Wednesday, June 11, 2008

Rodrik-Cowen Trade Smack Down

Tyler Cowen argued in the New York Times that fear of international trade is basically irrational in-group loyalty, which implies a fear of outsiders, and thus, trade. He argues these fears are unfounded, because the effects of trade with outsiders is no different than the effects of productivity increases at home. Dani Rodrik responded with the argument that people really fear competing with those who play 'unfairly', giving the example that if he lost his job to a psychologist who was allowed to use torture to elicit preferences, this he feels, would be unfair, even if this evil academic produced valuable work. More concretely, Americans don't like competing with countries where they have fewer regulations, less worker safety, environmental protection, etc.

I think you can dismiss Rodrick's argument by noting that Americans are just as wary of imports from Canada, Japan and Europe, as they are from imports from Mexico, China, and Africa. Cowen alludes to this in his rejoiner.

I think it's mainly the Buchanan targeted benefits-diffuse costs story. The issue is not so much Americans are against free trade, but at the margin, every import has a strong group of supporters for quotas or tariffs, and a broad group against such quotas and tariffs. The logic implies that the people who give money, lobby, and vote on this issue are always against tariffs. General arguments on the principle of free trade are to abstract for most voters.


Anonymous said...

Re your last paragraph: You should look into Brian Caplan's work on voter irrationality. In "Myth of the Rational Voter" he finds surveys that demonstrate that it isn't public choice theory as much as it is specific biases (Anti-market, anti-foriegn, make-work and pessimistic bias). An example of anti-market bias that seems to directly conflict with public choice theory is that even voters outside of farm country think farm subsidies are a good idea.

Anonymous said...

All the professions, trades, and other licensed businesses have significant barriers to entry that allow such practitioners to drive up cost for everyone else. Their wages have risen or done better than rising costs. All the others without these things now must compete against cubicle dwellers in India or factory workers in china. Is it not suprising that a few realize what a raw relative deal they are getting?

I bet, and this is a guess, very few earn a high wage without some type of government created protectionism helping them along. Entrepreneurial activity, to the extent it is genuinely market driven, seems to be the exception. However, that is profit, not a wage, and not equivalent.

If the above is at all true, it does not surprise me the average Joe who is not a doctor, lawyer, in a regulated trade, etc is threatened by trade. The hypocrites are those in protected professions that then rail against the average guy who is concerned about losing job to overseas workers, and what a fool he is for not seeing that “trade benefits everyone”. Ha, ha. Yes, it benefits those who are not truly in the competition with trading partners and who see those who are as costs to be reduced.

Eric Falkenstein said...

Interesting point on entry. Indeed, profits should be zero everywhere, and there are huge barriers to entry for economics professors, lawyers, lawmakers. I think everyone in skilled labor finagles a barrier through specialization, then accreditation. I think most economists think barriers to entry in terms of these routes are legitimate, though libertarians like Friedman alway have been against licensing, while tariffs or quotas are not. But you are correct, in that anyone making $100k+ has some barrier to entry, because generally there are 10 guys who could do his job for half but aren't given the opportunity.

As per Caplan, I thought it was an interesting read, but I don't buy the mass ignorance assertion. I just think most people empathize with farmers, or unskilled labor, and figure, its a small price to pay in terms of costs to the consumer. These costs are generally underestimated as zero, but in actuality the add up.

Anonymous said...

That seems incorrect, the barriers are too low to matter. Consider that the median salary for attorneys, accountants and economists are under $100,000 but many make more than $100,000. What is the barrier to entry between the 2 benchmarks? Industriousness and maybe some connections.

Its not the $100,000+ jobs that’ll get shipped off if the guilds are broken, its the low end jobs.

Nat said...

in response to that "other "anonymous"... It is not just a matter of "barriers" in terms of education requirements, competition, expensive schooling, etc.

It is restrictions on competition that essentially prevent nearly form of innovation from taking place in how these services are provided.

And its not just lawyers, doctors, and the other usual suspects. Its electricians, plumbers, propery surveyers, and a bunch of other trades that the elites may think of as "nothing much" but to the average wage earner, have a very sweet deal relative to what their actual value would be on a free market where innovation and competition really set prices. It is the stiffs with none of these advantages not blessed with above average intelligence that have to compete on the "global market".

Anonymous said...

If we removed the barriers to entries for medical professionals, then the % of GDP spent on healthcare would go down.
That may be true (above), but I'm glad anyone who is going to ask me to turn my head and cough has been trained, licensed and certified.