1. Economists say that free trade mathematically helps everyone -- makes everyone richer.
2. But if hurts certain sub-populations within countries who work in certain industries. Center-left economists will then say that the "losers" of globalization or free trade should be compensated, helped or supported in some way.
3. But this hardly ever actually happens. Even though it doesn't happen, economists continue to call for free trade.
4. The losers of free trade revolt at the ballot box.
Why does it work this way? "Free trade" agreements are not simply agreements that countries will hold down tariffs. They are bundled in with all sorts of items that favor global elites and the global financial system: intellectual property, restrictions on regulation, restrictions on support of national industries. They are a vehicle for the managerial/professional class, negotiated in secret and without public input. These elites never will spend money on compensating the losers of free trade. For them to do so, these agreements would have to arise from popular politics, the product of organizations that would demand that vulnerable segments of the public not lose out. That is not the class background or ideology that produces free trade agreements, and that is not the power that backs them.
Mainstream economists have a dual function (or perhaps a singular function) as the ideologues of the global managerial class. That is why they will never cease supporting free trade even as the compensation of losers that they say should happen never does.
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I think you have it wrong (declaration: I support free trade). Economists support free trade because it is obviously, economically, correct. The "job" of calling for compensation for those who lose out doesn't really go to economists, it goes to pols. I don't think railing at economists makes any sense. It is like the denialists railing at scientists.
ReplyDeleteIn the detail: support of national industries is bad too, and removing such support is part of free trade, sort of.
You seem to be falling for the same error that the populists like Trump make: forgetting that trade lowers the prices of goods and thus makes people better off. Everyone, not just the elite. Arguing against free trade and for special deals for favoured industries is easy.
I know that you support free trade, William, but I think that you're thinking about it the wrong way. Let's say that for the sake of argument we accept that point 1) above is true. (I don't think that it actually is, but it would take too much time to explain.) That doesn't make points 2)-4) any less true. Here's something written by an economist if you want that.
ReplyDeleteWhen economists say that "trade makes everyone better off" they are averaging across large groups of people. If you are a person in your 40s or 50s in an uncompetitive national industry, with no real prospect of being retrained for a new job even if one existed, "free trade" does not make you better off even though you can buy goods slightly more cheaply. It dooms you to live the rest of your life in poverty. People will not stand for that, so "free trade" is politically self sabotaging.
> they are averaging across large groups of people
ReplyDeleteYes, I know that. Hence my comment "The "job" of calling for compensation for those who lose out doesn't really go to economists, it goes to pols".
But I still don't think "It dooms you to live the rest of your life in poverty" so I maintain my last para. Also, you are still entirely neglecting the benefits.
I don't know that "free trade" is, as William puts it, "obviously, economically, correct" but the argument that specialization increases productivity and therefore total real income is a solid one and the intuition strongly competitive trade spreads the benefits complements the argument in favor of specialization.
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Does mainstream economics have its collective head up its butt on this and every other issue? I think so.
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The technical idea that "the losers" ought to be compensated as part of any efficiency-improving "free trade" reform is a mashup of several different ideas in economics, the merits of which are doubtful. One is the Stolper-Samuelson theorem, which established the logical validity of the idea that labor could gain at the expense of capital from protectionist measures in a Heckscher–Ohlin model. We don't live in a Heckscher–Ohlin model and the patterns of global trade cannot be explained by a Heckscher–Ohlin, so I'm not entirely sure why we should care, but more about that in a moment. Another element in the mashup is the concept of Pareto Optimality; this is the notion that economists qua scientists should try to be objective arbiters of economic reform: not imposing their personal preferences, they strive to identify only policy reforms that can make everyone better off -- win/win as it were, which saves economists from making value judgments you see. Well, there are not a whole lot of those -- you can free the slaves, but it tends to upset the masters, so no go there. But, not satisfied with total irrelevance, economists came up with the Kaldor–Hicks criterion, the notion that any reform that was sufficiently beneficial that the winners could hypothetically compensate the losers to such an extent that even the losers would benefit could qualify as equivalent to a Pareto improvement. I'm not sure why any person of normal intelligence would want to trade in notions of elemental justice or simple fairness for Pareto-improvement or Kaldor-Hicks.
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There's probably something to the notion that economists manufacture this abstract nonsense as an ideology, or more particularly, an agnotology. It makes us ignorant, unable to reason together in our own common interest. A key strength of neoliberalism is its ability to use economics to create a completely artificial dialectic between Mark Thoma or Brad DeLong on one side and Tyler Cowen or Greg Mankiw on another, in which neither side makes any sense. This is how we get to a situation in which (to quote Atrios today) we can see almost back to back headlines of "Will tax cuts create jobs?" and "Signs of job growth signal Fed to increase rates."
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The two sides in a neoliberal debate model a political ambivalence and give voice to resentments, but without insight or clarity. You can be in favor of free trade or in favor of free trade with qualifications. There is no alternative. So, the revolt may come, but it is impotent. Where is there an effective lever on policy? So, in the meantime you and William Connolley can fight over things that do not matter. He's right. You're right. Whatever, dude.
At the risk of pointing out the obvious, "free trade" shouldn't be an issue framework. Of course, we are in favor of specialization and trade on principle. The political issue -- and the political issue is always some variation on a question of the distribution of wealth, income, risk and power -- is the overweening claims of capital on total income.
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The defense of free trade is defensible intellectually even if it is employed as propaganda to make people ignorant and politically impotent. But, it will always be defended in ways to distract from the predatory roles of capital and managerial domination and control frauds. In the meantime, economists are going to re-arm macroeconomics with new theories of money and financial wealth real soon now, to understand the next financial crisis. There's no nice way to eat the rich, at least no way that's nice enough to the rich by the standards of the rich. So, "we" are "desperately seeking" a new strategem.
BW: "I don't know that "free trade" is, as William puts it, "obviously, economically, correct" but the argument that specialization increases productivity and therefore total real income is a solid one and the intuition strongly competitive trade spreads the benefits complements the argument in favor of specialization."
ReplyDeleteAbove I wrote that for the sake of argument we could consider point 1) to be true, and that I didn't think that it actually was but it would take too long to explain. Here is the most simplified way I can think to explain. It's mostly in terms of problems of scale.
Free trade, combined with contemporary transportation technology, puts everyone into a global scale. Therefore it's a political control technology. Why can't people in some location just reject austerity or any other aspect of the neoliberal order? Because their lives now depend on trade through a global financial system. Having the necessities of life supplied through a small area means that, yes, the people living in this area are less wealthy according to a certain means of measuring wealth, but they also have the possibility of local control. Ignoring this control as a form of wealth in its own right is like the people who think that wealth is measured by GDP and that if you take more leisure time you are lowering your wealth.
Second, there are environmental considerations. Let's say that you live in an area that's really not very good for growing crops. Fine, free trade means that you get your food from far away where productivity of farming is great. But the world is not an infinite system, and ecosystemic wealth is not freely substitutable. If you concentrate farming on the most productive areas then they become less productive. Maybe it's better for people to live within sustainable bounds over medium-sized averaged areas that can support cities.
You might say that not all trade is like trade in commodities that are directly dependent on ecosystem health. Fine, but what that really means is that there are all sorts of different trade regimes in different things, and no simple "free trade" model is going to cover them all.
> a global scale. Therefore it's a political control technology. Why can't people in some location just reject austerity or any other aspect of the neoliberal order? Because their lives now depend on trade through a global financial system
ReplyDeleteBut that's all wrong. Free trade is simply the removal of (artificial) barriers. If a country chooses not to trade, it puts no obligation on it to do so. We observe, though, that given the choice of trade by the removal of barriers, everyone does make that choice. Nor does "through a global financial system" make sense either; trade is a series of buyers meeting sellers.
> there are environmental considerations
Certainly there are. But why do you consider only the negatives, and assume they are larger than the positives? Your food example can just as easily be turned around: by growing food in places better suited, the env costs are less, not more.
> Maybe it's better for people to live within sustainable bounds over medium-sized averaged areas that can support cities.
Maybe. Maybe not. Your argument would also support tariff barriers within the US; somehow, magically, the US is the right size for a free trade area? It is't probable.
There is nothing more natural than geography as a barrier to trade, if we're talking about artificiality as a criterion. Political barriers to trade are also common and "natural", and the world system invests a whole lot -- including, if necessary, military force in e.g. the Middle East -- to remove them.
ReplyDeleteAnd the positives are the reason why the control works. If a place wants autarky, it has to give up cheaper goods for its citizens and an existing system of employment that's based on the global system. This is one place where economics as ideology comes in. Economists teach people that the goods are worth a lot and that autarky is worth nothing.
Lastly, as an anarchist, I'm not concerned with defending the US as an ideally sized area.
Who wrote this?
ReplyDelete"The events of 2016 will be remembered either as a point at which we began to turn away from globalization or the one at which the strategies of globalization began to be reoriented away from elite and toward mass interests."
Larry Summers, from http://www.nytimes.com/2016/12/05/opinion/its-time-for-a-reset.html
Given Summers' history, maybe it's time for me to start supporting this globalization thing. Just kidding. More seriously, I'm sure that the hippies will continue to forever wrong even after the people doing the hippie punching are forced to reverse themselves, because the hippies were right for the wrong reasons.
trade agreements are about changing the current distribution of money. The people with a seat at the table are there to get more money, or at least not lose money. This money has to come from somewhere, and it is going to come from the mass of people that are not represented at the table. There never going to compensate these people because impoverishing the 40 something workers in the United States or people buying patented drugs in Malaysia is the entire point of the excersise. If there was no way to get their money they wouldn't bother with the agreement.
ReplyDelete> trade agreements are about changing the current distribution of money
ReplyDeleteNo. But I think this is a common belief amongst those who oppose free trade. It isn't a zero sum game whose purpose is to re-arrange money. It is to make us materially richer. Observationally, this is what it does.
Are you 22? I specifically didn't say "free trade" because none of thes modern agreements are honestly described that way, there about IP protections and such. Also if you have any good studies on free-trade increasing growth I'd love to see them.
ReplyDeleteDo I look 22? I think not (https://www.facebook.com/photo.php?fbid=10153985868030373&set=t.586037349&type=3&theater). Pointless and irrelevant ageist comments aside: the discussion above was about free trade; I missed your dropping of the word "free". You are still wrong: there [sic] about improving the lives of 'umble everyday folk, as well as about enriching the already rich. People do trade because it makes the world (materially) richer not merely to shuffle around a fixed pile of money tokens; if you really doubt that, you're not worth talking to.
ReplyDeleteI usually prefer using the phrase "free trade" because that's what these agreements are generally called, and if we're going to stop using political words that don't actually mean what they sound like they should mean we'd have to stop using almost all them. Without getting into distribution-of-money issues, these agreements are certainly a distribution-of-power issue: they take power away from one set of people and give it to another. When even Summers is acknowledging this, it's probably time to just accept it and move on.
ReplyDeleteIf I was imagining an ideal utopia, it wouldn't be one in which people didn't ever trade with each other over long distances. But it would be one in which people's lives were not dependent on or controlled by this trade.
Hello Rich. I found your blog from Ian Welsh and really like your discussions. I have a slight critique of your points 1 and 2 because I think the economists’ claim of optimality presumes that the losers are compensated. So the claim of center-left economists that the losers should be compensated ignores that loser compensation is already incorporated into those same center-left economists' claims of optimality. So William's argument that the economists are right and loser-compensation is a political issue is not right because the economists have not been honest in making clear that their supposedly non-political theory assumes a political issue. Hope this makes sense. It's based on something I read 25 years ago - I think the theory is called Pareto Optimality.
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