The Limited Exposure of the US Economy to Trade

Listening to complaints about the effects of globalization on the US economy, one might be tempted to believe that the US economy is more exposed to the pressures of global trade than most other countries, and that the US market is uniquely open to world trade. countries.

But these beliefs are not true. A common pattern is that large economies have lower levels of global trade relative to GDP--because so much of their economy happens inside their own  borders. Moreover, countries like the US with some geographic separation from most other substantial economies have less trade. Thus, the ratio of exports/GDP for the world economy is about 30%. But the export/GDP ratio for the US is only about 13%. Japan has an export/GDP ratio of about 17%. Canada is near the world average, with an export/GDP ratio of 31%, while Mexico is above the world average with an export/GDP ratio of 38%. For a small economy in the middle of the European Union, like Belgium, the export/GDP ratio is 84%.

Moreover, US markets are not especially open to international trade. The evidence comes from the fourth edition of the International Chamber of Commerce Open Markets Index 2017. The index rates 75 large economies across the world in four broad areas: observed openness to trade; trade policy settings; foreign direct investment (FDI) openness; and trade-enabling infrastructure. These scores are combined to a ranking on a scale from 1 (least open) to 6 (most open). The US economy is in a tie for 40th place in openness. Here are the rankings:

Among the group of larger economies around the world known as the G20, the US ranks 8th, behind Japan, Germany, Canada, Korea, and others in this measure of trade openness. In the more detailed analysis, the US scores higher in the categories of explicit trade policy and trade-enabling infrastructure, about average on openness to foreign direct investment, and below average on "observed openness to trade."

Globalization and trade are forces of economic disruption and change, and those forces have grown stronger in recent decades. But the notion that the enormous US economy is vulnerable to international trade or especially buffeted by the winds of trade just doesn't hold up.

Breaking Down the Black-White Wage Gap

It's just a fact that blacks fare worse than whites in the US labor market using basic comparisons like average wage levels or unemployment rates. However, controversy arises in the possible explanations for these differences. It's easy enough to put forward potential hypotheses. For example, does the wage gap mostly represent discrimination by employers between equally well-qualified applicants? Or does it reflect a lower average level of education for black workers, which in turn might in part trace back to societal discrimination in housing patterns or methods of school funding? Is it differences in occupational choices, which might in part trace back to patterns of expectations in social networks?

The big questions are hard to answer. But Mary C. Daly, Bart Hobijn, and Joseph H. Pedtke set the stage for a more insightful discussion in their short essay, "Disappointing Facts about the Black-White Wage Gap," written as an "Economic Letter" for the Federal Reserve Bank of San Francisco (September 5, 2017, 2017-26). Here are  a couple of figures showing the black-white wage gap, and then seeking to explain what share of that gap is associated with differences in state of residence, education, part-time work, industry/occupation, and age. The first figure shows the wage gap for black and white men; the second for black and white women.

Here are some thoughts on these patterns:

1) The black-white wage gap is considerably larger for men (about 25%) than for women (about 15%). Also, the wage gaps seem to have risen since the 1980s.

2) The three biggest factors associated with the wage gap seem to be education level, industry/occupation, and "unexplained."

3) The "unexplained" share is rising over time time. As the authors explain: "Perhaps more troubling is the fact that the growth in this unexplained portion accounts for almost all of the growth in the gaps over time. For example, in 1979 about 8 percentage points of the earnings gap for men was unexplained by readily measurable factors, accounting for over a third of the gap. By 2016, this portion had risen to almost 13 percentage points, just under half of the total earnings gap. A similar pattern holds for black women, who saw the gaps between their wages and those of their white counterparts more than triple over this time to 18 percentage points in 2016, largely due to factors outside of our model. This implies that factors that are harder to measure—such as discrimination, differences in school quality, or differences in career opportunities—are likely to be playing a role in the persistence and widening of these gaps over time." The authors also cite this more detailed research paper with similar findings.

4) In looking at the black-white wage gap for women, it's quite striking that this gap was relatively small back in the 1980s, at only about 5%, and that observable factors like education and industry/occupation explained more than 100% of the wage gap at the time. But as the black-white wage gap for women increased starting in the 1990s, an "unexplained" gap opens up.

5) It is tempting to treat the "unexplained" category as an imperfect but meaningful measure of racial discrimination, but it's wise to be quite cautious about such an interpretation. On one side, the "unexplained" category may overstate discrimination, because it doesn't include other possible variables that affect wages (for example, one could include previous years of lifetime work experience, or length of tenure at a current job, scores on standardized tests, or many other variables). In addition, the variables that are included like level of education are being measured in broad terms, and so it is possible that, say, a blacks and whites with a college education are not the same in their skills and background. On the other side, the "unexplained" category could easily understate the level of discrimination. After all, education levels and industry/occupation outcomes don't happen in a vacuum, but are a result of the income, education, and jobs of family members. For this reason, noting that a wage gap is associated with some different in education or industry/occupation may reflect aspects of social discrimination. The kinds of calculations presented here are useful, but they don't offer final answers.

In short, the black-white wage gap is rising, not falling. The wage gap is also less associated with basic measures like level of education or industry/occupation than it was before. I can hypothesize a number of explanations for this pattern, but none of my hypotheses are cheerful ones.

Some Economics for Labor Day

For those who need a dose of economics with their end-of-summer Labor Day family cookout (and really, don't we all need that?), here's a sampling of some earlier posts.

1) "Origins of Labor Day" (September 7, 2015)

The first Labor Day march and celebration almost didn't happen, for lack of a band. Also, was Maguire or McGuire the one who had the idea for such a holiday?

2) "Active Labor Market Policies: Time for Aggressive Experimentation" (November 15, 2016)

Paying unemployment insurance is a "passive" labor market policy. Assistance with job search and training is an "active" policy. Compared with other high-income economies, the US does relatively little "active" labor market policy--and should consider doing more. See also this follow-up post, "Improving How Job Markets Function: Active Labor Market Policies" (December 30, 2016)

3) "Rising Job Tenure and Its Tradeoffs" (May 22, 2017)

The length of time that a US worker has been in that person's present job--that is, their "job tenure"--seems to be rising. In theory, this could be good news, if workers were finding better and more rewarding job matches. But a more likely explanation seems to be that longer job tenure is arising from a less dynamic economy and a less fluid labor market.

4) Some Economics of Parental Leave (March 3, 2017)

The US has far less parental leave than other high-income countries. But figuring out the effects of parental leave is tricky, because in some countries (like Denmark) it is enacted as a way of encouraging parents (and women in particular) to remain connected with the labor force, while in other countries (like Italy) it is enacted as a way of encouraging parents (and women in particular) to stay home with children. Moreover, the effects seem to vary depending on the length of parental leave and if the leave is paid (and if so, how much!) In "Facing the Costs of Paid Parental Leave" (June 12, 2017), I discuss a proposal from a bipartisan group for expanded US parental leave. 

5) Information Technology and the US Workforce (May 30, 2017)

A National Academy of Sciences report looks at how technology is altering work relationships, the mixture of US occupations, and contributing to wage inequality -- but also how, despite literally centuries of gloomy predictions, it is not decimating the number of jobs. 

6) Food for Thought on Jobs: Solow, Gershon, Mokyr (July 21, 2017)

The US unemployment rate has now been under 5% for two years. Here are some thoughts from interviews with three different economists about the current situation of US labor markets in terms of shifts in workplace interactions, job search, interactions of jobs and technology.  

Adam Smith on the Benefits of Public Education

As one more school year gets underway, here's the argument from Adam Smith about the benefits of public education. All the way back in 1776, long before public education was widespread, Adam Smith made the case in The Wealth of Nations for the government to provide public education for everyone, partly on the grounds that it would benefit the economy to have more educated workers, but also partly on the grounds that in a political context,  educated people are "less liable ... to the delusions of enthusiasm and superstition" and "less apt to be misled" in a political context. As usual when quoting Smith, I turn here to the version of The Wealth of Nations freely available online at the Library of Economics and Liberty website. In Book V, Smith wrote: 

The more they are instructed the less liable they are to the delusions of enthusiasm and superstition, which, among ignorant nations, frequently occasion the most dreadful disorders. An instructed and intelligent people, besides, are always more decent and orderly than an ignorant and stupid one. ... They are more disposed to examine, and more capable of seeing through, the interested complaints of faction and sedition, and they are, upon that account, less apt to be misled into any wanton or unnecessary opposition to the measures of government. In free countries, where the safety of government depends very much upon the favourable judgment which the people may form of its conduct, it must surely be of the highest importance that they should not be disposed to judge rashly or capriciously concerning it.

This passage comes at the end of a more extended discussion. For additional context, here's a longer cut from paragraphs 183-190:

But though the common people cannot, in any civilized society, be so well instructed as people of some rank and fortune, the most essential parts of education, however, to read, write, and account, can be acquired at so early a period of life that the greater part even of those who are to be bred to the lowest occupations have time to acquire them before they can be employed in those occupations. For a very small expence the public can facilitate, can encourage, and can even impose upon almost the whole body of the people the necessity of acquiring those most essential parts of education.

The public can facilitate this acquisition by establishing in every parish or district a little school, where children may be taught for a reward so moderate that even a common labourer may afford it; the master being partly, but not wholly, paid by the public, because, if he was wholly, or even principally, paid by it, he would soon learn to neglect his business. ... There is scarce a common trade which does not afford some opportunities of applying to it the principles of geometry and mechanics, and which would not therefore gradually exercise and improve the common people in those principles, the necessary introduction to the most sublime as well as to the most useful sciences.

The public can encourage the acquisition of those most essential parts of education by giving small premiums, and little badges of distinction, to the children of the common people who excel in them. ...

A man without the proper use of the intellectual faculties of a man, is, if possible, more contemptible than even a coward, and seems to be mutilated and deformed in a still more essential part of the character of human nature. Though the state was to derive no advantage from the instruction of the inferior ranks of people, it would still deserve its attention that they should not be altogether uninstructed. The state, however, derives no inconsiderable advantage from their instruction. The more they are instructed the less liable they are to the delusions of enthusiasm and superstition, which, among ignorant nations, frequently occasion the most dreadful disorders. An instructed and intelligent people, besides, are always more decent and orderly than an ignorant and stupid one. They feel themselves, each individually, more respectable and more likely to obtain the respect of their lawful superiors, and they are therefore more disposed to respect those superiors. They are more disposed to examine, and more capable of seeing through, the interested complaints of faction and sedition, and they are, upon that account, less apt to be misled into any wanton or unnecessary opposition to the measures of government. In free countries, where the safety of government depends very much upon the favourable judgment which the people may form of its conduct, it must surely be of the highest importance that they should not be disposed to judge rashly or capriciously concerning it.

What Students Owe Teachers: Trust, Docility, Effort, Thinking

James V.  Schall, who has long been a Professor Political Philosophy at Georgetown University, has argued that students have obligations to teachers, not just the other way around. Specifically, these obligations are "trust, docility, effort, thinking." It's one of those claims that I'm not sure I agree with 100%, but I agree with it enough to pass it along as worthy of reflection. This is an excerpt from Chapter 3 of Schall's 1988 book, Another Sort of Learning.

Students have obligations to teachers. I know this sounds like strange doctrine ... [Let me state the obligations of students. The first obligation, particularly operative during the first weeks of a new semester, is a moderately good will toward the teacher, a trust, a confidence that is willing to admit to oneself that the teacher has probably been through the matter, and, unlike the student, knows where it all leads. I do not want here to neglect the dangers of the ideological professor, of course, the one who imposes his mind on what is. But to be a student requires a certain modicum of humility.

Yet to be a student also requires a certain amount of faith in oneself, a certain self-insight that makes a person realize that he can learn something that seems unlearnable in the beginning. This trust in the teacher also implies that the student, if he has trouble understanding, makes this known to the teacher. Teachers just assume that everything they say or illustrate is luminously clear. A student does a teacher a favor by saying, "I do not understand this". But the student should first really try to understand before speaking. ... 

The student ought to have the virtue of docility. He owes the teacher his capacity of being taught. We must allow ourselves to be taught. We can actually refuse this openness of our own free wills. This refusal is mostly a spiritual thing with roots of the profoundest sort in metaphysics and ethics. ... When a teacher, crusty as he may be, sees his students leave his classroom for the last time at the end of some fall or spring semester, he wants them to carry with them not so much the memories of his jokes – though he hopes they laughed – or his tests, but the internal possession of the subject matter itself. The student ought to become independent of the teacher to the point of even forgetting his name, but, not the truth he learned. ...

So the student owes to his teacher the effort of study. A good teacher ought to exercise a mild coercion on his students, a kind of pressure that takes into account their lethargy and fallenness and distractions, a pressure that indicates that the professor wants the students to learn, lets them know it is important, a pressure that has a purpose of guiding the students through the actual thought process, the actual exercise of the mind on the matter at hand. Few students, on being given The Republic of Plato or The Confessions of St. Augustine to read, will bounce right up to their room, shut off the stereo, cancel a date, and proceed to ponder the eternal verities in these books. The teacher who assigns such books – and a university in which they are not assigned has little claim to that noble name – always must wonder if the intrinsic fascination, the thinking through of such works will somehow reach into his students' minds. He hopes that the next time they read Plato or Augustine, they will do so because they want to, because they are challenged by them, and not because they might receive a C- grade if they do not.

Thus, the student owes the teacher trust, docility, effort, thinking.

How the Jargonauts Keep Normies in their Place

I spend most of my working life, and even a disturbingly high share of my private life, trying to move back and forth from academic jargon to a more widely-shared human vocabulary. Maximillian Alvarez offers some pungent thoughts on the temptation of academics to become entombed in their jaron in "The Accidental Elitist: Academia is too important to be left to academics," posted February 22, 2017 at The Baffler website. At this time this was written, Alvarez was a PhD candidate in History and Comparative Literature at the University of Michigan.

"There’s a huge difference, for instance, between defending academic jargon as such and defending academic jargon as the typical academic so often uses it. ... It’s not that things like specialized disciplinary jargon are inherently bad or unnecessary. They are bad, however, when they’ve traveled into that special category of identity markers, which so often allow people in contemporary academia to at least act like their primary purpose is to confirm their identity as academics. Like the tweed jacket, things like jargon help form a template of accepted behaviors and traits that qualify one’s identity as an academic, and such qualification becomes the primary justification for keeping them around. You’re not an academic unless you use a certain kind of jargon when you speak and write; you’re not an academic unless you publish in certain journals, etc.

"The scales tip a certain way and being an academic becomes less about what you do, how you do it, and whom you do it for, and more about where you do it and how you look and sound doing it. There are still other, more noble parts of the profession (advancing human knowledge, shaping the minds of tomorrow, etc.), but on a daily basis they can slip unnoticed into the background of secondary concerns. ... The sinister part of all this, then, occurs when, even if you don’t realize it, you end up being more willing to serve your public image and professional ego than you are inclined to put yourself out for the sake of other people. ...

"The perpetual conceit of academics in the humanities is that translating their work into a more accessible vernacular will “dumb down” what are necessarily complex subjects. Important stuff will be lost. Behind this conceit, though, is an implicit presumption from just about every academic that they could perform this kind of translation if pressed to. It has been one of the great sources of my disillusionment with academia to realize that a staggering majority of jargonauts, when pressed, actually can’t. ...

"[M]any academics will subconsciously fall back on the “complex” nature of our work as a way to put normies back in their place and get them to stop asking questions. Remember, we’re neurotic, anxious, self-conscious people. We have our own defense mechanisms and will do much to deflect the realization that very often, the problem is not that our work is so complex that it can only be understood through disciplinary jargon, but that we can’t or don’t want to do the work of “putting it in terms others would understand.” Or, even worse, we fear that making ourselves easier to understand will take away some of our social capital, our special aura as keepers of the densest secrets. We fear that, if we actually could explain our dissertation and book projects to others in simple, but still precise, ways, we might face that most troubling question—“So what?”—without being able to come up with a remotely plausible answer."

The Timidity and Buzzard Mentality of Professors

One of my favorite scathing essays about the dysfunctionalities of academic writing and academic life is the "Dancing with professors: the trouble with academic prose," by Patricia N. Limerick, a history professor at the University of Colorado, which appeared almost 25 years ago in the NY Times Book Review (October 31, 1993). It's available various places on the web (like here and here). It's not at all fair-minded, but it's funny--which is better--and it has enough truth to carry some sting. Here's Limerick:

In ordinary life, when a listener cannot understand what someone has said, this is the usual exchange: 

Listener: I cannot understand what you are saying. 

Speaker: Let me try to say it more clearly. 

But in scholarly writing in the late 20th century, other rules apply. This is the implicit exchange:

Reader. I cannot understand what you are saying. 

Academic Writer. Too bad. The problem is that you are an unsophisticated and untrained reader. If you were smarter, you would understand me. 

The exchange remains implicit, because no one wants to say: "This doesn't make any sense," for fear that the response, "It would, if you were smarter," might actually be true. 

While we waste our time fighting over ideological conformity in the scholarly world, horrible writing remains a far more important problem. For all their differences, most right-wing scholars and most left-wing scholars share a common allegiance to a cult of obscurity. Left, right and center all hide behind the idea that unintelligible prose indicates a sophisticated mind. The politically correct and the politically incorrect come together in the violence they commit against the English language.  ...

Ten years ago, I heard a classics professor say the single most important thing -- in my opinion--that anyone has said about professors: "We must remember," he declared, "that professors are the ones nobody wanted to dance with in high school."

This is an insight that lights up the universe--or at least the university. It is a proposition that every entering freshman should be told, and it is certainly a proposition that helps to explain the problem of academic writing. What one sees in professors, repeatedly, is exactly the manner that anyone would adopt after a couple of sad evenings sidelined under the crepe-paper streamers in the gym, sitting on a folding chair while everyone else danced. Dignity, for professors, perches precariously on how well they can convey this message: "I am immersed in some very important thoughts, which unsophisticated people could not even begin to understand. Thus, I would not want to dance, even if one of you unsophisticated people were to ask me." 

Think of this, then, the next time you look at an unintelligible academic text. "I would not want the attention of a wide reading audience, even if a wide audience were to ask for me." Isn't that exactly what the pompous and pedantic tone of the classically academic writer conveys? Professors are often shy, timid and even fearful people, and under those circumstances, dull, difficult prose can function as a kind of protective camouflage. When you write typical academic prose, it is nearly impossible to make a strong, clear statement The benefit here is that no one can attack your position, say you are wrong or even raise questions about the accuracy of what you have said, if they cannot tell what you have said. In those terms, awful, indecipherable prose is its own form of armor, protecting the fragile, sensitive thoughts of timid souls. ...

Fortunately, we have available the world's most important and illuminating story on the difficulty of persuading people to break out of habits of timidity, caution and unnecessary fear. I borrow this story from Larry McMurtry, one of my rivals in the interpreting of the American West, though I am putting this story to a use that Mr. McMurtry did not intend. 

In a collection of his essays, "In a Narrow Grave," Mr. McMurtry wrote about the weird process of watching his book "Horseman, Pass By" being turned into the movie ''Hud." He arrived in the Texas Panhandle a week or two after filming had started, and he was particularly anxious to learn how the buzzard scene had gone. In that scene, Paul Newman was supposed to ride up and discover a dead cow, look up at a tree branch lined with buzzards and, in his distress over the loss of the cow, fire his gun at one of the buzzards. At that moment, all of the other buzzards were supposed to fly away into the blue Panhandle sky. 

But when Mr. McMurtry asked people how the buzzard scene had gone, all he got, he said, were "stricken looks."

The first problem, it turned out, had to do with the quality of the available local buzzards--who proved to be an excessively scruffy group. So more appealing, more photogenic buzzards had to be flown in from some distance and at considerable expense. 

But then came the second problem: how to keep the buzzards sitting on the tree branch until it was time for their cue to fly. That seemed easy. Wire their feet to the branch, and then, after Paul Newman fires his shot, pull the wire, releasing their feet, thus allowing them to take off. 

But, as Mr. McMurtry said in an important and memorable phrase, the film makers had not reckoned with the "mentality of buzzards." With their feet wired, the buzzards did not have enough mobility to fly. But they did have enough mobility to pitch forward.
So that's what they did: with their feet wired, they tried to fly, pitched forward and hung upside down from the dead branch, with their wings flapping.

I had the good fortune a couple of years ago to meet a woman who had been an extra for this movie, and she added a detail that Mr. McMurtry left out of his essay: namely, the buzzard circulatory system does not work upside down, and so, after a moment or two of napping, the buzzards passed out. 

Twelve buzzards hanging upside down from a tree branch: this was not what Hollywood wanted from the West, but that's what Hollywood had produced. 

And then we get to the second stage of buzzard psychology. After six or seven episodes of pitching forward, passing out, being revived, being replaced on the branch and pitching forward again, the buzzards gave up. Now, when you pulled the wire and released their feet, they sat there, saying in clear, nonverbal terms: "We tried that before. It did not work. We are not going to try it again." Now the film makers had to fly in a high-powered animal trainer to restore buzzard self-esteem. It was all a big mess; Larry McMurtry got a wonderful story out of it; and we, in turn, get the best possible parable of the workings of habit and timidity. 

How does the parable apply? In any and all disciplines, you go to graduate school to have your feet wired to the branch. There is nothing inherently wrong with that: scholars should have some common ground, share some background assumptions, hold some similar habits of mind. This gives you, quite literally, your footing. And yet, in the process of getting your feet wired, you have some awkward moments, and the intellectual equivalent of pitching forward and hanging upside down. That experience --  especially if you do it in a public place like a graduate seminar ­-- provides no pleasure. One or two rounds of that humiliation, and the world begins to seem like a very treacherous place. Under those circumstances, it does indeed seem to be the choice of wisdom to sit quietly on the branch, to sit without even the thought of flying, since even the thought might be enough to tilt the balance and set off another round of napping, fainting and embarrassment.

Yet when scholars get out of graduate school and get Ph.D.'s, and, even more important, when scholars get tenure, the wire is truly pulled. Their feet are free. They can fly wherever and whenever they like. Yet by then the second stage of buzzard psychology has taken hold -- and they refuse to fly. The wire is pulled, and yet the buzzards sit there, hunched and grumpy. If they teach in a university with a graduate program, they actively instruct young buzzards in the necessity of keeping their youthful feet on the branch.