Reflecting on suggestions by Slaughter and Scheve and others that globalization's losers should be compensated by increasing the progressivity of the tax system and other reforms, Clive Crook lays bare a logical inconsistency in many arguments of this kind:
The connection between globalisation and middle-class stress is by now a commonplace. Mr Scheve and Mr Slaughter have taken it one step further by designing a policy that links them explicitly. Their approach seems sensible enough, until you think about it. Globalisation is not an end in itself. If it is failing to raise living standards for the great mass of the public, as the authors suppose, why rescue it in the first place? If you were running for office, you might wonder, why not promise more redistribution, if that is good for most Americans, together with less globalisation, if that is also good for most Americans? Many in Congress have exactly this combination in mind.
The authors answer that globalisation is a good thing overall, and quote the standard estimates of large whole-economy gains. But then they seem to accept that stagnant incomes for all but the very rich are a natural consequence of liberal trade. They talk of downward pressure on wages from the integration of China and India, from the outsourcing of services and so forth. “Given the lack of recent real income growth for most Americans, newfound scepticism about globalisation is not without cause,” they concede.
If globalisation is benefiting only a sliver of the richest people and impoverishing the rest of us, I say get those tariffs up, put those outsourcing chief executives in jail and make Lou Dobbs US trade representative. Later, we can talk about tax reform.
Clive Crook is pointing to the illogic of accepting on the one hand that globalization is a raw deal for the middle class, and arguing on the other that trade policies should not be part of the arsenal of tools with which you deal with the consequences. Clive Crook doesn't mention him by name, but one has to assume that one of his targets is his fellow FT-commentator Larry Summers, who has made middle-class malaise a big theme of his recent writings while also arguing that any restriction on increases in international trade would be very dangerous.
Of course Clive Crook believes globalization has been beneficial to the middle class (and that all the worrying about how to make the middle class feel better is besides the point). He points to a paper by my colleague and friend Robert Lawrence, discussed here previously,which argues that there isn't a tight connection between wage trends in the U.S. and the ebb and flow of globalization.
As much as I like Lawrence's paper though, I do not think it makes the strong case Crook would like to see made. It doesn't argue that globalization has made the middle class better off, and its analysis of globalization's impact is limited to one particular mechanism (the Heckscher-Ohlin channel on relative wages). My guess is that Robert Lawrence would say the jury is still out on the question. In fact, just after I wrote the previous sentence, I read the following in a piece he recently co-authored:
Today many American workers feel anxious—about change, and about weak or nonexistent income growth. These concerns are real, widespread, and legitimate. What role the forces of global engagement have played in this recent poor labor-market performance of most Americans remains an open question.
Interestingly, Lawrence's co-author on this piece is the very same Matt Slaughter (along with Grant Aldonas). The piece reprises the Scheve-Slaughter recommendations on the tax system along with others on adjustment assistance. I wonder what Clive Crook would make of that...