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November 15, 2006

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Paul Evans

One thing you shouldn't do is let people vote on stuff like this.

Get them to pick people that will be more sensible than they are instead.

Colman

Because people instinctively think that trade is zero-sum.

Steve Waldman

I've posted a lengthy response to this piece, though the title serves to answer Chris' question. Why is protectionism popular? "One word. Debt."

http://www.interfluidity.com/posts/1163620201.shtml

james higham

I should have thought the answer was obvious. The free trade arguments are a little esoteric [as distinct from the concept itself]. What is required is an economist who deigns to stoop to our level and spell things out in point form. An economist such as Chris Dillow. Hence your traffic.

John

Why is protectionism popular? Read some labor history, such as referenced below. You buy from "Third World Sweatshop, Inc." you give away the gains brave and frightened folks faught for and had their heads busted, and worse. Weekends, 40-hour week, occupational health and safety, vacations, anti-discrimination, etc., etc. Remember Tianenmen Square next time you think glowingly of all the cheap imported stuff we can and do cram into our lives.

Foner, Philip S., History of the Labor Movement in the United States: From Colonial Times to the Founding of the American Federation of Labor, New York: International Publishers, 1947.

Shuggy

"Read some labor history, such as referenced below."

John - Then read some economic history, of which labour history is but a part. Once apon a time the left supported free-trade under the slogan of 'cheap bread'. Now much of the 'left' has lost contact with those who have to worry about putting food on the table. Maybe that's the problem. Protectionism a good thing? Because the interwar period was such a blast, wasn't it? Mass unemployment, primary producers in third-world countries struggling to find markets for their goods, the rise of fascism. Post-1945? The long postwar boom was built on free-trade. That and the expansion of the state. Interesting that you should mention China without including the concrete historical fact that since Deng Xioping's opening of China to the rest of the world, we have witnessed, by the customary measures of economic well-being, the biggest quantatitive increase in human welfare in the entire history of the human race. Like, *ever.* This *and* cheap T-shirts for our kids. No wonder the Guardianistas disapprove.

P.S. Why is protectionsism so popular? Tends to reinforce the power of national ruling elites, for one thing. Look up 'Bismarck', 'Junkers', 'Germany' in a dictionary of economic history.

Mark EJ

Because there is something distasteful in the fact that many countries' comparative advantage lies in their dirt cheap labour pools.

It's true that if more capital was invested in said countries, returns to labour would increase. But competition between countries and ever-increasing labour supply may offset any benefits.

AntiCitizenOne

Because comparitive advantage has never ever been taught to the average person on the street. I guess because most teachers lean left and want to teach economic intelligent design (centrally planned economics).

tom s.

- because even if free trade is a "potential pareto improvement" that's only at the level of countries. And who cares about that? I don't know why the proponents think this argument seals the deal.

Given that there are losers, it would be amazing if there were not opposition, and somehow the proponents never say what those losers should do. Be happy? So there is a natural source of (very sensible) opposition - so I guess I agree with (1).

Gracchi

Whatever you do don't take this out of the hands of the people- that way leads to instability.

I'd suggest its as you say Chris because the gains aren't obvious and the losses are and because a significant numebr of people resent foreigners and use this issue as an acceptable way of being xenophobic.

but you are right we do need more things to strengthen the losers- in the end it strikes me it comes back to what Blair said in 1997 that the solution is education because the most flexible workforce is the one in which old industries can phase out and their workers adapt to new industries.

Andrew Zalotocky

Chris, one possible conclusion from this debate is that you should write a book about economics for the popular market. Something that starts with the absolute basics, so it is easily accessible to people who know nothing about economics, and then covers all the major issues that regularly arise in public debate. You already know what needs to be explained because it's the things you've been blogging about.

angry economist

Protectionism appeals to partisan politics and bigots, and is useful for those who are into crude nationalistic xenophobic patriotism.

It also protects the corporate elite, who think its in their interests to have protected markets, but probably also have stacks of offshore financial accounts too.

you would do well to do a simple analysis of the impact of free trade on prices for household goods. e.g. prices of computer games and guitars are still in nominal terms around what they were in the 1980s when I stared at them through shop windows but was too brassic to afford them.

John

Which "economic history" should we read, i.e., from whose point of view?

Let's distinguish between "protectionism" and open "fair trade." Trade among countries with comparable labor, environmental, social and political standards is wonderful. I'm happy that the US trades with Canada, the EU, Australia, NZ, Japan, etc. But when companies can sidestep the higher standards found in these more affluent and progressive nations, you've created a race to the bottom, seems to me.

Perhaps what we need, ultimately, are enforceable international standards. That would be progressive globalization, not xenophobia, and not globalization meant to release corporations from their labor contracts.

dearieme

The milkman and I would both be poorer if I stopped buying his milk and tended my own cow. Why would a foolish action suddenly be sensible if my metaphorical milkman happens to be a foreigner? Is protectionism the form of racism that The Left licences? Do you know, I think it might be. Confirmation will arrive when I read some lefty explaining that free trade is a Zionist conspiracy. Or is that what they mean when they complain about financiers and middle-men?

triplet

Did I miss something? You ask "Why is protectionism so popular even though economists know it's a bad idea? " Before you even get to that sentence you've linked to the William Keegan article which in turn references the Larry Summers article which you yourself then quote - Which bit of the Summers quote did you not understand? Look - here it is again "If you've lost your job, lower prices are little solace." Now I'm not an economist, so maybe it's possible that things work differently for those that are (How many economists have lost their jobs due to globalisation?) but for the rest of us, losing our livelihoods is a pretty big thing.

In return for this minor short term inconvenience ( no job, no relevant qualifications to get a new job due to complete dissappearance of that industry in country of residence, but, hey, we could always retrain and start again from the bottom. Because I have a lifetime spare). The best the free trade economists can offer us is the doctrine of comparative advantage that seems to assume that "something will come up - every nation/region/continent will find it's own special skill". To my ear this sounds dangerously like something out of a fairy tale - "Yes, Veronica, every girl shall find her handsome prince". I've not met Veronica for a while, but last I heard she was living alone with cats.
Ahem, - a somewhat tortured analogy, but where is the paper showing that every nation will definitely find a specialisation that can keep it in the manner to which it is accustomed (or wishes to become accustomed). And secondly, where is the paper that shows that the social cost of the almighty upheaval necessary to move the planets industries around is less than the end gains?

Don't get me wrong - I don't doubt that your free trade would bring around greater riches in the long run, but this particular posting is a perfect example of why good economists make poor politicians.


Shuggy

"Which "economic history" should we read, i.e., from whose point of view?"

Just about any from anyone's point of view. Most economic historians agree that a) free trade is generally a good thing with the caveat b) countries making the transitiion to industrialisation or from the Soviet model benefit from protection in the short-term. Where is the 'race to the bottom' to be seen in China, an example you referred to? There hasn't been one. How much lower can you go than the Great Leap Forward? You can't. Certainly not by going to Tianamen Square. And is the critique of the EU not that it is trade diverting rather than trade creating? It's not a particularly profound intellectual point, I agree - but in many cases, those calling for 'fair trade' are really calling for properly free-trade and it is wrong to juxta-pose the two in opposition to each other.

John Konop

Economists Are Destroying America

Economists, politicians, and executives from both parties have promised American families that “free” trade policies like NAFTA, CAFTA, and WTO/CHINA would accomplish three things:

• Increase wages
• Create trade surpluses (for the US)
• Reduce illegal immigration

Well, their trade policies have been in effect for about 15 years. Let’s review the results:

• Declining real wages for 80% of working Americans (while healthcare, education, and childcare costs skyrocket)
• A record-high 46 million Americans who don’t have health insurance (due in part to declining wages and benefits)
• Illegal immigration out of control
• Soaring trade deficits, much with countries that use slave and child labor
• Personal and national debt both out-of-control
• Global environments threatened by lax trade deal enforcement

Economists Keep Advocating Policies That Aren’t Working

Upon seeing incontrovertible evidence of these negative trade agreement results, economists continue with Pollyannish blather. Some say, “Cheer up! GDP is up and the stock market’s doing fine.” Others say, “Be patient. Stay the course. Free trade will raise all ships.”

Even those economists who acknowledge problems with trade agreements offer us only half-measures—adjusting exchange rates, improving safety nets, and providing better job retraining. None of these will close the wage gap in America—and economists know it.

Why Aren’t American Economists Shouting From Street Corners?

America needs trade deals that support American families and businesses in terms of wage, environmental, and intellectual property abuses. Why aren’t economists demanding renegotiation of our trade deals? There are three primary reasons:

• Economists are too beholden to corporations and special interests that provide them with research grants.
• Economists believe—but refuse to admit—that sacrificing the American middle class is necessary and appropriate to generate gains in third world economies.
• Economists refuse to admit they make mistakes.

Economic Ambulance Chasers

Now more than ever, Americans need their economists to speak truth and stand up to their big business clients. Instead, economists sound like lawyers caught chasing ambulances: they claim they’re “doing it for our benefit”.

tom

America should dump free trade and become more like the economic powerhouse North Korea.

Chris Gordon

Quote: "The gains from free trade are dispersed - lower prices for everyone. But the costs are concentrated - (temporary) job loss for a few."

That doesn't have to be the case. From the 1940s until the 1980s, temporary, small-scale unemployment in Britain was mollified by a strong welfare state.

The reason free trade is unpopular is that it's become associated with poor economic models. In Britain, for instance, both "Keynsianism" and "Thatcherism" support free trade, yet its more associated in the public mind with the latter. Thus, it's associated with the mass, long-term unemployment, industrial decline, spiralling cost of living and reduction in welare and public sector utility that characterised the 1980s, rather than the full employment, industrial expansion, strong growth and productivity, rapid increase in living standards and strong welfare state that characterised the post-war decades.

Perception is key. In the post-war era, protectionism as rightly associated with the 1930s, a time when Britain experienced mass unemployment and even, in some areas, famine. In the 1970s and 1980s, the post-war era was itself recast as somehow protectionist, and the experience of the 1930s passed from the collective conscious as that generation died off. The disastrous economic reorganisation of the 1980s became intertwined with the concept of free trade. If free trade is associated with a period of decline, it's bound to be less popular than it should be.

The most important way to combat opposition to free trade would be to get back to basics on the issue. Make it clear that free trade is not incompatible with welfare, central planning and public ownership, things which allow the benefits of free trade to be distributed more widely. Reverse the Washington consensus' redefinition of protectionism to include these things.

nz conservative

You have to have regulation somewhere in the equation- nothing man-made is self -regulating.

If you don't have managed immigration the working class won't benefit from free trade.

Similarly, if you don't have some welfare people won't tolerate the dislocating effects that often come with free trade.

Finally, to benefit from a free trade system countries need to invest public money in research and development - otherwise things like the internet wouldn't exist.

Jay Rao

So what your piece is trying to say is that its all upto each individuals standing in society and how it affects whether they opt for free trade or protectionism.

John

I look at the issue a little differently. It could be that the popular instinct is correct, when I wider perspective is taken. That is when people say something is good or bad, they think about their society and the level of social trust in it. Social trust is diminishes with open boundaries.

So there are a couple of issues here. 1) what is the overall impact on well being? 2) does lowered social trust have an impact on economic output. 3) how does this differ by economic status?

Economically, the argument for protectionism is not zero sum -- but it's relative wealth.


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