An Important Post

I just read Kash’s American Street post, and I encourage you to do so as well. Kash and I have often argued that free trade is a good thing: while there are winners and losers, the net benefits invariably outweigh the costs so the losers can be compensated and there will still be money remaining. That argument is invariably met with, to put it mildly, skepticism by our readers. Brad DeLong frequently makes the same arguments, with the same results.

This skepticism comes in two forms. The first simply refuses to believe that it can ever be better to pay workers in other countries, rather than in the US, to produce the goods that we consume. It’s very difficult to argue with such people; even pointing out that their logic implies that we would be better off if we were still an agricultural-based society accomplishes little. The second line of skepticism grants the long run and overall benefits of free trade, but points out that we never actually compensate the losers. For instance, in a recent post Atrios wrote

And, all such arguments [for free trade] ignore the transition effects. Some temporary employment/underemployment can result as regulations, technology, and terms of trade change. The industry-specific skills of workers can suddenly be devalued, negatively affecting both them and potentially the overall productive capacity of the economy. Labor force participation may decline for years, as discouraged workers drop out of the labor force.

Economists need to stop having a fetish about the “size of the pie.” It’s one measure of welfare, but it isn’t a particularly meaningful one. Absent policies to temporarily offset transitional effects and minimize distributional consequences, “free trade” is just a fetish. [emphasis mine]

In his American Street post, Kash outlines a policy that would “temporarily offset transitional effects and minimize distributional consequences,” which is why I encourage you to take a look. Given the prominence of trade-related job losses in the news (though in truth, the economy is the bigger culprit), a program like the one Kash describes might even be popular in the general election.


P.S. Where do the candidates stand on trade? We know Bush is against free trade. On the Democratic side, Kerry is a more pro-trade than Edwards:

Edwards told reporters after a speech at the College of Charleston that Kerry had voted for the North American Free Trade Agreement and other trade pacts that had helped cost Americans their jobs. Edwards was not in the Senate when NAFTA passed, but he has said he would have voted against it.

“Senator Kerry and I have very different positions on the issue of trade,” said Edwards