradeables sector as well. Most trade theorists would agree that the comparative advantage of Advanced Economies lies in skill-intensive industries, so reducing the trade deficit would increase employment opportunities for magna cum laude grads with a BS in chemistry.


    • Henry Carey says:

      Trump knows why. We have no debate because the media dare not discuss or even show clips of his speeches in which he lays out his protectionist platform. He advocates a 35% tariff (ridiculously low if you read Ha Joon Chang or know anything about how East Asia developed) but at least it’s a start. We might end up with a few scraps of industry, which would be better than absolute zero which is what Clinton and Wall Street want.

      There is a media blackout. This is also why we have no debate on the TPP, which is actually going to be the vehicle for a US China free trade agreement although that’s not how it’s being marketed now. TPP’s TPP commission will have powers to invite new countries into the agreement without going back to the legislatures of TPP members for approval. It is a living agreement, which means the TPP commission will be empowered to change the agreement as things go on and there won’t be any mechanism short of pulling out of the TPP to change it or challenge its directives.


  3. Ken Wallace says:

    Having spent 50 years in the electronics industry, I can assure you that bringing manufacturing back would also boost demand for higher skilled labor. Every manufacturer in the “old days” had a small staff of R&D types working to make improvements in their products. For example, electrolytic capacitors require constant development of better electrolytes, better foils, better packaging, higher temperature materials. The same can be said for magnetic materials which involve high level physics, magnetic domains, losses, electron spin, etc. Of course, we also had a better environment for rewarding intellectual property – the patent business wasn’t dominated by big companies and predatory firms looking for litigation or immediate copying & manufacturing offshore to undercut domestic prices. In short, when you move manufacturing offshore thinking you’ll keep the high value development domestic, it eventually fails because one needs to be close to the line to see the manufacturing/quality issues. It took more than a generation to dismantle manufacturing and it would take at least that long to recover it. And it would not come back the same. We now know more about safety and environmental controls that are needed and automation would be a big factor. Nevertheless, a nation that can’t build things is a nation forever dependent on others and one that loses essential skills, independence and prosperity.


  4. Henry Carey says:

    The manufacturing trade deficit is much worse. The slight improvement overall is driven by improvement in oil (lowering price for imports, and fracking). Free trade and de-industrialization are the source of our economic catastrophe. If we made even half of what was sold in Wal Marts – heck if we even made 4.6% of the world’s smart phones, computers, toys etc, simply our share of the global population we would have massive labor shortages and an industrial base many orders of magnitude larger than what we have now. We produce nothing. No robots. No computers. No ships. No shoes. Nothing. Trump is absolutely 100% right in his diagnosis of what ails the US; this is why the media, economists and global elite attack him relentlessly.

    On the individual level the only advice you can give people is don’t go to college; learn how to survive on 2000 calories a day, take any savings you have and buy East Asian currencies. Clinton and the economics profession and our business and political establishment are guaranteeing that the US has a future as bright as Moldova’s present. No manufacturing = no formal sector jobs = no money = extreme poverty. This formula is obscured by our economists and media but just because they want the sky to be neon green, don’t make it so.


  5. Tom in MN says:

    I wonder if a Foxconn assembler can afford to buy an iPhone? I’m not sure these are jobs people here want.

    Also, I think that China has done a lot manufacturing without dealing with the cost of the pollution that it causes. We would not want all the toxic waste that electronics manufacturing creates dumped here.

    All of us that are happy buying lots of shiny new electronics all the time should realize that there are costs that are being absorbed elsewhere that at some point will have to be faced. Bringing their construction back here would probably hurry that process along.


    • Smith says:

      Some sites say an all U.S. iphone would cost $2,000 instead of $650, but even these worst case scenarios really point to the need to bring manufacturing back to the U.S. That is because as stated in my previous comment (echoing Krugman and others) and reinforced by Mr. Wallace’s comment recounting first hand experience, there is a manufacturing ecosystem that brings about economies of scale and virtuous cycles of development.

      Moreover, labor costs account for a small percentage of total retail prices. Paying American workers $25/hour for 7 hours would add $175 to the $650 cost which is a 25% increase assuming Apple gives up margin as percentage of sales but not in absolute terms. Meanwhile Apple sits on billions of cash without creating jobs, and cheats on taxes. America must decide whether to pay workers more and be charged higher prices short term for some products, or continue with the capitalist system envisioned by Marx. In the long run, a healthier economy might produce lower prices for everyone. For automobiles, the labor costs are 10 to 15% but there most competition is with Japan and Germany where developed wage rates prevail (or higher in Germany). This means that moving jobs to Mexico doesn’t really save GM that much money (if any in the long run). But when your executive compensation depends on meeting constant pressure for even small improvements in quarterly results, you gladly gut the American economy to satisfy stock holders. Germany has laws and corporate governance rules that make this virtually impossible for existing plants.
      http://www.asymco.com/2012/02/22/the-iphone-manufacturing-cost-structure/
      “Labor costs are still a small part of the overall cost structure at between 2% and 5% of sales price.”


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