Stop the World (and Avoid Reality)

New York Times: Stop the World (and Avoid Reality) by Alan Blinder

Many Americans are justifiably distressed about rising income inequality, but foreign competition gets far too much of the blame. In fact, the best and most comprehensive studies of the inequality question assign international trade only a bit part in the drama. The main protagonists are all domestic, including changes in technology, the decline of unions, failures of public policy and changing social attitudes toward inequality.

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One part of the task involves using the presidential bully pulpit — not to bully, but to explain why globalization is both (a) inevitable and (b) more an opportunity than a threat. She or he must find the right language to explain, first, that the world will not stop to let us off and, second, why we should not want to disembark anyway.

Such hortatory language is important. But it must be backed up by actions that help the people hurt by globalization. What are some examples?

Economists have long recognized that increased trade creates both winners and losers. So the United States has a variety of Trade Adjustment Assistance programs that are intended, at least putatively, to cushion the blow for trade’s victims. Unfortunately, we have never taken the job seriously. T.A.A. has been around since “Stop the World” played on Broadway, but it has always been embarrassingly small and weak. It needs to be expanded, improved and, indeed, generalized so that workers who are displaced for any reason — not just trade — have a stronger safety net to catch them.

That, in turn, means expanding some existing programs, like making unemployment insurance more comprehensive, and vastly increasing — and improving — job retraining programs. It also means enacting new programs like universal health insurance, guaranteed pension portability and so-called “wage insurance.”

As present, most Americans who lose their jobs suffer a catastrophic loss of income. The minority of job losers who are fortunate enough to be covered by unemployment insurance see perhaps half of their lost wages replaced. But most job loss is not covered by unemployment insurance. That should change. In addition, wage insurance would replace a portion of the wages lost by workers who do find new jobs at lower rates of pay. While wage insurance has been criticized for encouraging employers to pay low wages, it would also encourage the unemployed to find and take jobs more quickly.

Americans who lose their jobs are also likely to lose their health insurance coverage. And some also lose their accumulated pension benefits. None of this should be allowed to happen in a civilized society. We cannot stop the world from spinning on its axis, but we can fix these problems.

On the trade front, a number of agreements, starting with Nafta but notably also those with Jordan and Peru, have demonstrated that it is possible to design reasonable safeguards for the environment and labor without interfering much with trade. These precedents point to what could become a bipartisan compromise on trade that would enable America to regain its accustomed leadership position.