Did China Eat America’s Jobs? (Ep. 274)
For years, economists promised that global free trade would be mostly win-win. Now they admit the pace of change has been “traumatic.” This has already led to a political insurrection — so what’s next?
Below is a transcript of the episode, modified for your reading pleasure. For more information on the people and ideas in the episode, see the links at the bottom of this post. And you’ll find credits for the music in the episode noted within the transcript.
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[MUSIC: Pearl Django, “Boheme Auberge” (from New Metropolitan Swing)]
David AUTOR: I entered the profession late actually. I had several failed careers prior to economics.
That’s David Autor.
AUTOR: I’m a labor economist at M.I.T.
And what does a labor economist do?
AUTOR: I work a lot on skill demands and changes in labor markets having to do with technology and with trade as well.
As Autor said, he came late to academia.
AUTOR: I did software development for a while and I also spent several years directing a nonprofit in San Francisco that did computer education for the poor. I also did a lot of work in fast food. I spent a month working at McDonald’s and half a year working at Papa Gino’s, which is a kind of pizza franchise in the Boston area. I did a lot of blue collar work. I also worked as a temp, I did you know light construction and cleaning. I did clerical temping. I also fix cars and motorcycles and electronics.
So Autor hasn’t spent his entire adulthood in the ivory tower. And that’s reflected in his choice of economic specialty.
AUTOR: I think we labor economists like to think of ourselves as being closer to the people. I think I’m pretty cognizant of how tough the labor market has been for them for the last 35 years.
For the past several years, Autor and several colleagues – including Gordon Hanson, David Dorn, Daron Acemoglu, Brendan Price, and Kaveh Majlesi – have been analyzing huge data sets to try to answer an important economic question.
AUTOR: The objective was to understand how China’s very rapidly rising exports to the United States were affecting U.S. labor markets.
Today on Freakonomics Radio: the answer to that question; how it relates to American political rhetoric; and … what economists got wrong:
AUTOR: I think if we had realized how traumatic the pace of change would have been we would have at a minimum had much better policies in place.
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[MUSIC: Apalog, “Transfiguration” (from This Is How We Know What Love Is)]
Our previous episode looked at the degree to which the American Dream has been damaged.
Raj CHETTY: You’re twice as likely to realize the American Dream if you’re growing up in Canada rather than the U.S.
This topic was a main feature of the 2016 presidential campaign:
Donald TRUMP: Sadly, the American Dream is dead!
As for who killed the American Dream – Donald Trump had a long list of suspects. But very near the top was China:
TRUMP: We can’t continue to allow China to rape our country — and that’s what they’re doing. It’s the greatest theft in the history of the world!
It was a theme that President Trump returned to during his inaugural speech.
TRUMP: We’ve made other countries rich while the wealth, strength and confidence of our country has dissipated over the horizon. One by one, the factories shuttered and left our shores with not even a thought about the millions and millions of American workers that were left behind.
During the campaign, many people had been so focused on Trump’s outrageous persona that perhaps they saw his claims about China and trade as similarly outrageous – hyperbolic at best, outright wrong at worst. Wasn’t the U.S. a willing partner and an architect of the huge push toward globalization? We endorsed sending low-wage manufacturing jobs overseas, believing we’d get cheaper imports and newer, better jobs to replace the off-shored ones. So how well has that dreamy scenario worked out?
AUTOR: I’m much less sanguine about it than I used to be.
Let’s start with a bit of history between the U.S. and China. The adversarial relationship kicked off by the Communist Revolution in 1949 blossomed into a full-blown Cold War – which began to fizzle out, quick shockingly, in 1971. That’s when President Richard Nixon, a devout anti-Communist to that point, reached out to Chairman Mao as a partner:
President NIXON: The meeting between the leaders of China and the United States is to seek the normalization of relations between the two countries.
AUTOR: China was sort of in a perpetual state of economic crisis from the Mao Zedong era forward and really didn’t have its act together as a trading country or producer, and it was largely closed.
David Autor again:
AUTOR: And it wasn’t till Deng Xiaoping took power and began changing things in the late 1970s and began what he called “Reform and Opening,” which meant setting up export zones in the southern parts of China, across from Hong Kong, allowing foreign direct investment, allowing use of market prices, allowing for mobility of labor. So over the course 20 years about a quarter of a billion people migrated out of a relatively unproductive rural agriculture into cities to do production. Just incredible.
Between 1991 and 2013, Chinese exports grew from roughly 2 percent of the world’s total to nearly 20 percent.
AUTOR: And China marched from being, you know, 30 or 40 years behind the frontier of production to being really a world-class producer with at that time lots of available labor and lots available land. And you know, lots of resources.
Other countries had taken the same route as China. But China was different. In several ways; but most significantly, in size.
AUTOR: So, you know, if a country like Vietnam or Cambodia or something went through the exact same developmental process as China, it would quickly run out of capacity and after a very little while it would have made all the, you know, the iPhones and the apparel and the toys and so on it could. And then wages would rise, prices would rise, and it they would just be a blip on the world scale. But because China is so enormous and had so much slack, it took decades for that string to play out. And in that time it was just producing goods, high-quality goods, at low prices that were extraordinarily competitive by world standards. And this had the effect of displacing a lot of competitor countries’ production — including the United States.
Stephen J. DUBNER: So David, you and some colleagues have taken a hard look at how globalization has had some profound effects. So tell us broadly what you know and how you know it.
AUTOR: Sure. So economists have known forever, or you know since the 1950s, that globalization, or the integration between trading partners, raises GDP, raises national incomes in both countries – if they’re consenting partners – but can have adverse distributional consequences.
[MUSIC: Justin Marcellus, “I’m That Sad Place” (from Deep Signals]
“Adverse distributional consequences” being economist-speak for a rising tide that does not lift all boats.
AUTOR: So even as it makes a country wealthier it can make some people in that country poorer in absolute terms. So it can grow the size of the pie but make some slices sufficiently smaller that in net they contract. However, literature had failed to find any strong evidence that those adverse distributional consequences were coming to pass.
“The literature” being the economics literature. Meaning that as economists watched globalization accelerate, it seemed to be working out pretty well.
AUTOR: Labor economics sort of 15 years ago, a lot of people saw it as, “Oh well, now we’re sort of studying well-functioning markets. It’s about characterizing equilibria and explaining why it’s all efficient and we should turn our attention to the developing world where all the problems are.
That view turned out to be illusory, or at least short-lived.
AUTOR: But now we have lots of problems. People recognize that and they see labor as being part of the big challenges facing lots of countries, including the developed world, in terms of income distribution, opportunity, the sort of a changing share of national income going to capital versus labor, the role of globalization in shaping opportunities, and even the way that labor markets feed into political outcomes and people’s sense of party identity and the type of candidates that they vote for.
That said, David Autor is not willing to throw his profession under the bus.
AUTOR: I don’t think the old evidence was incorrect. There are two big differences of the last two decades relative to earlier periods. One is that a lot of our trade prior to China’s rise, a lot of it was North-North trade. You know, trading between wealthy nations. So you know, we sell aircraft engines to France and we buy cheese and wine and Renaults or maybe we buy Mercedes from Germany. And so it’s a lot of high-skill people trading high-skill goods and we’re trading on the basis of taste. Like, “I like your vehicles. You like my aircraft.” It’s not trying to see who can make the cheapest version of X, Y, or Z. We’re often focusing on a set of expensive goods in which we all are differently good at different subsets.
But when China opened up, that changed.
AUTOR: A lot of what we’re trading there is labor-intensive goods. Nothing that China was selling the United States, especially up until recently, couldn’t be made in the U.S. It just couldn’t be made as cheaply. So this was actually about price competition rather than simply having a better or different variety.
On the surface, that might seem fine – again, it would mean Americans, and many others, getting to buy cheaper goods because they’re made in China. But of course the calculus is trickier than that.
AUTOR: So when the United States trades with the developing world, we’re going to typically export skill-intensive products: aircraft engines, electronics, movies, and TV programs and things that use a lot of highly educated labor. And we’re going to tend to import low-skilled or what we call labor-intensive products like you know footwear and textiles, leather goods, things that require a lot of hand assembly. And so what does that do? Well, when we export those high skill-intensive goods we’re basically raising demand for skilled or educated workers in the United States . When we import those labor-intensive goods, we’re going to reduce demand for blue-collar workers, who are not doing skill-intensive production. Now we benefit because we get lower prices on the goods we consume and we sell the things that we’re good at making at a higher price to the world. So that raises GDP but simultaneously it tends to make high-skilled and highly educated labor better off, raise their wages, and it tends to make low-skilled manually intensive laborers worse off because there is less demand for their services – so there’s going to be fewer of them employed or they’re going to be employed at lower wages. So the net effect you can show analytically is going to be positive. But the redistributional consequences are, many of us would view that as adverse because we would rather redistribute from rich to poor than poor to rich. And trade is kind of working in the redistributing from poor to rich direction in the United States. The scale of benefits and harms are rather incommensurate. So for individuals, you know, I have less expensive consumer items because of imports from China. But it hasn’t affected my employment or my wages. For many others – on the order of at least a million U.S. manufacturing workers – it meant the end of their jobs and in many cases the end of their industries.
[MUSIC: Bastian, “Leviathan” (from Bastian)]
But that wasn’t even the worst of it. Coming up on Freakonomics Radio: the true breadth of the problem – and we talk about solutions.
AUTOR: I don’t think there are any easy solutions. I don’t think if I were, you know, labor secretary I would just be able to get in and you know turn this ship around.
That’s coming up, right after the break.
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[MUSIC: Leon Ayers Jr., “Moving Shadow”]
David Autor, a labor economist at MIT, has spent the past few years working with fellow economists to measure the effects of global trade, especially between the U.S. and China. A lot of political rhetoric argues that China has damaged the U.S. economy via currency manipulation, making Chinese goods even more attractive to American consumers.
TRUMP: It’s the single greatest tool they have, currency manipulation, and they’re grandmasters. They do a great job. I congratulate them. I’m not angry at China. I’m angry at our country for allowing them to do it.
Autor’s research reveals a story that is in some ways more complicated than Donald Trump’s explanation, and in some ways simpler.
AUTOR: What occurred is not primarily the result of currency manipulation or cheating or unfair trade deals. It was a function of China’s extremely rapid development – which, by the way, is a very good thing. You know, it brought 400 million Chinese out of poverty, raised incomes in Central and South America, caused investment throughout Africa, right? This is sort of the best thing to happen to the global middle class in at least a millennium, right? But it was it was tough on U.S. manufacturing.
Very tough – especially after 2001, when China was accepted into the World Trade Organization.
TRUMP: China’s entrance into the World Trade Organization has enabled the greatest job theft in the history of our country.
AUTOR: We would conservatively estimate that more than a million manufacturing jobs in the U.S. were directly eliminated between 2000 and 2007 as a result of China’s accelerating trade penetration in the United States. Now that doesn’t mean a million jobs total. Maybe some of those workers moved into other sectors. But we’ve looked at that and as best we can find in that period, you do not see that kind of reallocation. So we estimate that as much as 40 percent of the drop in U.S. manufacturing between 2000 and 2007 is attributable to the trade shock that occurred in that period, which is really following China’s ascension to the WTO in 2001.
DUBNER: And are you controlling for the effects of technology here?
AUTOR: Well, yes to the best we can. To the best we can. We do have measures of sort of exposure to automation and so on. And as far as we can tell that that’s not really the main driver. Now I think it’s reasonable to argue, well, you know given 15 or 20 more years it would have been.
AUTOR: So then the question then is, “Well, what happens? Where do those workers go?” In a canonical economic model they just costlessly reallocate to their next best opportunity.
[MUSIC: Justin Marcellus, “Finally Broke”]
Ah, the lovely language of economics once again. “Costlessly reallocate to their next best opportunity”: meaning that some American who loses his manufacturing job just hops over to the next good job, which just happens to be available, near where he’s already living, and for which he just happens to be perfectly qualified for …
AUTOR: … which is, you know some other sector elsewhere in manufacturing, elsewhere in services. And kind of that plays out across the entire United States. So even though it’s very concentrated locally, it defuses over space so it’s small relative to the entire labor market. And so it shouldn’t really have a big local effect, it shouldn’t be very long-lasting.
So that’s the economic theory. Is that what David Autor and his economist colleagues saw in reality?
AUTOR: That’s not what we see. We see those falls in manufacturing employment correspond to about equally large falls in overall employment rates over the first 10 years in those trade-impacted locations. So every half a point that manufacturing falls, we see a total decline of about a half a point. So some people are leaving the labor market, some people are going into unemployment. Some people are going on to disability. And so the reallocation process seems to be slow, frictional, and scarring.
DUBNER: Okay, so until “scarring” those words sounded fairly clinical and academic. But what you’re describing here it is really bad. A) Correct?
AUTOR: Yeah. Yeah.
DUBNER: And B) I’m just curious before we move on – you looked at a whole lot of different manufacturing ecosystems. I’m sure there’s great variance, or I’m assuming there’s great variance from one to the next. Can you talk about some ecosystems, some manufacturing industries or jobs where people did do a better job adapting?
AUTOR: You know actually the real differentiator is the kind of skill level of the worker, so higher-paid and more highly educated workers, they seemed to reallocate successfully out of manufacturing into other jobs. So the shock to manufacturing affected everyone in the immediately targeted industry. But the differentiator is not what industry you were in specifically, but how skilled you were initially.
DUBNER: So the H.R. person at a big textile firm gets an H.R. job elsewhere and the manufacturers on the line are probably not.
AUTOR: The line workers are much less likely to do so, exactly.
AUTOR: And what’s important to emphasize if I say a shock to furniture, that’s not just one plant, right? There are multiple plants in you know Tennessee that have 10,000-plus workers and they all kind of shut down within a few years of each other. And so you can think of this as it’s like you know there’s a certain element of blight that sets in, right? Look, there are 3,000 counties in the United States. If 10,000 workers were eliminated, you know, three from each county, you wouldn’t even notice it, right? But if 10,000 workers are eliminated simultaneously from your you know local labor market, that’s very noticeable, and it has kind of add-on effects. Because gee, well those manufacturers also stop you know buying the delivery services and the catering services, people have less income so they go out to dinner less. So all kinds of kind of adverse multipliers, not huge, but noticeable and measurable, set in.
DUBNER: Maybe this is not a multiplier, maybe i’m defining it wrong, but, what about with all those relatively low-skilled workers out there floating around looking for jobs, presumably that could lower the wage of other existing jobs or no?
AUTOR: Yes. Yeah, that’s what we find actually that you see a kind of decline in the wage level not just in manufacturing. You also see people using public transfer benefits like unemployment and trade adjustment but actually much more numerically, quantitatively large, are disability, Medicare, Medicaid, food stamps, TANF, early retirement. So those programs actually are or numerically, you know fiscally, much much larger.
Look at all those downstream effects from China’s manufacturing growth that David Autor identifies in the U.S.: job loss; wage depression; higher welfare spending. In another research paper, he and his colleagues found yet another downside. Many economists had suspected that greater competition with China would create incentives for American companies to invest more in research and development and become more innovative. But it hasn’t worked out that way. Instead, Autor and his colleagues found, Chinese competition has lowered profit margins for American manufacturers, leaving less money for R&D and resulting in less innovation.
DUBNER: People like you – meaning economists, not like you David Autor necessarily – you know have been telling us for several decades now that globalization would be largely a win-win. I’m not so naive as to think that there are no losers. I get that. But that overall, we Americans should kind of sit back and relax, that it would be good for the median U.S. resident. So I don’t feel that way anymore and tell me if I’m wrong to not feel that way. And additionally if I’m wrong maybe to blame you and your cohort a little bit.
AUTOR: I think if we had realized how traumatic the pace of change would have been, we would have at a minimum had much better policies in place to assist workers in communities that suffered these very severe and immediate consequences. And we might have tried to moderate the pace at which it occurred. And let me add another factor that really augments this is we also had a huge trade deficit and that meant we simply did a lot less manufacturing. So that meant that workers had to make a tougher transition out of manufacturing, into something altogether new. And I think that upped the challenge. It made it harder for people to reallocate. It was one thing if they are going you know they’re getting out of textiles and moving into automobiles or tools. But that’s not what happened, they’re getting out of textiles and moving into Wal-Mart, you know, moving into fast food. I think the other thing that we have to recognize, and that economists have tended not to emphasize is that jobs aren’t purely income. They are part of identity. They structure people’s lives. They give them a purpose and a social community and a sense of relevance in the world. And I think that is a lot of the frustration that we see in manufacturing-intensive areas. We saw a lot of that actually in the recent election. People feel like their place in the universe, or at least in the economy, has really been kind of reduced, made less valuable. And I think that that’s costly even beyond the direct financial costs.
DUBNER: So President Trump did not choose you, David Autor, as labor secretary.
DUBNER: But he did choose someone else with a fast-food background: Andrew Puzder, who’s chief executive of the company behind Hardee’s and Carl’s Jr.
DUBNER: So if it had been you and maybe someday it will be: What to do about it? You acknowledge that you’re not as sanguine as you were or thought you might have been. You acknowledge that the degree of pain and the pace of the change has been really severe. Tell us some things that are potential remedies or at least better thinking frameworks to approach the future of labor in this country.
AUTOR: So it’s a challenging question. I don’t think there are any easy solutions. I don’t think if I were you know labor secretary I would just be able to get in and you know turn this ship around. But a couple of things I’d do: one thing is I would expand the Earned Income Tax Credit, which is a federal wage subsidy for people with low incomes. It’s a really generous and effective program but it is targeted at adults with dependent children, primarily women. So if you’re a mother with two dependent children you can get up to $6,000 a year in EITC support, up to a household income of about $40,000. So it raises incomes and it also causes people to participate more in the labor market. It makes low-paid work better paying, effectively. But if you’re a man without dependent children you can get about $400 a year total from the EITC, not $6,000 – $400 a year. And many of the men that are you know struggling for employment, in fact many of them do have children. They just can’t claim them as dependents. They’re frequently not married to the mothers. So this is a group that is experiencing falling wages. Labor-force participation rates are declining among less-educated men, even less-educated young men. So one policy I would use is to provide the Earned Income Tax Credit. Basically makes it more rewarding, financially rewarding, more worthwhile to work. That’s one thing.
I do think there are tax changes that we ought to make that could be beneficial. One of them is actually being talked about in the Trump Administration is the so-called “Border Adjustment,” which is a way – it’s a complicated story – but it’s like a value-added tax. And if it were used to offset other taxes like our payroll tax, for example – right now our payroll tax raises the cost of producing in the United States. But foreign countries when they import here they don’t pay our payroll tax. If we had a value added tax that would be levied both on things produced domestically and on things that are imported. If it were used to offset the payroll tax why that would have the effect of basically making imports a little bit more expensive relative to domestically produced goods. I don’t think that’s a terrible idea. Many countries do something that looks a bit like that. I think the other things are importantly are skills investments and then I think also things that make the quality of life better for people with low incomes including I’m afraid to say it, the Affordable Care Act, which is a very good policy that we will be saying goodbye to soon.
DUBNER: So those all sound interesting and perhaps viable and perhaps useful – but most of them are coming primarily from one direction, which is basically there are costly ways to support the people who have lost out because of this economic change. What about reversing that dynamic? So obviously this president, that’s his gospel on the labor front, to date, which is reshoring, or I don’t know what you call it in the case of Carrier where you don’t let them get away in the first place. What’s your view on that?
AUTOR: Well, so the border adjustment that I talked about actually would have the effect of encouraging domestic production. I think you know a number of things for many of those labor-intensive jobs are not going to come back. Even if the production returns the United States – it would be done with a lot more machinery and robotics. I think manufacturing will continue to occur in the United States. I just don’t think it’s going to use that much labor. I think it’s perfectly reasonable to aggressively enforce our trade deals. There are certainly countries that dump products, that steal intellectual property, that create anti-competitive barriers in their own country so the U.S. can’t export to them even though it’s importing from them. But I don’t think we can turn back the clock. And moreover, remember that many of those imports – for one they do make consumer prices lower and two they’re often inputs into things that we’re making and then exporting or consuming domestically, right? So you know as soon as you start taxing you know Chinese goods you’re taxing car parts that end up in you know GM and Ford and you know Fiat-Chrysler automobiles. You’ll quickly find that there’s a lot of opposition from U.S. manufacturers to restrictions on trade or tariffs. You might think, “Oh no we’re doing a favor, we’re you know making your products more competitive.” Well not if you’re importing a lot of your components.
[MUSIC: David M. Young, “Iridentalism”]
DUBNER: President Trump has been accused of ignoring evidence on a lot of fronts. In this case, when it comes to the costs of globalization, it strikes me that his views are kind of align quite closely with the views of economists like you who do see evidence that supports some of at least his proclamations about the costs of globalization. Where do you find yourself on that spectrum whether politically per se or just philosophically?
AUTOR: Well I want to be clear: President Trump makes a lot of unfounded claims about trade that I do not agree with. For example that NAFTA was a disaster for the United States. Very very little evidence to suggest that was true – was actually mostly a win for the United States and but pretty modest. I also you know strongly disagree with the idea that we ought to be slapping extremely high tariffs on importers. I think that would be quite damaging to the U.S. Similarly I don’t favor strong-arming companies to keep employment here if it’s going to deter others from creating jobs here out of fear that they’ll then be forced to retain them. So I don’t even think trade has been a net bad for the United States. I just think it’s created real concentrated adverse impacts, which I you know Trump was right to recognize. And but that’s where I’m more in sympathy with the administration than on other points. I’ll finally say that a good example of where bad thinking and bad trade policy has come in immediately is in this whole debate around the Trans-Pacific Partnership, which was basically a forward-looking trade agreement that was set up as a bulwark against Chinese domination of Asia. You know, Trump said on the campaign trail you know “China will take advantage of us through the TPP like they always do.”
TRUMP: The TPP is a horrible deal. It is a deal that is going to lead to nothing but trouble. It’s a deal that was designed for China to come in — as they always do, through the back door — and totally take advantage of everyone.
AUTOR: I don’t think he even realized at the point that China was not a signatory to the TPP and China was the country cheering loudest to see it crash and burn it because it was basically establishing rules of the game among with Asia and North America and the United States that would uphold intellectual property agreements, freedom and transparency of contracting, market access, and so on. So if we don’t set the rules of the game in Asia, China will, and I don’t think we’ll like those rules nearly as much. So that’s just this kind of bluster against trade that is ignorant and harmful to the U.S. interests and really harmful to our allies, including most especially Japan.
DUBNER: So David I know you’ve said that economics wasn’t entirely wrong on this prediction that global trade would kind of work out okay. But I do think a lot of people would disagree. Obviously it’s a matter of degrees. So if that’s my view and I think that you know many or most economists were wrong on something as basic and important as this, why should we ever listen to what you wonderfully educated egghead economists have to say when it comes to something as important and broad as macroeconomic issues that will affect my actual life? You can predict all you want about currency stories abroad, etc. But if it’s my life, my livelihood, my job, my family, and my ability to provide for them, you guys are supposed to be the nonpartisan, smart, apolitical cohort out there. And I trusted you and now I’m sorry I did. Because if I hadn’t, I might have changed course 15 or 20 years ago. And while I might well I might not be in great shape I’d certainly be in better shape than I am now.
AUTOR: Well, I don’t know that you’ll be in better shape. You’d be in different shape and a different group of people would be benefiting. I don’t think we’d be wealthier but you know I think it it’s a really good question. I mean I think economists have learned a lot from the data and it’s actually a credit to the profession that we’re you know we’re not just asserting, we’re testing. And when the facts change we change our opinions and the evidence that economists were relying on up through the 2000s wasn’t incorrect for its time. It just turned out not to be fully predictive of what happened next. And that’s you know that’s sort of cold comfort I realize. But you know we’re in the position where we now understand better what the consequences were. And we can make better policy going forward. And also if we didn’t have economists sort of trying to assess and answer these questions, we’d be relying on a lot of wrong and bad ideas about the gold standard, about “trade is only good if you export and bad if you import.” That you know the most important thing to do in a recession is stop spending so the country you know saves. You know there’s tons and tons of bad economic reasoning out there. Contemporary economics is quite imperfect but I think it’s at least guided by evidence and economists are fully capable of changing their views based on evidence. I do not think the profession actually is nearly as ideological as it was 25 years ago when it was guided so much by theory. Now it’s really guided by data and you know case in point the work that we’ve done here it’s been somewhat controversial but by and large economists have really embraced and said, “Oh yeah, wow, we’re surprised and this changes how we think about it,” and again I don’t want to claim that we were you know some upstarts. We just happened to look at the right data and come away with conclusions that none of us were expecting. But I think that’s you know that’s about as good as social science does. We’re not working with natural laws that are can be as neatly summarized as Newtonian physics.
[MUSIC: Justin Marcellus, “Light Aperture” (from Deep Signals)]
I have no idea if you’ll agree, but David Autor strikes me as a particularly keen and fair-minded analyst, and observer, of the U.S. labor markets. It doesn’t seem as if he’s got a horse in the race; it doesn’t seem as if he’s got his thumb on the scale. And his insights seem useful – at least as useful as a diagnosis can be once you’re already sick. There’s just one caveat I’d add to his message. It has to do with the predictions economists made about how Chinese manufacturing would affect the American labor market.
AUTOR: The evidence that economists were relying on, you know, up through the 2000s wasn’t incorrect for its time. It just turned out not to be fully predictive of what happened next.
This program has gone on and on about the folly of prediction. In fact, there’s a Freakonomics Radio episode from years ago called “The Folly of Prediction.” We talked about how one of the most common explanations of smart people, when their predictions turn out to be inaccurate was that “Well, we did the best we could considering the information we had at the time. If we’d had better information, we could have made a better prediction.”
But you know what? If you had better information at the time, you wouldn’t have to make a prediction; the future would be obvious. But that’s the thing about the future – it’s rarely obvious. Which leaves a lot of room for all kinds of people to make all kinds of predictions that may or may not come true.
[MUSIC: Clay Ross, “Sixth City Waltz” (from Entre Nous)]
I’m not calling out David Autor here – again, I really appreciate his transparency and his doggedness. But the story of Chinese manufacturing and American labor is yet another reminder of how humble we should all be when we make a prediction, and how cautious we should all be when we hear one.
Think about this: if the vast, vast majority of political pundits and TV journalists and even the most revered analytics geeks got the 2016 presidential election so wrong – and that’s a simple, binary choice, the Blue Team versus the Red Team – then how much harder is it to predict the downstream consequences as something as vast and broad as a global labor upheaval? I don’t mean to get all preachy on you; that’s not the Freakonomics way. But I will say this: beware the punditry, no matter how well-degreed they are, or well-spoken, or well-coiffed. Don’t assume they can know the future any better than you do; and don’t assume you’re such a genius either.
Coming up next time on Freakonomics Radio: “An Egghead’s Guide to Watching the Super Bowl.” How can you optimize the experience, whether you’re a football addict or a total newbie? We talk to some of the smartest NFL players, past and present: two-time Super Bowl champion Justin Tuck; Eric Winston; and Baltimore Ravens lineman John Urschel, who’s getting his Ph.D. in math at MIT.
John URSCHEL: So if you look at a wide receiver — what is that wide receiver doing on pass plays where the main route combination is not to his side? What is he doing when it’s a run play? Is he running them off, is he just jogging, is he talking to the cornerback?
We also talk to our resident Freakonomics egghead, Steve Levitt:
Steve LEVITT: The other thing that’s really special about the Super Bowl and if you are not a fan but are forced to attend the Super Bowl party – I would highly recommend gambling.
And there’s one thing all our eggheads agree is the best part of Super Sunday.
URSCHEL: You will enjoy the commercials, I can assure you.
JUSTIN TUCK: I will tell them to pay attention to the commercials.
ERIC WINSTON: The commercials are really funny
LEVITT: I give special attention to the ads.
That’s next time, on Freakonomics Radio.
Freakonomics Radio is produced by WNYC Studios and Dubner Productions. This episode was produced by Greg Rosalsky. Our staff also includes Shelley Lewis, Christopher Werth, Stephanie Tam, Merritt Jacob, Eliza Lambert, Alison Hockenberry, Emma Morgenstern, Harry Huggins, and Brian Gutierrez. You can subscribe to Freakonomics Radio on iTunes or wherever you get your podcasts.
Here’s where you can learn more about the people and ideas in this episode:
- David Autor, Professor of economics at MIT
- Raj Chetty, Professor of economics at Stanford University
- “Foreign Competition and Domestic Innovation: Evidence from U.S. Patents,” by David Autor, David Dorn, Gordon H. Hanson, Gary Pisano, and Pian Shu, MIT Working Paper, November 2016
- “The China Shock: Learning from Labor Market Adjustment to Large Changes in Trade,” By David H. Autor, David Dorn, and Gordon H. Hanson, Annual Review of Economics, 2016
- “Import Competition and the Great U.S. Employment Sag of the 2000s,” by Daron Acemoglu, David Autor, David Dorn, Gordon H. Hanson, and Brendan Price, Journal of Labor Economics, 2016
- “The China Syndrome: Local Labor Market Effects of Import Competition in the United States,” By David Autor, David Dorn, and Gordon Hanson, American Economic Review, 2013