Thursday, October 11, 2007

Free Trade Ain't Free, and It Ain't Trade.

The Truth About Free Trade: Small Net Gain, Big Redistribution

Listen to this article Consider the ironies in the discussion of free trade. It's widely depicted by economists to be a good thing, and anyone who opposed it is considered to be economically illiterate. Yet the system we have deviates considerably from the free trade ideal and is more accurately called managed trade. And in this system of managed trade, other countries seem to do a better job of protecting their labor markets and achieving trade surpluses than we do.

In particular, Harvard's Dani Rodrik has shed a good deal of light on this topic. In one post, he set forth the conditions that have to be in place for trade liberalization to enhance economic performance (short answer, a lot); in another, he reviewed the analyses that claimed that our current trading system produced large economc gains and found the logic to be badly flawed.

The advocates of more open trade are particularly upset at the growing backlash against globalization, which they see as retrograde and self-destructive (funny how the same citizens who are viewed as savvy economic actors when they function as consumers are regarded as morons as far as their labor market attitudes are concerned). But if you are, say, an auto worker, being against more open trade is a perfectly sensible position.

The trade liberalization advocates would say that anti-trade auto worker and call center employees are simply selfish. Yes, they wind up as losers, but the collective gains outweigh the losses. But since there are not mechanisms to make sure the gains are shared, the losers have legitimate concerns.

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