Monday, September 17, 2007

Prominent doubters of the free-trade religion

The ever-annoying Clive Crook has a column in the October Atlantic Monthly in which he simply deplores the fact that a number of very prominent economists have lately gone a bit wobbly in their devotion to that god-among-gods in the economists' pantheon, **Free Trade**.

In trying to get these apostates—besides Paul Krugman, he names William Baumol, Alan Blinder, Brad DeLong, and even the iconic Paul Samuelson (by whom he's simply "astonished")—to cease this foolishness and get back on the ideological bus, Crook in effect whines "C'mon guys, I thought we had all agreed decades ago that all free trade, all the time, was the way to go. Don't bail out on me now! What's wrong with you?"

He singles out for special mention former Clinton Treasury Secretary Larry Summers, whom he calls "the most surprising new doubter." But apparently Summers' doubts aren't all that new…

By coincidence, Crook's fellow Atlantic staffer Megan McArdle just posted a comment over at TPM Cafe's Book Club about Jonathan Chait's new book, The Big Con: The True Story of How Washington Got Hoodwinked and Hijacked by Crackpot Economics.

I'm not familiar with McArdle, but judging by her on-line bio she's comfortably ensconced in Washington's conservative punditocracy. She recounts a lecture Summers gave once:

In 2000, Chicago’s Business School hosted a talk by Larry Summers, who was then the Treasury Secretary, and advising Al Gore's campaign. At the time, Gore was offering tax deductions or credits for practically anything one might do, from getting born to entering a nursing home. These sorts of tiny lump-sum deductions are generally frowned on by economists; they distort activity, are costly to administer, and unlike marginal rate cuts, provide no positive incentives to increase work.

"Mr Secretary," one of my professors asked him, "You know the theory as well as I do. You believe the theory. Why are you supporting these tax deductions?"

"Because that's the only way we have in this environment to get help to people who need it," said Larry Summers. "There are things more important than economic efficiency." It was a stunning moment: the first, and sadly the last, time I have heard a policymaker admit that he supported something for moral reasons even though it might not make the economy grow faster.

and comments:

Larry Summers' answer was a grown up answer to a grown up question. It acknowledged that there are oftentimes trade-offs between economic efficiency and otherwise desirable outcomes. It bowed to the reality that sometimes, politicians have to enact laws that are less than ideal, if they want to do anything at all. It did not insult the intelligence of its audience by telling them that they could have their cake and eat it, too. It conceded that its author was making a value judgement that the audience might not share. His answer made me think that I would vote, if not for Al Gore, than for Larry Summers.

To be fair, it was hardly as if Larry Summers could obfuscate in that particular situation; had he tried to obscure the choices he was making, he would not have succeeded in fooling anyone, but only in making himself ridiculous. Nonetheless, he quite spoiled me for future stump speeches in which politicians promise their constituents that they can have everything they want, and a pony too, all at absolutely no cost to anyone except perhaps a few far-off rich predators or welfare queens who don't deserve their money anyway.

If only every audience could be filled with economists who know the score. But of course, most aren't. And so we get the spectacle of Republican candidates claiming on the stump that cutting tax rates increases tax revenue.

Summers' statement that "there are things more important than economic efficiency," though spoken in reference to tax policy, is the perfect one-sentence rebuttal to Crook's fit of pique on free trade.

To anyone but another economist, it might appear that scales had fallen from Summers' eyes and he was belatedly struck by a truth so obvious that it scarcely needs pointing out. But free-trade zealots like Crook, in their monomaniacal pursuit of ever more goodies at ever cheaper prices, will have none of this sentimentality. To them, absolutely everything is a fungible commodity—including any workers who may be inconvenienced when their jobs are taken by slave-wage laborers halfway around the world.

As commentators like James Howard Kunstler have eloquently documented, the free-trade-driven "Wal-Martization" of commerce has devastated countless small towns across America, torpedoing not only once-vibrant downtown areas but an entire merchant class that provided both jobs and civic leadership for communities they lived in and cared about. The distant owners of the new Wal-Mart, situated 20 miles out of town on hundreds of acres of former farmland, simply cannot replace this human and physical capital in any meaningful sense. The boarded-up storefronts and factories stand in mute testimony to the homogenization and impoverishment of our culture as well as our economy.

But, as Summers acknowledges, traditional economists aren't very good at reckoning the costs of this shredding of the social fabric. The new mental health clinic that tries to help displaced workers mend their shattered lives goes on the economist's ledger as an unalloyed Good Thing; after all, it increases Gross Economic Output. Should an overstressed ex-employee be driven to a divorce, that too provides much-coveted "economic activity" in the form of lawyer's bills. Truly, the economist's calculator has no 'subtract' key.

Crook and his fellow trade boosters similarly fail to account for the steep environmental costs of the frenetic movement of goods around the world, or for its potential to enable terrorism, or for issues like food security (how comfortable are you with the fact that the food you eat has traveled an average of over 1,000 miles to reach your table?)

The entire free-trade paradigm in fact hangs by two increasingly frayed threads: cheap energy, and relative peace and stability in international relations. When the U.S. finds itself in a confrontation with China over central Asian oil, both of these threads will snap, leaving us wondering where on earth our next new toaster oven is going to come from.

Labels: , , ,