What’s
Wrong Today:
Tom
Friedman is writing about economics again. In his Sunday Friedtastic Op-ed in the NYT, Mr. Friedman can’t contain his
enthusiasm for Silicon Valley and for “start-up America”. He begins
by telling readers:
THE most striking thing about visiting
Silicon Valley these days is how many creative ideas you can hear in just 48
hours
After
giving a few examples, he says about San Jose’s entrepreneurs: (emphasis by the
Wrongologist)
What they all have
in common is they wake up every day and ask: ‘What are the biggest trends in
the world, and how do I best invent/reinvent my business to thrive from them?’ They’re fixated on creating abundance,
not redividing scarcity, and they respect no limits on imagination. No idea
here is ‘off the table’
Dean
Baker, in his reaction to the Friedman column:
Yeah, it must have
taken some brilliant Silicon Valley imagination for Apple to sue Samsung to get its competitor’s cell phones
off the market. In places that are behind the curve they would think that they
have to produce a better cell phone, but in Silicon Valley they have the
government just remove their competitor’s products from the shelves. See, no
idea is off the table
If Mr. Friedman read
the business
section of the Times, he would
have known that Apple scoured the world for investment opportunities for their
billions and came up with a plan to buy back $40 billion of their stock.
Great innovation,
indeed.
Of
course great ideas are coming out of Silicon Valley. But they create very few jobs. In January, the Wrongologist wrote:
Google
has 47,756 employees, Facebook has 5,790. Microsoft has 100,000, Amazon has
109,000. Apple has 80,300. That totals to 342,846 full and part-time jobs.
That’s just 10% more than GE, which has 305,000 by itself.
So,
the winners in Silicon Valley are a really just a few founders and their Venture Capital partners. After that, it’s
a few programmers, many of them immigrants on H1b visas. Just how many manicurists
and hair stylists, wait staff, gardeners and maids can the 11 Instagram
creators actually employ?
So let’s stop overemphasizing the billions on the table from innovative products developed in
Silicon Valley. Without a way to include the tens of millions of unemployed or
underemployed Americans, Silicon
Valley’s innovation will prop up the stock market, but it won’t prop up the
middle class.
Indeed,
all the techno-wow profits rolled up to 0.01% hasn’t helped and will not help
the middle class. All it did was move those 11 Instagram founders (among
others) to the uber-class.
The real
story in Mr. Friedman’s Op-ed is his calling out Washington for not supporting
the trade deals that corporations love. It is hardly surprising that Friedman
would strongly support the Trans-Pacific Partnership (TPP) and the
Trans-Atlantic Trade and Investment Pact (TTIP). He calls them “next
generation” trade agreements:
that [will] even the
playing field for us by requiring higher environmental and labor standards from
our trading partners and more access for our software and services
Then Mr. Friedman
quotes the Economist:
Studies suggest
that proposed deals with Asia and Europe could generate global gains of $600
billion a year, with $200 billion of that going to America
Does Mr. Friedman
think these numbers are for next year, or for 10 years out? He doesn’t tell us. For those who actually like their numbers to have a context, these projections are for somewhere around the middle of the next
decade when world GDP will be around $160 trillion and US GDP will be close to
$30 trillion.
That puts
the projected gains (if they are real) at a bit less than 0.4% of world GDP and
0.7% of US GDP. Not trivial, but hardly
the difference between a booming and a stagnant economy. In the
case of the US, the boost to GDP growth would be around 0.05 percentage points.
Hey, the
world is flat, everyone is hyper-connected, and why should facts matter?
Mr.
Friedman’s policy nostrums − multilateral trade agreements and additional
openness to immigration – will tend to expose American workers to more, rather
than less competition. Without simultaneous safeguards, the policies Friedman
favors may not enhance the welfare of American workers.
Dean Baker
wrote that Mr. Friedman makes no pretense of evaluating trade deals based on
evidence. Baker says that Friedman has proudly said just the opposite: (emphasis by the
Wrongologist)
I [Friedman] was
speaking out in Minnesota — my hometown, in fact — and a guy stood up in the
audience, said, ‘Mr. Friedman, is there any free trade agreement you’d oppose?’
I said, ‘No, absolutely not.’ I said, ‘You know what, sir? I wrote a column
supporting the CAFTA, the Caribbean Free Trade initiative. I didn’t even know what was in it. I just knew two words: free trade.’
The
pursuit of cheap labor abroad has transferred wealth from US workers to
corporations. Mr. Friedman thinks we should import even more foreign workers to
replace the American workers who made our country great. Yet the children of
those American workers are loaded with education debt. They are being priced out of the global market.
The corporate bounty from cheap labor should be taxed, instead of
being tax sheltered by remaining offshore. Low tax rates should go with domestic
hiring at a living wage.
Tom
Friedman is popular because his articles are comforting to high-income metropolitan
elites. He focuses on big ideas, which we all love because of their simplicity.
He does not focus on the economic details, and it’s the details that get you
every time.
Mr.
Friedman raises one great point: Ideas can be tried and are celebrated if
successful in Silicon Valley. In Washington, politicians are afraid not just of
failure, but of imperfection. All ideas are picked apart.
That means that many good ideas cannot even be tried.
Take
Obamacare. The ACA was tried and is far from perfect. But what does the other
party do? It doesn’t promote any ideas that might improve it. It doesn’t suggest
a serious alternative. Instead, it tries to undermine the ACA for political gain.
Think
about it. Almost every important policy issue is treated the same way in
Washington. While in Silicon Valley, failure is treated as a learning
experience.
We’re
waiting, Tom Friedman.
Tell us how Comcast CEO Brian Roberts wakes up every day, reinventing himself
and Comcast’s broadband monopoly service by merging it with Time Warner,
another monopoly cable service, for the non-zero sum benefit of America.
What many Americans ask every day when they wake up, is not how to reinvent
themselves. They ask why the playing field has tilted so much since the last time they reinvented
themselves.
And when you’re done
asking yourself that, compare the result as you usually do, with those really bright
kids in third world countries, who don’t make as much money and live at a lower
standard. Ask how they are pushing American kids to the margins of
innovation.
Then ask American
multi-national firms why they are OK with that.
