Posted by on April 9, 2017

Trump is an ass, but that doesn’t mean that his attacks on the biased media are always wrong.  The New York Times has recently come out with a howler so egregious that even the overly nice Tyler Cowen had to call them out.

The headline in the Times read “Amid ‘Trump Effect’ Fear, 40% of Colleges See Dip in Foreign Applications.”  The article linked to a survey.  If you actually follow the hyperlink[1] the opening line of the study reads “39% of responding institutions reported a decline in international applications, 35% reported an increase, and 26% reported no change in applicant numbers.”  A slightly different vibe, no?

Cowen, who too charitably called the article a “blooper,” has called for it to be retracted.  Yet, you can still find it on the website.

This reminds me of the time the paper characterised a Stanford University study of Michigan’s charter schools with “half the charters perform only as well, or worse than, Detroit’s traditional public schools.”  Dig into the report, as the Cato Institute did, and the actual figures are (depending on whether you are testing reading or math skills) 1% or 7% of the charter schools performed significantly[2] worse, 52% or 44% performed basically the same, and 47%  or 49% performed better.  So, why didn’t the NYT report that nine out of ten Detroit charter schools performed as well or better than their public school peers?  Or why not be just neutral, as a true “newspaper of record” should be, and report that roughly half the charter schools performed as well as public schools, roughly half performed significantly better, and a very small percentage performed worse?

Anybody can make mistakes.  But mistakes are usually randomly distributed.  When the mistakes predominately fall on one side of the distribution, statisticians use a different term.  That term is bias.

David Autor

My wonkier readers will recognize this name as that of an MIT economist who co-authored a widely cited paper entitled “The China Syndrome: Local Labor Market Effects of Import Competition in the United States.”

The benefits of free trade are broadly accepted among economists – in fact, there is probably no economic doctrine that garners wider support.  This belief is a logical extension of the manifest benefits from the division of labor and exchange, which clearly improve welfare domestically and have the same effect when extended to the international stage.

However, economists have never claimed that free trade is good for everyone.  The profession has always acknowledged that there can be winners and losers, but the gains to the winners have been thought to vastly outweigh the losses (as my very able co-author pointed out here).  Economists have therefore tended to downplay this concern.

Autor’s study has shined a light on the losers, something that has taken on greater relevance following the election of Donald Trump (although there is plenty of evidence that most of Trump’s supporters have not been hit hard by globalization).  Autor found that import competition could have very substantial local effects, such as on the furniture manufacturing business in South Carolina, and that these are lingering.  The study found that “rising imports cause higher unemployment, lower labor force participation, and reduced wages in local labor markets that house import-competing manufacturing industries.”

Overall, Autor found that Chinese competition cost America about 1 million manufacturing jobs between 2000 and 2007, a number that is now a commonplace in political discourse.  But this figure is in dispute.  A recent editorial in the Wall Street Journal cites two new studies that find much less deleterious results.  As pointed out in my recent blog piece on the limitations of statistical analysis in economics, don’t expect an early and definitive conclusion to this debate.

However, even if we take Autor’s claims at face value, an Econtalk podcast with him shows the limitations of his analysis and the questions it leaves unanswered.  Here are some of them:

The study made no attempt to identify employment gains elsewhere in the economy arising from the spending power that was liberated through the lower purchase prices of imported goods.  This point is straight out of Economics in One Lesson, the classic libertarian book by Henry Hazlitt that reminds us that in economics we must always look beyond the simplistic, first-order effects.  In a certain sense, Autor’s study is a more sophisticated variant on the “broken window fallacy.”

The study made no attempt to explain why the unemployed manufacturing workers had, to use Autor’s phrase, “no good outside option.”  In other words, why did losing a manufacturing job mean falling off an employment cliff?  I have openly wondered about this before and Autor’s study, and his talk on the podcast (“you could argue that they were doing much better in manufacturing than another sector…” – but why?), doesn’t help with the question.

There was also no discussion of the impediments to labor mobility.  The rise of Chinese competition can explain a hit to local labor markets, but it cannot explain the lingering effects of this hit.  This can only be explained by a lack of labor mobility.  Why?

After listening to Autor, I was struck by how the authors brought to bear a great deal of statistical firepower to answer fundamentally limited questions.  I was also struck by how the common discussion of this research has left out so much of the detail necessary to understand the results.

In general, I was left with the impression that, even if we grant the conclusions of the research, the “China shock,” in which a huge and very industrious country emerged suddenly onto the international trade scene from behind a wall of communism, was a one-time event that should not dictate future trade policy.  We are, once again, significantly at risk of driving the car while looking in the rearview mirror.

Roger Barris

Weybridge, United Kingdom

 

I Wish That I Had Said That…

 All process arguments are insincere” by the journalist Michael Barone, coining a rule of politics that is useful to remember with all the debate around Senate procedures and precedents surrounding the Gorsuch nomination

 

WTF

“Susan Rice operationalized the NSC during the last administration.  I was put on to ensure that it was de-operationalized.  General McMaster has returned the NSC to its proper function” by Steve Bannon, explaining why he will no longer be a principal on the National Security Council and earning a big “WTF does that mean?” from me

“I think we’ve had one of the most successful 13 weeks in the history of the presidency” by Donald Trump, speaking 11 weeks into his term

 

[1] As an aside, it appears that the hyperlink has created a new form of deception. Links give the appearance of support for a claim, but if you follow them, frequently the underlying articles do nothing of the sort and sometimes even show the exact opposite.  Deceptive writers rely on the laziness of readers.

[2] In the statistical sense of this term, I suspect.

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Comments

  1. Jack Rubin
    April 9, 2017

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    The immobility of labor is a critical question. Unfortunately, I think the fingerprints of Progressive politicians are all over this issue. The growth of GSEs in the US mortgage market led to NINJ mortgages, sub-prime and all the rest of the exploding infrastructure that began to unravel in 2008. One huge hangover effect is the fact that many of those who took advantage of the loose mortgage market (which would not have been nearly as large had it not been official Progressive policy) are now ‘upside down’ resulting in considerable friction inhibiting mobility.

    Just another in the long line of unintended consequences of government interfering in a market economy with the intention of ‘making things better’ in the short-term and causing long-term damage.

    • Roger
      April 9, 2017

      Leave a Reply

      Thanks for your comments.

      You are absolutely right but it is even worse than this. There are even more government fingerprints on this problem.

      Occupational licencing has exploded over the last years. If I remember the figures correctly, back in the 60/70s, about 5% of professions required an occupational licence — now the figure is something like 25-30%. Licences are issued by states and are frequently not portable to another state. So, moving to another state will cost money (for whatever education is required) and will create foregone earnings while waiting to qualify for a new licence. This is especially a problem with so many two-earner families.

      Welfare benefits make it harder to move and subsidize people who decide to stay put. Harder to move because benefits are granted on a state-by-state basis and moving to another state could result in different requirements, new waiting periods, etc. Obviously, if you are receiving benefits while not working in a low-job area, your motivation to move is much reduced.

      You mentioned the housing market and being “upside down” on a mortgage. For sure, that is a huge impediment to moving, but it is a diminishing problem with the housing market recovery. But probably an even bigger impact comes from housing policies that greatly restrict the supply, and increase the cost, of housing in ares of high job growth. This is a huge government-mandated restriction on labor mobility.

      Roger

  2. Fraser Currah
    April 11, 2017

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    Ingteresting that you mention the Upside Down housing market. With all the fuming about government and policy issues why does nobody address teh original core issue: Out of Balance; created by Bill Clinton’s cancelling the the 5 page, Glass Seagall Act. And nobody has gone to jail excepting in Iceland where their economy is back in balance and prospering..

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