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Sunday, June 08, 2008

Follow-Up to "This Global Show Must Go On"

In my response to Tyler Cowen's column on globalization, I concluded with:

Telling people they just don't understand how much trade benefits them is just as likely to produce a negative backlash as it is to convince people that their views are wrong.

Brad DeLong comments:

But if their views are wrong, we are under an obligation to try to convince them that their views are wrong--that globalization is at most a bit player in the rise in inequality within the United States, if it is in fact true that it is at most a bit player.

Then he follows up with a lengthy (and well worth reading) discussion of the winners and losers from trade.

Looking at it again, my concluding sentence was sloppy. I meant to say that trying to convince people that trade has helped them when it hasn't is likely to produce a negative reaction. I didn't intend to leave open the possibility that it might have helped the working class on net, they just don't know it (recognizing, as in the original post, that the consequences of technology and globalization are hard to separate so that my definition of the impacts from trade is likely larger than that used by both Tyler and Brad, e.g. is emailing work to a foreign country attributable to technology or increased openness? -- perhaps both, but in what proportion?). Brad's discussion is about whether trade really is "bad for the greater part of the citizens" of the U.S., and he goes through the conditions under which this would and would not be true. His position is that workers may, in fact, be misperceiving costs and benefits from trade and, if so, that economists have an obligation to convince them that they are wrong. The key factor here, and one where there is disagreement among economists, is the net distributional impact of trade and technology on working class households.

(There are actually two debates, one is over the total benefits from trade which I believe are relatively large, though Dani Rodrik would disagree. The second is over the distributional impact, i.e. who the winners and losers are, and I believe this been unfavorable to the working class when all the costs, including reduced economic security, reduced health care coverage, etc. are taken into account. The question I was addressing is the best strategy to pursue is if you want to avoid a backlash and preserve the large overall benefits of gloablization for the U.S. and the world more generally, telling people that they are wrong about the benefits, or finding ways to distribute the gains more broadly.)

Tyler also adds more:

A few further points of note:

1. Virtually all of the "second best worrying" about trade could be applied also -- in fact more so -- to technical progress.  Or to trade across the fifty states. Yet when it comes to foreigners, the worries acquire a more dangerous credibility. That is the real second best problem, not any theorem you might derive about trade and externalities.

2. I don't see the evidence that marginal strengthenings of the safety net will diminish anti-foreign statements.  Yet this has become an article of faith among the globalization "middle roaders." A crude look at the cross-sectional evidence does not indicate a clear pattern.  France and Germany have a strong safety net but they are skeptical about economic globalization; Sweden and the Netherlands are more sympathetic. Switzerland, with a weaker safety net, is pro-globalization for the most part. Like Will Wilkinson and unlike Bryan Caplan, I am for a safety net but often a bigger safety net makes people even more fearful of loss and change. Note it is the Bismarckian welfare state, the world's most advanced at the time, which turned to The Dark Side during the 1930s. I'm hardly suggesting causality here but it didn't halt the process either.

3. Yes I know about Denmark but job retraining programs in the U.S. hardly have a stellar record.

4. When it comes to improving the quality of economic adjustment, the overwhelming priority should be to delink health insurance from having a job. I doubt if that will decrease skepticism about foreigners, however.

5. Most of the world's wealthy economies are, if only because they are smaller and less diversified in terms of resources, more open than is the United States. They do just fine and by no means do they all spend more on social welfare than does the United States.

6. Cite Samuelson and Stolper all you want, here is yet another paper showing that outsourcing has not been placing significant downward pressure on American wages.

7. China is now the world's leading supplier of photovoltaic cells. 

But it is really the first point that is the key.

    Posted by on Sunday, June 8, 2008 at 11:43 AM in Economics, International Trade, Policy, Social Insurance | Permalink  TrackBack (0)  Comments (13)

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