Free Trade and Intellectual Honesty

Yesterday, we featured a post from Dani Rodrik which observed that free trade doesn’t necessarily lower prices (it will lower prices of imports and increase prices of exports, so it depends on the mix of goods purchased).

What is interesting about the debate that unfolded is that it tells us something not just about free trade, but also about the nature of discourse in America.

As we learned courtesy Angry Bear, this was sufficiently heretical so as to earn a retort from Greg Mankiw:

When people complain about trade, it usually about the alleged job-destroying effect of imports. This partial-equilibrium complaint naturally encourages a partial-equilibrium retort: imports lower prices for consumers. The losses to producers in these markets are more than offset by gains to consumers from lower prices. True, the full story can only be told in general equilibrium, where it is relative prices that matter for the allocation of resources.

Dani did not take this lying down:

Now, neither of Greg’s arguments is exactly right. On his first point, there is no theorem that guarantees that the partial-equilibrium losses to import-competing producers “are more than offset by gains to consumers from lower prices.” My wheat-and-beef example in Argentina is exactly an instance where this supposition fails. And on his second, trade theory does not guarantee that real wages of workers rise as a result of free trade, as Stolper and Samuelson showed long ago. (Greg knows this of course, which is why he qualifies his statement by referring to the basic Ricardian model, which is a highly special model where labor is the only factor of production and gains from trade have to show up as higher real wages.)

But the real reason for this post is different. I want to take issue with the general philosophy behind Greg’s argument, which is that a less than full (and possibly misleading) story in support of your argument is OK as long as it helps disarm your opponents in public debate. His position seems to be this: Look, these anti-trade guys don’t understand comparative advantage anyhow, and it is pointless to waste our breath trying to explain it to them. So let’s instead argue our case in “their” language and within “their” framework. Never mind that Professor Greg Mankiw would flunk us if we ever gave the same answer in Ec. 10.

I am not sure I like this stance very much. For one thing, it goes against the grain of what I think is the most important job of economists in public debate–to educate and not simply to be an advocate. Second, it is bound to backfire, and ultimately undercut the credibility of economists….

There is a broader and potentially quite useful discussion to be had here on the manner in which economists should engage in the public debate. Many of my colleagues are of the view that economists should just stick to their bottom line, and not “confuse” the public with the caveats and limitations of their arguments. Moreover, since anti-market views have enough supporters out there, economists often see their role as one of unqualified advocacy of the opposite position. I tend to disagree with this, which is why I am often accused of “giving ammunition to the barbarians.”

While it’s great to hear Dani speak up for intellectual integrity, but (and no disreapect intended) consider the forum and the participants. They are both tenured professors having a pointed conversation on the Web. They can be more candid than just about anyone in public or private life.

Dani’s idealism is refreshing, but I wish he would widen his frame of reference. The quality of debate has degenerated in every area I can think of. While politics by nature is contentious, the debate has become more shrill, less fact based, less concerned about coming up with good or fair solutions and more interested in ideology and favored interests. And critical thought seems to be a dying art.

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One comment

  1. unlawflcombatnt

    While politics by nature is contentious, the debate has become more shrill, less fact based, less concerned about coming up with good or fair solutions and more interested in ideology and favored interests. And critical thought seems to be a dying art.

    I couldn’t agree more. Economists, especially Bush appointees, espouse theories and arguments that have little factual support, and are often illogical.

    The “benefits” of free trade are a perfect case in point. If an American company moves its production facilities overseas, and replaces $130/day American workers with $2/day foreign workers, it’s a net loss in American labor income of $128/worker. If the company doesn’t drop it’s prices enough to compensate for that $128/worker/day income loss, it’s a net loss to American workers.

    And, of course, they certainly do not drop their prices to that degree. If they did, there would be no labor cost savings by moving the job overseas.

    In reality, they drop prices the equivalent of a small fraction of the labor cost savings. The remaining labor cost saving goes into the profits of the multinational Corporation who moved its production facility to a cheap-labor foreign country.

    It’s completely illogical to claim that the cost savings from replacing domestic goods with imported goods is greater than the American labor income lost. Yet Right-Wing Corporatists, like Mankiw, continue to espouse this myth.

    Furthermore, to make Ricardo’s Comparative Advantage doctrine valid, it’s mandatory that the “factors of production” are not mobile across international borders (i.e., capital). As such, the Comparative Advantage doctrine has NO application when Corporate America can move its “production factors” across international borders.


    Economic Populist Forum

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