« Blinder and Bhagwati debate at Harvard | Main | And now on to something economists can really discuss »

May 03, 2007



I'm intrigued by the last paragraph of your post (including the part about thanking Tyler Cowen ;-) ). Would you expand upon it and provide some examples? For instance, I am a fairly "hardcore" believer in free trade. What would you suspect are my unexamined political assumptions?


The role of economists may be to describe how a particular policy may benefit or hurt whom; this may not be obvious to the lay public.

For example: the reallocation of labor that will occur with a change in trade policies is not always obvious. An economist’s role could be to simply analyze the length of time the effects of any policy will take to occur after the initial change.

Another example could be the case of agricultural subsidies. The effects of agricultural subsidies in developed countries on poor countries are ambiguous. This paper for example, finds that agricultural subsidies usually help the poorest members of society in countries that receive them, regardless of whether that country is an agricultural net importer or exporter. In addition, because they subsidize food costs for industrial labor, reducing the opportunity cost of rural-urban migration (because it’s hard for food from the US to get to you from a seaport unless it travels over a paved road), they may increase the rate of industrialization in both food importing and exporting countries.



On Tayler's criteria. I think focusing exculsively on efficiency makes little sense as focusing exclusively on equity makes little sense. In may opinion, the war with regard to efficiency equity is not over yet. Obviously effiency is important, but it is not everything. Especially polaraizations have been important for their own sake as well as for the sake of dynamic efficency. I suggest a kind of weighted index of polcies instead of just efficiency.

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jdrietz asks me to clarify the point in the last paragraph of my post. The unexamined political assumptions I have in mind are a belief in the incapacity of politics to deliver social goods on average, an assumption that economists' preferences fully capture what most people really value, and a certain cynicism about the motives of everyone else out there. I think the right way to think about "political" problems is as one of appropriate institutional design--and I tried to illustrate this in my post. And I was serious when I thanked Tyler. I do think he is helping the discussion go forward.

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Of course trade policy is rife with politics, but our role is to explain that all trade policy is harmful. The world's history can be explained as a battle between politics and economics. If once we accept that political control is inevitable, we have accepted defeat.


Dr. Rodrik, thank you for the additional detail.

One other factor I think we need to bring into play is morality. For example, in the protectionist camp, many argue that trade barriers are needed to protect domestic workers' jobs, the economy of a small developing nation, or a certain way of life.

Free traders also have strong moral arguments. There is the belief that government should not interfere in a willing, free exchange of goods between two parties. Many also believe that allowing the government to protect the economic interests of one group of people to the detriment of another based upon nationality or geography is wrong, as ultimately enforcing such economic protection is done by force.

The final point I would like to make is that I believe your "last war" argument is a bit unfair. Perhaps part of Cowen's point is that the "war" SHOULD be about free trade vs. protectionism, rather than to what degree we want to enact and enforce protectionist trade policies.

Oh, and my comment about thanking Cowen was purely inject - no sarcasm intended :-)


My last statement should say "Oh, and my comment about thanking Cowen was purely IN JEST - no sarcasm intended :-)"

Stupid spell checker...


"I don't have answers to this. The moral case for open markets is their importance to poor countries: America would do OK even in a highly protectionist world, but Bangladesh wouldn't. The domestic politics of trade, however, are now very hard, and getting harder."--Paul Krugman on the distribution of the benefits of free trade

There are two different spheres of economic morality that pertain to free trade. Most of those who favor free trade as practiced today are biased toward morality--economic disipline--that comes from the economic sphere itself. This is the morality of the invisible hand. They believe that the necessary evils that it entails are justified by the ends: greater prosperity for the most people.

But there is a moral sphere outside of the internal workings of economics. The economic morality that comes from laws and regulations on how we do business: work safety standards, food inspection, environmental standards, the right to free association.

Those that get their economic morality from the invisible hand would have economic man disciplined by the market. Those who get their morality from outside the economic sphere would have economic man disciplined by social needs and social values.

The invisible hand moralists believes that any outside intervention in the market will cause unforeseen consequences that are more hurtful than helpful. Those that believe in the intervention of the moral sphere outside economics believe the opposite.

For better or worse history has already settled this argument. The evils of the Industrial Revolution were mitigated by a hundred-plus years of social intervention. Those with an economic bias who tend toward the view that the edifices of outside morality can be cast to the winds of free trade and market discipline are on the wrong side of history.

Their view is that protecting the economic morality that arises out of our social values should be just another casualty of the invisible hand. This is justified because the invisible hand by itself will create the best of all possible worlds. The problem is that this isn't what happens in the real world.

Standards that protect us from the necessary evils of the invisible hand, our economic morality of rules and regulations, should be part of any free trade package. We don't have to repeat history.

Better distribution of the benefits of free trade come from the rules and regulations that allow for it and not the internal disipline of the market.

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