Kimberly Clausing makes the case for open economies

Episode Summary

Executive Summary: The episode argues that trade, capital mobility, and immigration are not the cause of worker distress, but that inequality, weak labor power, and poor policy responses are. Kimberly Clausing contends the fix is targeted redistribution, better labor standards, and smarter tax reform—not tariffs or border restrictions—while the hosts probe the politics of state intervention, corporate accountability, and carbon pricing.

Main Topics: Economic discontent and the 2016 political shock (Priority: 5/5): Clausing links post-2016 backlash to stagnant wages, unequal gains from growth, and concentrated regional job losses, arguing the anger was real but misdirected toward foreigners and trade. Trade shocks, technology, and geographic harm (Priority: 5/5): The discussion distinguishes aggregate gains from locally concentrated losses, emphasizing that communities hit by factory closures or automation experience real damage even when national employment looks healthy. Power, labor unions, and shifting social norms (Priority: 5/5): Mark Blyth and Clausing argue that weakened unions, stronger capital, market concentration, and permissive norms around CEO pay and precarious work have redistributed bargaining power away from workers. Corporate behavior, transparency, and worker conditions (Priority: 4/5): They debate predictable hours, scheduling, and labor-friendly reporting, with Clausing favoring 'sunshine' labor disclosures so workers, consumers, and investors can reward better firms. Tax policy and inequality (Priority: 5/5): A major section focuses on the 2017 U.S. tax cut, with Clausing calling for more progressive taxation, less profit shifting, and more similar treatment of capital and labor income. Capital flows, deficits, and macroeconomic constraints (Priority: 4/5): Clausing defends U.S. borrowing from abroad as beneficial in moderation, while noting the need for stronger financial regulation and acknowledging concerns about weak domestic demand and secular stagnation. Climate and carbon pricing as market correction (Priority: 3/5): The conversation briefly turns to climate policy, where Clausing endorses carbon taxes/dividends as efficient tools to address a major market failure without heavy-handed rationing.

Key Arguments: Economic dissatisfaction is rooted in decades of stagnant or weak wage growth for the bottom 80%, not just in trade exposure. National aggregate gains can hide severe local losses; policy should address place-based harm, not only average outcomes. Trade restrictions, tariff wars, and immigration limits are likely to worsen conditions for the workers they are meant to help. Technology matters, but labor-market institutions, unions, and political power shape how shocks are absorbed and who benefits. Corporate power and weak labor bargaining have helped drive extreme CEO-worker pay gaps and precarious scheduling practices. Transparent labor reporting could improve accountability by letting workers, consumers, and investors favor better firms. The 2017 tax cut was the wrong response: it reduced revenue, increased inequality, and did not solve profit shifting or complexity. Capital and labor income should be taxed more similarly to reduce avoidance and improve fairness. The U.S. benefits from foreign capital inflows and borrowing abroad, but only if paired with strong financial regulation. Carbon pricing is presented as a high-efficiency way to internalize climate costs and steer the economy toward lower emissions.

Data Points: Wage growth for bottom four-fifths: far short of expectations over the last 35 years - Used to explain persistent economic discontent and political backlash. Potential household income gain from evenly shared GDP growth: 70% more income - Clausing notes GDP rose enough that evenly shared gains would have substantially lifted households. China shock job losses: 1 to 2 million jobs - Referenced as the approximate U.S. employment impact in the period China entered global manufacturing. Quarterly U.S. job churn: about 6 million jobs lost and 6 million created per quarter - Shows that job destruction and creation are normal and not solely a trade phenomenon. CEO pay ratio: about 300x median worker pay - Used to illustrate rising inequality and changing social norms since around 1980. Historical CEO pay ratio: about 30x median worker pay - Contrasted with current levels to show the scale of change. Wisconsin manufacturing job loss: one-third lost to migration to right-to-work states - Blyth cites this to argue that deindustrialization is not only about China or technology. U.S. net borrowing from abroad: about 3% of GDP - Clausing cites the typical scale of foreign borrowing and capital inflow. Top-income share of national income: 8 to 10 percentage points higher than a generation ago - Used to underscore capital’s growing share relative to workers.

Pivotal Quotes: "it’s better to go directly to the problems that are facing American workers and not to just blame foreigners for everything" — Kimberly Clausing: Her central critique of tariff-heavy and anti-immigration responses to worker distress. "the aggregate numbers don’t matter" — Brendan Greeley: Summarizing the idea that local labor-market damage can outweigh national net gains in political terms. "candy store tax policy" — Kimberly Clausing: Her phrase for the 2017 tax cut package, which she says was rushed, regressive, and badly designed.

Implications: Listeners are urged to see trade and capital as tools, not villains. The real agenda is stronger labor power, better tax design, smarter regulation, and place-based policy that can rebuild trust and reduce backlash.