Free Trade, and a stupid NY Times contributor. (Dennis)

I was reading the New York Times this morning and came across this column by Steven Landsburg about how we should treat the gains from free trade. For those too distrustful of the liberal media to click over, the writer suggests that we oughtn't compensate the losers from globalization because....well...he really doesn't give a reason except a moral intuition developed through a series of bizarre analogies that go along the lines of “you wouldn't compensate the local diner for your patronage at McDonald's, would you?”

My intent really isn't to respond to the column, because I think it is actually the dictionary definition of “straw man” but rather to explain why we might want to compensate the diner, and why we might want to restrict free trade in the first place.

As an economist by training, I'm very receptive to the argument that free trade (and on the international level what is collectively called “globalization”) is generally beneficial to all parties involved. Intuitively, if two parties freely agree to a trade and have good information about the trade, then we can probably agree that such a trade should be allowed and not restricted except where there are mitigating circumstances. Less intuitively, it is only through trade between humans that we can achieve specialization, and it is only through specialization that we can achieve a modern economy (see Adam Smith's pin factory and Landsburg's example about growing your own food).

Trade is more complicated than that, though. Among the varied complications is the fact that there is always a third party to trade between countries in a globalizing era, those country-men and women of yours who are being displaced by foreign workers. The fact that getting cheaper products from other countries for many Americans ends up putting a few Americans out of work is the most politically controversial aspect of globalization in the United States. What are we to do about it then?

The idea that has launched a thousand talk shows (I'm looking at you, Lou Dobbs) and the political campaigns of innumerable candidates is that we should simply stop the trade and protect the workers. This is appealing to me, but there are so many problems with it. For one, if you think our image around the world is terrible now, try drastically cutting off the ability of other countries to sell their goods to us and sinking them into a depression. Second, this would make Americans significantly poorer as a whole, if we can only produce things expensively we'll be making less of them, so everyone will have to do with less, from wealthy importers with top hats and monocles to the poor who buy clothes made in China from Wal-Mart.

Another approach is the “tough!” approach suggested by the author of the column. I think this is pretty uncaring and immoral for intuitive reasons, but, moreover, this is just penny-wise and pound foolish if you are a proponent of free trade. Free trade is politically troublesome because its benefits are disperse while its harms are concentrated. So even though, as I believe, the benefits generally outweigh the harms, the people who are actually voting on these issues are the people who get harmed. If you want free trade to ever have a chance, you can't screw over the losers in the bargain, because eventually your pro-trade forces get voted out.

So how might we help out the losers in the globalization game? Training and education of workers has been suggested. I think this is generally a good idea, but it isn't the whole answer. Skills aren't easily transferrable, that new internet startup or biotech firm isn't hiring a 45 year old former mill worker who just completed a two year degree at a community college over a recent 4 year college graduate. In some cases, the person will end up worse off, in terms of jobs, no matter what we do, and the people who will end up heartbreakingly worse off will not be the monocled steel plant owner, but the worker.

I don't think there's an easy complete answer to what we do when confronted with this problem, but I do think there are some easy beginnings. First, we ought to slow down approval of new free trade agreements until a system can be put in place to even out the gains from globalization. Second, as part of such a system, we have to provide a modern social safety net that includes universal healthcare not tied to your employment (I would prefer single payer), more extensive unemployment insurance designed to help those who have been displaced by globalization, and, in general, a greater redistribution of wealth from those at the top of the income scale (who have benefitted so much from recent freer trade) to those at the bottom shifted into worse jobs by outsourcing (perhaps with something along the lines of a larger earned income tax credit). Third, we ought to subsidize research into new technologies that could eventually translate into industries that replace the old jobs we lost (the template here is the Internet).