Tuesday, January 15, 2008

Economics Prof Instructs NY Times

The editorial writers of the New York Times should arrange to take a refresher course on trade from Dani Rodrik, economics professor at Harvard University's Kennedy School. In the meantime, they can make do with a stern lecture from Rodrik about the flaws in a December 23 Times editorial titled "Trade and Prosperity."

"With most polls showing that voters believe trade with other countries is hurting the American economy, there has been a lot of posturing about the perils of trade on the campaign trail," the Times wrote. It then went on to express concern that Senator Hillary Clinton, rather than posturing, might actually be serious about a "time-out" to review all trade agreements, including the North American Free Trade Agreement, or NAFTA, her husband's prize trade package.

Newspaper Quick To Level 'Protectionist' Charge

Rodrik, author of the new book, "One Economics, Many Recipes: Globalization, Institutions, and Economic Growth" (Princeton), titles his December 23 blog entry "The NYT doesn't get it on trade." Here are the five points he finds wrong with the Times argument:

1. It automatically equates any desire to reconsider trade agreements and take a breather on new agreements as "protectionist."

2. It fails to recognize the ways in which technology and globalization interact to contribute to unequalizing trends in incomes, taking refuge in the defensive statement that "There is scant evidence that trade has played a big role in holding down typical workers’ wages."

3. It follows up this statement with "There is abundant evidence that it has contributed substantially to America’s overall economic growth," ignoring what every student of trade learns, which is that large gains from trade are possible only if there are also large amounts of income redistribution.

4. In portraying the conflict as purely one over incomes, it overlooks what is the greatest strain in the present regime of globalization -- namely, the incompatibility between the scope of markets (straining to become global) and the scope of regulatory institutions (still national).

5. And as a consequence, rather than accept the need to rethink the existing rules of the game, the editorial takes refuge in the same stale recommendations that every trade liberalizer has been offering for the last quarter century at least -- more safety nets, better training, and more progressive income taxation.
Rodrik adds that those ideas about the need for improving social insurance, while not new, need to be revitalized, as he himself urged in his 1997 book, "Has Globalization Gone Too Far?" (Institute for International Economics), and then continues on his blog.

But it is also time to recognize that the WTO rules need to become much more flexible to provide a better balance between international trade and domestic regulatory and other policy priorities -- in other words, to assure domestic electorates that their values and preferences are not being sacrificed to the demands of some globalization agenda constructed, in any case, by a narrow elite.

Rodrik posted the above entry. December 23, with two links referring to previous blog entries.

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