Monday, May 07, 2007

Clash of economists over trade policy

In all the excitement over the JEE last week, I missed the really exciting discussion that went on (and is still going on) among economist bloggers over trade policy. Harvard economist Dani Rodrik started things off with a post on trade and procedural fairness:

Economists fail to appreciate sufficiently that globalization often runs into a procedural fairness roadblock.

Imagine some change in the economy leaves Tom $3 richer and Jerry $2 poorer, and I ask you whether you approve of this change. Few economists, regardless of their political and philosophical orientation, would be able to give a straight answer without asking for more information. Is Tom richer or poorer than Jerry to begin with, and by how much? What are their respective needs and capabilities? And what exactly is the nature of the shock that created this redistribution of income? It would be one thing if Tom got richer (and made Jerry poorer) through actions that we would consider unethical or immoral; it would be another if this was the result of Tom’s hard work and Jerry’s laziness. In other words, most of us would care about the manner in which the distributional change occurred--i.e., about procedural fairness. The fact that the shock created a net gain of $1 is not enough to conclude that it is a change for the better.

The discussion thread has been picked up by several others (including top bloggers such as Greg Mankiw, Tyler Cowen and Dan Drezner), and Rodrik has been busy responding to them in his rather young blog (which is less than a month old). Start with the above link, and work your way up. There's quite a bit of interesting stuff there (but it does get a little too technical at times). In a later post, he says something that is worth keeping in mind when we read our pink papers' unqualified support for this or that policy:

The point is that unconditional supporters of free trade take a whole lot for granted. Our professional training prepares us to be analysts who can make contingent statements. Policy A is good if conditions X, Y, and Z are in place. Rule-of-thumb economists sweep all the caveats under the rug, and in the end, are not true to their training.


  1. barbarindian said...

    Extending the Tom and Jerry analogy further, an interventioninst Government creates Toms and Jerrys. It is anybody's guess if the process can have any amount of semblance at all.

    Ideally the Government should stay the heck out and let the market decide, instead of tryng to play kingmaker.