I learned from this piece by Philip Levy in the American (via Real Clear Politics) that May 18-24 was “World Trade Week”—“in case you missed it,” he says. I had, as a matter of fact. The celebrations, let us say, never looked like getting out of hand. In an excellent short column, Levy laments the failure of politicians to talk plainly about the benefits of liberal trade and the wavering commitment of the country's best economists to a cause they once resolutely defended. Good for him.
…the very academic stars who might help to clear up uncertainties about trade imbalances are themselves stoking the skepticism. They have found it useful to dabble in xenophobia to support a cause. Paul Krugman identified this tendency over a decade ago when he warned that it was dangerous to reach the right policy conclusion for the wrong reasons. But lately he has succumbed to it, along with economists such as Larry Summers, Alan Blinder, and even the great Paul Samuelson.
Trade is not all it is cracked up to be, they write. It can have alarming side effects. Therefore, we must…coordinate our taxes with foreign countries! Boost education spending! Pretty much do anything except embrace protectionism, which they all piously reject. However, anti-trade passions can be difficult to control, once unleashed.
Quite right (although I would not include “coordinate our taxes with foreign countries” in my list of “right policy conclusions”).
The piece mentions recent and much-cited research by University of Chicago economists Christian Broda and John Romalis, suggesting that trade has disproportionately lowered the prices of goods that are important to poor Americans. If true, that is an interesting thing to know—but I am a little uncomfortable about the eagerness with which this (not very surprising) finding has been taken up by the remaining enthusiasts for free trade. The Broda-Romalis result does not need to be true, after all, for the orthodox case for liberal trade to hold. And politically I’m not sure it’s much help either. The trade-skeptic response to it is very straightforward, the same as the response to the related, familiar and (so far as I know) uncontested fact that Wal-Mart lowers prices disproportionately for the less well-off: what is the point of saving a couple of dollars on your Chinese imports if you’ve no job?
The best way to defend liberal trade to skeptics, I think, is always to emphasize the close parallel with technological progress. That too can have some harmful side-effects on the pattern of employment and on income distribution, while raising incomes overall. Yet who thinks to oppose it? When the likes of Larry Summers, Alan Blinder and Paul Samuelson express as much anxiety about the perils of advancing technology as about the downside of trade, I will at least concede that they are being consistent. Meanwhile, the case for progressive taxation, educational reform and—above all—universal health care can and should be made on the merits.
Free trade is a tough sell these days and its not going to get any easier. The declining dollar is putting the lie to the benefits of liberal trade policy by increasing the cost of imports that used to be so cheap. This will only get worse over time. Arguing that Americans will simply make money selling foreign made goods and somehow retain their high standard of living indefinitely is just plain foolish. As for the amelioration (universal health care, increased education - blah, blah, blah) this reminds me of the tax cut debate back in the eighties. In theory, we cut taxes AND cut spending at the same time. The problem is that cutting taxes is easy - they're popular and there's very few people saying, 'no, please don't cut my taxes'. Cutting spending is difficult and painful, so the taxes get cut and the spending doesn't - thus exploding deficits.
Free trade is relatively easy - you just cut tariffs. Universal healthcare? Are you kidding? Increase education? How, exactly? Free trade proponents have the same problem all academic theorists and idealistic utopians have - an inability to comprehend simple human nature. I'll always be amazed that such brilliant people can't see the warts on their own nose.
Posted by Nathan | May 30, 2008 12:30 AM