AB readers likely realize that I’m not a Lou Dobbs Democrat. So you might be surprised that there are a couple of points Lou makes in his latest that I agree with:
The political, business and media elites have called me a “table-thumping protectionist” because I want balanced and mutual trade, because I want this country to export as much as it imports.
With exports being less than 10.5% of GDP and imports being more than 16.2% of GDP last year, how could one disagree with this sentiment? This free trade advocate would hope that the trade imbalance would be closed by finding someway to increase exports rather than restrictions on imports. Menzie Chinn directs our attention to an interesting argument from Olivier Blanchard:
Yet, there appears a widely shared worry that these deficits are too large, and government intervention is required. My purpose, in this lecture, is to examine the logic of this argument. I ask the following question: Assume that deficits reflect private saving and investment decisions. Assume also that people and firms have rational expectations. Should the government intervene, and, if so, how? To answer the question, I construct a simple benchmark. In the benchmark, the outcome is first best and there is no need nor justification for government intervention. I then introduce simple distortions in either goods, labor, or financial markets, and characterize the equilibrium in each case. I derive optimal policy and the implications for the current account. I show that optimal policy may or may not lead to smaller current account deficits.
Blanchard is not only making the case for free trade in the absence of market distortions but is also pointing to the importance of thinking about the lack of national savings by the U.S. as we invest more than we save. Menzie points to his favorite distortions, which include central bank intervention, that is, the tendency for the Chinese Central Bank to keep its currency from appreciating. Reckless U.S. fiscal policy, as Menzie puts it, is likely why our national savings is so incredibly low.
While I wish Lou Dobbs would focus more of his frustration towards these two distortions, I tend to agree with this:
It seems nothing frightens our free trade and pro-illegal immigration orthodoxies more than putting the common good and the national interest above dominant special interests, corporate America and, of course, our darling elites in both political parties and the media.
The reason for my willingness to listen to this populist concern comes from some beating of the press from Dean Baker:
Educated people know that protectionism is bad – free trade is the way of the future, protectionism is the Neanderthal past. But, of course protecting intellectual property is good, and people who don’t support protecting intellectual property are bad. And, by the way, we never talk about the cost of protecting intellectual property. If anyone cared about consistency, we would have some problems here, but fortunately we have the NYT to guide us through this slippery terrain.
I’m suspect Lou Dobbs might pose the following question to the New York Times – why is protection for the elite good while protection for the middle class is bad? If he has not yet, let me pose that question.
Protectionism would be a disaster for both the United States and for the world’s developing countries. Democrats should resist falling into that trap. At the same time, everyone knows that it’s the well-off who mostly get the benefits from these deals while the working schmoes mostly take the lumps – with the constantly promised help for the losers never seeming to arrive. With that in mind, I imagine trade is going to be a hotter topic of conversation over the next couple of years than it has been recently, and I hope that Democrats can figure out some way to embrace trade while also doing something concrete to force the winners to share the gains with the losers. (And not just the “retraining” mantra, please. I’ve got nothing against training and education, but it’s wholly inadequate as a complete solution. We need a lot more than just that.)
Compensating the losers from trade! Yes, I do remember telling students about this utopian idea – with the usual response being something like, “have you ever seen politicians actually doing that?”