The Debate Is Over
Posted on March 13th, 2009
by Daniel Larison |
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In an otherwise unimportant post, one Alex Knepper makes this statement:
The debate about free trade is over. It works.
I confess I don’t quite know what to make of this. It seems to me that this is a bit like discussing morality and saying, “The debate about killing is over. It works.” Works to do what? For whom? Who benefits, and who pays? What are the consequences? Free traders don’t care to answer any of these questions, or at least the people who have learned to mouth free trader lines don’t. Economists who bother to answer them make it very clear that these policies are geared toward consumers and an economy built around consumption, and the American firms it primarily benefits are exporters of raw materials and sellers of imported junk. Of course, that doesn’t settle anything, but raises a host of new questions about whether we should continue down that path. I am equally baffled by general negative statements about protectionist measures, as if saying “it doesn’t work” is any more persuasive than just saying that it does.
Update: Knepper offers one response that amounts to little, and then complains that one of his colleagues gave this post any consideration at all. In the second response, he resorts to the globalist equivalent of “if you want to make an omelette, you have to break some eggs,” which is the sort of indifference to real economic and human costs that I would expect from this sort.
Filed under: politics
I think part of the problem is that the word “protectionist” is too charged these days. The free marketers that have dominated U.S. economic policy in the second half of the 20th century having been dogmatically saying it for so long that when one says “protectionist measures” it is easily mistaken for a full blow “protectionist” policy, which I doubt you would fully support. It is much easier to think in broad strokes than the details. Obviously the consequences of this is horrible policy options and a general lack of creativity by policy-makers.
I’m actually quite happy with the work being done at Front Porch Republic about distributionism and protectionism. It is refreshing to get a different view. But framing the debate in those terms won’t get anybody far because of the negative connotations attached to those words. Words fortunately, and unfortunately, have meanings and connotations. I think framing it in terms of economic de-centralization will get a more favorable response among politicians.
Of course, you probably won’t get any positive response from Knepper because it sounds like he doesn’t care to listen. Why? It works.
As Dean Baker points out over at “Beat the Press” pretty much once or twice a week, we don’t actually have “free trade” in this country. Not sure that the triumphalists on “free trade” ever take that into consideration.
I think that there is considerable evidence that free trade works … in the long run … eventually. But as Keynes said, “In the long run we are all dead.”
The problem with many of the economic models is that they don’t adequately consider the time and money that it takes to train workers for new jobs who have been displaced by free trade, and they similarly underestimate the damage from short term predatory trade practices.
The question becomes: how do we enact “fair trade” fairly? Our current anti-dumping laws do not offer a good template.
In an important sense, isn’t this guy correct? The debate does appear to be over. That is, do you see any serious debate about this topic? In the recent mania over stimulus, how many politicians or pundits challenged the conventional wisdom in a real way? The way to save the econommy is to prop up demand. To get people to buy more stuff. We must build infrastructure. Not because we necessarily want that infrastructure. But because we need to get some money to the shovel operators so they can all buy more gummi worms and Teenage Mutant Ninja something or others. So the gummi worm factories will stay up and running. So the workers can buy another Wii. So the Wii factory will stay up and running…
With regard to “it works,” to the extent that it leads to more gummi worms, for better or worse… aren’t they correct about that?
Hi Daniel,
The last (well, not quite the last, obviously) thing I want to do is get into a debate with you about trade, but it seems to me that you’re not being very fair to the free trade crowd. It’s fine, I think, to object that anti-protectionist economists don’t give enough thought to the very real downsides of free trade, but it’s usually not as if all of them deny that there are any such downsides at all. And: “Works to do what?” Well, to increase efficiency, and drive down prices, and improve (material) prosperity in ways that allow for greater individual freedom, technological and intellectual innovation, and so on. Even if you don’t think (as I don’t) that these things should be the sole ends of government policy, surely they are desirable and should count for a fair amount – again, this is not to say that more attention doesn’t need to be paid to the need to mitigate the sometimes (often? always?) destructive side-effects of this kind of economic change, but many think that this can be done effectively without going in for tariffs and other sorts of trade barriers.
There’s a bunch more in your post, I guess, but this is a start.
It works for who – China so they can continue to contaminate the rivers and lakes of the West Coast with mercury?
And it works for how long? An economy needs customers – as the well paying manufacturing jobs are replaced with “do you want fries with that”? jobs the middle class has continued to have less and less disposable income. The short term fix was to flood the market with credit and we all know how well that worked out.
And about that retraining – what are you going to train them to do that won’t be outsourced next year or next week? We tried an economy that was based on rubbing money together to make more money. That creates no “real wealth” and will come crashing down just like it has.
But I do acknowledge, or at least allude to, the efficiencies you’re mentioning here, and I accept that economists address the consequences, but they usually do so in fairly unsympathetic fashion: “Well, some manufacturing jobs will be lost, but…look at all the neat stuff you can buy. Oh, and education will fix everything.” Yes, free trade “works” to lower prices, but there has never been a dispute about this. Exporters of raw materials have always known this, which is why developing countries want industrialized countries’ supports for domestic agriculture and tariffs reduced or eliminated; we and the Europeans refused, which is why the Doha round is in critical condition. Prior free trade rounds led to gutting domestic industry; Doha will advance only if industrialized economies choose to undermine their own agricultural sector as well by flooding the market with cheaper goods.
The things that free trade “works” to bring about are the things that its critics see as the source of other problems. So, again saying “it works” or that trade regulations “don’t work” is not to come to a conclusion at the end of a debate, but to halt debate before it begins. How does one mitigate the destructive side-effects without any protectionist measures? If there is a way that wouldn’t involve regulation of some kind, I’d be interested to know what it is.
The free trade argument may not be framed in the most flattering way in this post, but then I don’t want to flatter free traders. However, I do think it is a fair restatement of the argument.
As for the state of the debate, I would have to agree that at the party leadership level and among most mainstream pundits the debate is effectively over because they have all decided to take one side. There are quite a few members of Congress and many constituencies in the country that have never accepted that the debate ended, and their view has been gaining a lot of traction with the public.
Okay, so I agree that “It works” isn’t a helpful way to make the case for free trade. Making that particular criticism of Knepper, though, doesn’t itself underwrite the broader claim that “Free traders don’t care to answer any of these questions”, though perhaps you hedged that sufficiently with the remark about “the people who have learned to mouth free trader lines”.
More generally:
Yes. This connects up nicely, I think, with the point that Ross made the other day about political questions being more than empirical questions; the demonstrable fact that policy X will bring about such-and-such ends doesn’t entail that policy X is a good policy until we’ve shown that those ends are good ends, and that they’re not sufficiently outweighed by negative side-effects, etc. etc. And you are certainly right that many of the people – economists or otherwise – who promote free trade aren’t sufficiently sympathetic to those who bear the brunt of its most challenging consequences; then again, the free trade crowd raises similar (and often, I think, pretty forceful) criticisms of protectionists for failing to recognize the very real benefits that economic development can bring to poorer nations. To the extent that one’s primary policy concern is protecting the interests of Americans, of course, one might be largely unmoved by such appeals; again, though, this is arguably a case where things boil down more to first principles than empirically tractable facts.
Well, isn’t this the sort of thing that Ross and Reihan are trying to do? And similarly, you have libertarians like Megan McArdle making the case for expanded unemployment benefits, job retraining, and relocation assistance; pro-trade liberals like Ryan Avent putting forward a sort of urbanist agenda; and so on. I suppose you don’t think that such policies – especially things like relocation assistance – are at all ideal, and that’s obviously a view you’re entitled to (and one that I share, at least to some degree). But the crucial point is just that the very same effects that you (rightly) see as “the source of other problems” are (arguably) in themselves things that are genuine goods, or at least that bring genuine goods along with them, and that these goods are the sorts of things that simply couldn’t be attained without free trade policies in the background; there’s an entirely understandable impulse, then, to try to cope with the downsides while keeping the underlying policies in place, rather than giving up on those policies’ benefits altogether.
[...] for a book review – but you can still find me spouting off in a couple of comboxes: discussing free trade with Daniel Larison, and Stewart v. Cramer and journalistic ethics with E.D. [...]
It’s interesting that you should bring up the effects of trade on poor countries, given that many of the most ardent anti-globalization activists are on the left and frame their complaints against globalization around the negative effects it is having on these very countries. It is true that you have impressive numbers of people who have benefited, but the benefits have largely been concentrated in a relatively small share of the population, and the greatest beneficiaries of neoliberal trade regimes have tended to be the upper-middle and upper classes. Those who have been lifted out of poverty are also often those most dependent on foreign patterns of consumption, and so most vulnerable to being thrown back into poverty when the artificially-maintained expansion of globalization collapsed, as we are seeing happen now. The patterns of dependency and the atrophying of local economies that follow the creation of these trade networks ought to be factored into any calculation of their costs and benefits.
Consider that the export-based economies in Asia started to slow down and millions of migrant laborers suddenly found themselves without work, building up a huge unemployment problem back in the rural hinterland where these laborers came from. Huge numbers of people in India have benefited very little from the “Shining India” phenomenon, and the economic pressures of the last twenty years of liberalization have provoked intense and violent political upheaval with the Naxalites. The backlash against neoliberalism in Latin America has guaranteed greater economic mismanagement in Bolivia and Venezuela for years to come, and there are not many in Argentina who would be interested in praising the benefits of neoliberalism. Social and political costs, including the costs endured during inevitable backlashes against the “creative destruction” that always results from these policies, are rarely factored in when gauging the desirability of these policies. Neoliberals would like to take credit for the expansion, and not for the damage done over the course of the expansion that makes the experience of the eventual downturn much more severe. No one denies the creative element of “creative destruction,” but what I would question is its sustainability and the permanence of its gains.
Well it all depends on how well (or badly) people were doing before, doesn’t it? (To be clear: I’m well past the point where I’d love to have a more ardent free-trader jump in and start making the case in my stead; my own view is just that the body of empirical evidence that attests to the genuine economic benefits of free trade (the “creative element”) strongly suggests that our default position should be that of favoring free trade when possible, but looking hard for ways to tinker around the edges to mitigate its downsides.) Yes, the economic benefits of free trade aren’t equitably distributed; but then again very little in human society ever is, and so the common complaint raised against those who make these sorts of objections is that they’re based on an unrealistic view of what life in a pre-industrial economy is actually like, one that laments the misery of the factory worker while glossing over the struggles of the subsistence farmer, etc. Yes, globalization engenders a very particular sort of dependency; but “sovereign” economies have dependencies of their own (on the weather, etc.), and so the question is whether one sort is more dangerous than the other. Yes, there are very real concerns about sustainability and permanence; but once again there is very little in human or otherwise natural life that can be genuinely permanent, and of course human ingenuity has surprised us before. To my mind, it’s issues of this last sort that raise the greatest concern, but nevertheless I’m skeptical of the idea that the best response to this situation is to enact policies that make international trade even more costly.
But hey: all of this just goes to show that the debate isn’t over, which was really your point, right?
Well, yes, my main point is that the debate isn’t over, and the other point is that there are are always costs and trade-offs, and it is not a given that the goal ought to be simply maximizing efficiency, lowering costs and promoting “growth.” Indeed, all that most people labeled protectionists propose is tinkering around the edges, and in response what we usually hear is, “Smoot-Hawley! Aiee!” It is difficult to find anyone arguing for autarky or anything remotely like it, and I would be among the first to tell an autarkist that he is crazy.
However, I also tend not to find the free trader appeal to helping developing countries very persuasive, since one of the promises of NAFTA supporters was that Mexico would provide employment for its own people at relatively decent wages and thus eliminate one of the reasons for mass immigration from the south. It turns out that this was a lot of nonsense: in the wake of NAFTA and the peso crisis, Mexican wages stagnated and mass immigration offered a way out for a lot of laborers. Again, there are people who benefit from NAFTA in Mexico, just as European liberals benefited from their economic model, but this does not account for the interests of large numbers of people in the country, and in turn the neglect of their interests becomes our immigration problem.
There are also different kinds of inequitable distributions of wealth, and at some point this inequality becomes unhealthy and produces political upheaval. This is basic Aristotle. Globalization has meant that already stratified societies are becoming more so, and it has also meant that ours is becoming more stratified by disparity of income and education (exacerbated by mass immigration of unskilled workers). There are political and social considerations to be weighed here regarding our obligations to fellow citizens, and the viability of a democratic republican system, however flawed, in a society that is becoming more two-tiered. What we have got to do is get out of the homo oeconomicus approach to economic and trade policies, when economic and trade policies affect the structure of our polity and the quality of our culture and have to be judged on their effects in these spheres as well.
The full globalist argument is that we have to accept the gutting of domestic industry for the sake of “growth,” while also importing cheap labor from the same countries with which we have these trade agreements that have undermined our industry. American laborers get hit coming and going. As a matter of our national trade policy, why shouldn’t their interests take priority or at least be weighed far more seriously than they are now?
Regarding China, Fallows’ new Atlantic piece is essential reading. As it happens, I wrote the comments above before reading it, so I was pleased to find that Fallows’ assessment of some of the troubles with the Chinese economy is close to what I was saying earlier.
Relevant to the trade discussion, Fallows writes:
I’ve got to read that Fallows piece.
I agree pretty much entirely with this paragraph, by the way:
Leaving aside the usual (and, I think, insufficient though still quite important) appeal to the way that lowered prices can reduce real inequality by increasing the purchasing power of the lower classes, the real issue is over what kind of “tinkering” this problem demands. Ross and Reihan’s approach, like the Hayekian libertarianism that, say, Wilkinson and Ed Glaeser (and, I guess, I) tend to favor, is supposed to be a way to use appropriately targeted redistributive policies as a way to mitigate inequality without giving up on the economic benefits of free trade; one major concern, of course, with this approach is that it can only work in a country that’s reached a pretty high level of socioeconomic development and not in, say, South America. And again, obviously the empirical questions of which approach will do the most to share the benefits out in an equitable manner is only part of what’s at stake; there are questions of principle that simply aren’t amenable to such a treatment.
Which is why we need globalization to free us from manual toil and give us the wonders of the Internet, so that we can spend our weekends discussing such matters!
Btw Daniel the last time you posted on this, we agreed that there was very little “positive” case for protectionism, which I think feeds into your point here. Ie, it’s not just that professional economists are more or less unanimous about the benefits of free trade, it’s also that proponents or sympathizers of protectionism such as yourself tend to to be forced into rearguard, carping arguments. To bring this debate back from the dead, somebody needs to come up with a legitimate cause and effect argument in favor of some protectionist policy or another that’s grounded in present-day reality instead of some wistful nostalgia.
“somebody needs to come up with a legitimate cause and effect argument in favor of some protectionist policy or another that’s grounded in present-day reality”
Warren Buffet and many economists have been saying for years the US current account and trade deficit is cause for concern. One way to reduce our trade deficit is to enact a tariff on China to counteract their currency manipulation.
John Schwenkler: “the real issue is over what kind of “tinkering†this problem demands. Ross and Reihan’s approach, like the Hayekian libertarianism that, say, Wilkinson and Ed Glaeser (and, I guess, I) tend to favor, is supposed to be a way to use appropriately targeted redistributive policies as a way to mitigate inequality without giving up on the economic benefits of free trade;”
The trick is that for 30 years, the free-trade faction has generally also desired to *gut* such redistribution and safety nets. And after 30 years, this isn’t just a twitch, it’s a deliberate fraud.