Saturday, March 20, 2004
Hoist on their own petard
Conservatives are having a very hard time justifying free trade these days, not because it cannot be justified, but because the toolkit of conservative economic arguments lacks the right tools for the job. It is fairly easy to convince yourself that free trade increases the amount of good and services produced, the simplest measure of aggregate material wealth (and let's for the moment assume that's what we care about; it will capture the jobs debate, if not the environmental, cultural, or defense sides of the trade debate). Economists all do this using a 19th century theory that still makes sense. But any reasonable version of this theory suggests that there will usually be (in each country) both winners and losers from trade---it's just that the winnings outweigh the losses (in each country).
A conservative must despair at this. They want to support a policy that increases average welfare, but how to sell it to the losers? They can muster only vague promises that "innovation" will somehow make everyone a winner, or that the solution is yet more "flexibility" (even though it is flexibility in markets that allows losers to lose). Hence the pathetic rhetorical efforts by the Bush administration to repair the damage from CEA chair Mankiw's support of outsourcing.
A liberal free trader, though, sees the solution in government. Simply skim off some of the winnings, and use them to compensate the losers. Then everyone ends up at least as well-off materially. This is hardly news, and many argue that this sort of compensation scheme to deal with the side-effects of trade underlies the large European welfare states. And it is true that most European countries maintain much higher levels of international trade than the US, without falling into chaos over the issue of trade and jobs.
But I'm writing this note not to rehash an old trade topic, but to point out how intellectually threadbare the conservative position has become. In Saturday's NYT, a former George H. W. Bush economic advisor grapples with the (related) fear that cheaper and cheaper machines will squeeze out labor:
http://www.nytimes.com/2004/03/19/opinion/19BUCH.html
Buchholz should hit this out of the park: cheaper machines mean more production and material wealth. Find a way to share it, and everyone is better off. This is good news, at least for those who care primarily about material wealth (and I presume economic conservatives tend to be in this camp). But instead, Buchholz can do no better than to pathetically hope that
(An irony: would this conservative oppose innovation that made workers wholly redundant, despite the great increase in wealth and leisure this would provide? Is his defense of innovation undermined by too much innovation?)
Beyond this distinctly uncomforting statement, Buchholz' only policy recommendation is to cut the welfare state:
This (silly) debate about cheap capital is fundamentally similar to the outsourcing of jobs debate: what do we do when a change in technology allows us to have more, but at the price of eliminating someone's job? The obvious answer is to compensate the loser---not to cut worker's benefits and social insurance. Virtually all industrialized countries have learned this lesson, and have preserved capitalist systems in the face of a massive increase in international trade. I don't think the US will become protectionist anytime soon, but I suspect the conservative recommendation to cut social insurance would only make protectionism more likely. And then we would all be worse off.
A conservative must despair at this. They want to support a policy that increases average welfare, but how to sell it to the losers? They can muster only vague promises that "innovation" will somehow make everyone a winner, or that the solution is yet more "flexibility" (even though it is flexibility in markets that allows losers to lose). Hence the pathetic rhetorical efforts by the Bush administration to repair the damage from CEA chair Mankiw's support of outsourcing.
A liberal free trader, though, sees the solution in government. Simply skim off some of the winnings, and use them to compensate the losers. Then everyone ends up at least as well-off materially. This is hardly news, and many argue that this sort of compensation scheme to deal with the side-effects of trade underlies the large European welfare states. And it is true that most European countries maintain much higher levels of international trade than the US, without falling into chaos over the issue of trade and jobs.
But I'm writing this note not to rehash an old trade topic, but to point out how intellectually threadbare the conservative position has become. In Saturday's NYT, a former George H. W. Bush economic advisor grapples with the (related) fear that cheaper and cheaper machines will squeeze out labor:
http://www.nytimes.com/2004/03/19/opinion/19BUCH.html
Buchholz should hit this out of the park: cheaper machines mean more production and material wealth. Find a way to share it, and everyone is better off. This is good news, at least for those who care primarily about material wealth (and I presume economic conservatives tend to be in this camp). But instead, Buchholz can do no better than to pathetically hope that
Human workers are not yet an endangered species. After all, somebody needs to operate the equipment — or at least turn on the coffee machine.
(An irony: would this conservative oppose innovation that made workers wholly redundant, despite the great increase in wealth and leisure this would provide? Is his defense of innovation undermined by too much innovation?)
Beyond this distinctly uncomforting statement, Buchholz' only policy recommendation is to cut the welfare state:
Congress could make it less costly to hire workers by reducing the amount an employer is required to contribute to Social Security taxes for new employees. Then managers might be less likely to view a job applicant like a walking bill from a collection agency.
This (silly) debate about cheap capital is fundamentally similar to the outsourcing of jobs debate: what do we do when a change in technology allows us to have more, but at the price of eliminating someone's job? The obvious answer is to compensate the loser---not to cut worker's benefits and social insurance. Virtually all industrialized countries have learned this lesson, and have preserved capitalist systems in the face of a massive increase in international trade. I don't think the US will become protectionist anytime soon, but I suspect the conservative recommendation to cut social insurance would only make protectionism more likely. And then we would all be worse off.
