Jan 2, 2019 · 38m · a16z
a16z Podcast | Adjusting to Trade... and Innovation
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gold bands on the timeline = statements, start to end. Hover to read, click to jump. CC turns on captions
Host Sonal Chokshi leads a discussion with economists Russ Roberts and Noah Smith on the complex interplay between international trade, technological innovation, and worker displacement. The panel examines historical economic shifts, the unique legacy of the 2001 China trade shock, and policy strategies required to build workforce resilience in an era of rapid technological change.
How this conversation actually went
Every chapter scored 0–10 on four independent dynamics. Hover any point for the reasoning behind the score. The host holds 14.8% of the talking time here. How this is scored →
The host as informed peer 4.7 Guest teaching 4.6 Guest disagreement 1.8 The host pushing back 2.0
speaking balance: gold is the host, purple is the guest (3 minute bins)
Sharpest disagreement ▶ 24:40 Noah challenging Russ's productivity narrative
Noah forcefully rejects the assumption that automation drove post-2000 manufacturing job losses by pointing out that productivity slowed down rather than sped up during the cliff-like decline.
Hardest push from the host ▶ 16:49 Host demanding distinction between past and present trade dynamicsSonal refuses to accept Noah's broad generalization about worker anxiety, explicitly interrupting to ask what specific underlying structural truth is different today.
Biggest teaching moment ▶ 23:16 Noah correcting Russ on historical manufacturing dataNoah explicitly corrects Russ's premise that manufacturing employment had been steadily declining since 1945, pointing out that absolute manufacturing headcount was stable for decades until dropping off a cliff after 2000.
The host holds their own ▶ 18:15 Host referencing Autor et al. findings before the guestSonal demonstrates deep domain familiarity by proactively naming the Autor et al. study and correctly summarizing its recent findings on the China shock before Noah can explain them.
the scores for every segment, with the reasoning behind each
| Chapter | Topic | The host as informed peer | Guest teaching | Guest disagreement | The host pushing back | Why |
|---|---|---|---|---|---|---|
| Economic Foundations and the History of Free Trade | 4 | 4 | 1 | 3 | Sonal asks for foundational economic concepts and contributes a concrete anecdote about a $1,500 homemade sandwich to illustrate the power of trade and specialization. Russ and Noah provide historical background on mercantilism and Adam Smith while clarifying distributional trade costs. | |
| The Industrial Revolution, Innovation, and Human Cost | 6 | 4 | 1 | 1 | Sonal demonstrates strong familiarity with economic history by citing Joel Mokyr's work on open trade in ideas during the Industrial Revolution and later referencing agricultural labor statistics. Noah and Russ expand on high labor costs sparking mechanization and discuss the human transition costs. | |
| Static vs. Dynamic Efficiency: Offshoring vs. Automation | 5 | 5 | 2 | 2 | Sonal connects Noah's theory of offshoring-induced innovation slowdowns to Robert Gordon's thesis on technological stagnation. Noah and Russ detail the trade-off between short-term static efficiency and long-term dynamic innovation incentives. | |
| Automation, Driverless Cars, and Worker Displacement Debates | 6 | 4 | 1 | 4 | Sonal brings up India's policy restrictions on driverless cars as a real-world example of protecting current labor at the expense of innovation. When Noah offers generic observations on worker anxiety, Sonal pushes back to ask specifically what underlying truth is novel today. | |
| The China Shock vs. Traditional Rich-Country Trade | 7 | 5 | 1 | 2 | Sonal demonstrates expert knowledge by immediately recognizing and citing the Autor et al. research paper on the China shock before Noah presents its details. Noah elaborates on why trading with a labor-rich, capital-poor nation created unique worker displacement compared to 1980s Japan or Germany. | |
| Debating US Manufacturing Decline and Productivity Slowdown | 1 | 7 | 5 | 0 | Noah and Russ engage in a lively debate over the causes of post-2000 US manufacturing decline. Noah directly challenges Russ's claim that manufacturing job loss was part of a steady post-1945 trend, highlighting that absolute employment only plunged after 2000 alongside a productivity slowdown. | |
| Real Wages, Consumer Purchasing Power, and Quality Metrics | 5 | 5 | 1 | 3 | Sonal raises the point that protectionism harms low-income consumers who rely on low prices at stores like Walmart. Noah and Russ examine inflation metrics, quality adjustments, and prime-age employment-to-population ratios. | |
| The Uniqueness and Conclusion of the China Trade Shock | 6 | 5 | 4 | 3 | Sonal cites economic theoretical arguments from Krugman and Adam Smith regarding unilateral open trade benefits despite foreign protectionism. Noah and Russ disagree on export promotion policy, with Noah praising agencies like Japan's JETRO while Russ warns against political subsidies. | |
| Navigating Future Tech Transitions & Conclusion | 2 | 2 | 0 | 0 | Sonal asks how society should navigate future tech transitions like automation. Both guests find complete agreement that technology cannot be stopped and focus must shift to lifelong education and worker flexibility. |
Statements from this episode (26)
Smith: Economists Lack a General Theory for Trade Adjustment
“To be honest, it's really not easy to tell when that will and won't happen, and there's no general theory that economists have about adjustment.”
Smith: Economists Focus on Equilibrium While Ignoring Transition Paths
“Economists often think to the very end and think about equilibrium and ignore the path for how you get there.”
Roberts: Arguing Trade Is Net Good Ignores Distributional Harm
“I think it's a bad teacher and a bad economist who says, well, trade creates net benefits, so therefore it's good for the country.”
Roberts: Trade Benefits Future Generations While Harming The Current One
“The biggest benefits from trade take place over longish periods of time. The opportunity for the next generation to come along and use its skills well, but it can be hard on this generation.”
Smith: Consumer Gains From Foreign Trade And Automation Are Functionally Identical
“In fact, in economic models, the gains from trade will look just like productivity. And there's a complete equivalence between those and a lot of models. So basically, if you have a robot to do something cheaply, you know, from the consumer's perspective, that…”
Smith: Ancient Romans possessed steam engine technology without mass deployment
“And the Romans had all the technology for steam engines. They even did some mining with steam. A Roman inventor had a little steam engine on his desk called the alio pile, but they never really deployed it on mass.”
Smith: Access To Cheap Labor Reduces Incentives For Labor-Saving Innovation
“The natural implication of this is that basically the more cheap labor you get, the less incentive there is for labor-saving innovation, for entrepreneurs and technologists to invest in labor-saving innovation.”
Smith: Rising Chinese Wages Will Drive A Return To Automation
“Maybe we took a one decade pause in automation, and maybe now that wages have risen so much in China and things like that, maybe now we're going to get back to the task of automation.”
Roberts: Autonomous Vehicles Will Dramatically Reduce Transportation Costs
“One of the impacts of the autonomous car introduction is a dramatic reduction in the cost of getting from here to there. So if you think about a current cab ride or Uber has a huge labor component, and it also has an insurance component, but the cost of gettin…”
Smith: TPP And TTIP Will Not Resemble The 2000s China Trade Shock
“People are talking about TPP and TTIP, which is basically a trade treaty with, you know, Japan and Korea, a trade treaty with Europe. Those are trade with rich countries, and that's not going to look at all like opening up trade with China did in the 2000. It …”
Smith: US Workers Displaced By 80s Trade Found Equal Or Better Jobs
“When economists around in the late nineties and early 2000 went back and looked at those episodes, what they found is that the displaced workers Almost all found new jobs in doing very similar things for same or higher pay.”
Smith: China Shock Displaced US Manufacturing Workers Into Low-Wage Service Jobs
“What Otter, Dorn, and Hansen found is that the adjustment of the average worker in competition with Chinese workers was much, much slower and worse, and they found that, you know, the average displaced manufacturing worker in the eighties and nineties who was …”
Smith: Subsidies And Low Standards Drove China's Trade Competitiveness
“The reasons China was cheap, I mean, cheap wages were part of it, but they were subsidizing energy. They were giving everybody really cheap coal without worrying about the environmental impacts. They had very low labor standards, and they had a bank finance sy…”
Smith: Absolute US Manufacturing Employment Remained Stable From 1945 To 2000
“Manufacturing employment shrank as a percent of the total workforce since 1945, but total manufacturing employment didn't.”
Smith: US Manufacturing Jobs Plunged After China Entered WTO In 2000
“Total manufacturing employment has shrunk since 2000 dramatically. So at the exact same time trying to enter the WTO, total manufacturing employment in the United States, which had been at a stable level for decades and decades, starts to plunge.”
Smith: 2000s US Manufacturing Job Losses Coincided With Productivity Slowdown
“It wasn't until the 2000 that absolute manufacturing employment started to fall and that manufacturing employment started to fall along with manufacturing productivity slowing down.”
Roberts: Bureau Of Labor Statistics Poorly Adjusts Inflation For Product Quality
“And the Bureau of Labor Statistics isn't particularly good at adjusting for it.”
Smith: Prime-Age Employment-To-Population Ratio Is The Best Labor Metric
“Employment to population ratio. The best labor market indicator. The best.”
Smith: Economic Sentiment Is Driven By Presidential Approval Rather Than Data
“A lot of people are just thinking politically, and when you ask them, how's the economy, they think, do I like the president?”
Smith: The China Trade Shock Is Over As Labor Costs Equalize
“The China shock is over. China unit labor costs are now at parity with the United States labor cost, and there is nothing on the horizon that looks anything like China.”
Smith: China Has Stopped Undervaluing Its Currency And Is Selling Reserves
“China's no longer undervaluing its currency. That was very mercantilist. They were building up their U S dollars. They're like modern day gold. They were doing that in the 2000. They have stopped now and have actually been propping up their currency instead of…”
Smith: Pre-WWI Britain And Germany Prove Trade Does Not Prevent War
“The idea that trade builds bonds between countries, I believe, is an overrated idea. Because on the eve of World War I, Great Britain and Germany were each other's largest trading partners.”
Smith: Entering Foreign Markets Increases Company Productivity
“So when a company... Enters a foreign market, it experiences a jump in productivity. Obviously, companies that were more productive to start with are going to be more competitive in foreign markets. There's pretty good evidence that exporting forces companies …”
Smith: US Needs An Export Promotion Agency Like Japan's JETRO
“Japan does a lot of things wrong, but it also does some things right. And it has an export promotion agency called Jetro. If you're a small Japanese company, you don't know how to sell stuff to Bangladesh. Jetro will hook you up with local resources and will t…”