The Fed is out of ammo, says Philly's Harker

But that's not what politicians are talking about this election cycle. Instead, leaders are blaming the sluggish economy on foreign competition and calling for restraints on free trade. Harker notes: "While resistance to international trade is not new, the central role it has taken in public discussion—and the animosity towards it—is something I haven't seen for some time."

Instead of going on to detail what the government should do to jump-start the economy (he has said elsewhere this includes better vocational, math and job-skills training), Harker devoted most of his talk to defending free trade: 

It's natural, and best for consumers, Harker says, " that countries will import goods from abroad if they're cheaper, and export their own goods if they're inexpensive to make at home...  Nations can import goods for less than they'd cost to produce at home."

Nobody grows pineapples in Scotland or wool in Hawaii.  "International trade allows countries to focus on producing what they're good at... Trade can make each country more productive and ultimately better off."

Everyone can get a piece of the action: "Japan exports raw steel to Mexico, where it's stamped and shipped to the United States, where it's used to make farm equipment, some of which is then exported to buyers in other countries... The world has evolved to an interconnected economy, and trade on this level is unlikely to disappear... A 10 percent increase in trade is associated with a 5 percent increase in income per capita."

So, Harker asks, "why has there been such animosity" toward foreign trade?

He blames "common myths" -- but also real-life "trade losers":

"Myths:" Don't "low-wage countries unfairly compete against mature economies... exporting jobs away from developed countries like the U.S.?"

In fact, "low wages are associated with lower productivity," which cancels the edge poor countries enjoy on a purely cost basis.  Plus, the more a country produces, the higher wages tend to climb.

But: "The many who benefit don't do so in a life-altering way; we aren't moved by a price change of a few dollars or cents in our everyday purchases.

For factory towns, it's a lot worse: "The unskilled portion of the labor force can lose out to competition from abroad... Those who suffer do so on a catastrophic level—it affects entire industries and the populations that depended on them. Its effects are felt in depth, shouldered by a small fraction of America," the less than 10 percent who still work in factories and minds.

When it comes to competition, China is America's "economic boogeyman," Harker says. Citing the Dabid H. Autor National Bureau of Economic Research paper "The China Shock," Harker summarizes: "When (Americans) lost their (factory) jobs, they didn't move, or look for new ones in new areas. Instead, people stayed where they were. The jobs they lost weren't replaced by new ones in new industries... They wound up in even lower paying jobs." U.S. suppliers also shut down.

"Whether it's some form of wage insurance or retraining, we have to find some way to help these communities, many of which have been all but abandoned, to transition to a new economic reality...

"So I can understand some of the animosity towards trade. I also see the need for policies to help alleviate the pain... But a connected world is a better place and trade helps far more people than it hurts."