In any period of economic transition there are upheavals at various levels, and winners and losers (at least in the short term). We live in just such an age today in North America, as we move from an industrial to a post-industrial information and service economy, from isolationism to increased globalization. There’s no doubt that there have been some industries and regions that have been more directly affected than others (both positively and negatively).

Michigan, for example, has been one of the most manufacturing-rich states in the nation for the last century, and has been running record unemployment numbers for the last decade or so, as manufacturers move to more friendly economic environments, both within the US and without. Not least of these factors contributing to Michigan’s competitive disadvantage is the high labor costs associated with a labor union-laden state.

The perception that manufacturing workers are simply being left behind in the new economy is pervasive, such that popular opinion is shifting away from free trade. As Fortune magazine reports, “A large majority – 68% – of those surveyed in a new Fortune poll says America’s trading partners are benefiting the most from free trade, not the U.S. That sense of victimhood is changing America’s attitude about doing business with the world.”

As an aside, this is a perception that doesn’t quite match up with the typical caricature of globalization. After all, how can both America (as the “imperial” dominator) and the developing world (as the exploited poor) both be made worse off by international trade?

If it were truly the case that global trade weren’t mutually beneficial, that would be one thing. What’s visible on news reports everyday are the layoffs, buyouts, and unemployment levels in the US. What isn’t always so visible is the extent to which Americans depend on the low prices associated with many imported goods. One group you might think should know better than the average American about such complexities are professional economists.
But economists are people too, and they don’t live (typically) in an isolated bubble hermetically sealed off from the rest of the world. Popular concerns about free trade are bound to influence their thinking at some level or another. And now we have word that, following the resurgence of popular concerns, economists too are “rethinking” free trade (here are two responses to the BusinessWeek piece).

According to BusinessWeek, “Economists are, however, noting that their ideas can’t explain the disturbing stagnation in income that much of the middle class is experiencing. They also fear a protectionist backlash unless more is done to help those who are losing out.” That latter fear is really the one that is driving most concrete policy proposals.

And it shouldn’t be much of a surprise that where both the voters and the experts go, the politicians won’t be far behind. Thus we have proposals about extending unemployment benefits, increasing and augmenting government training programs for displaced workers, and even blatant calls for income redistribution.

A great deal of this is coming to a head in the debate about the economic stimulus package being debated currently by the Senate. A major point of disagreement between the package passed by the House (with White House endorsement) and the versions under consideration in the Senate is whether the stimulus package should include payments only to people who pay taxes (House version) or to everyone (Senate version). The Senate’s version also includes extending the term of unemployment benefits.

In defending the House’s version, Speaker Nancy Pelosi has said that she would love to stand “on the streetcorner and hand out checks,” but that the focus on this package needs to be particularly on taxpayers. Sending checks from the government to people who don’t pay taxes (income, FICA, or SS) is nothing more than a thinly veiled redistribution scheme, and even though she presumably supports such a scheme, Pelosi doesn’t want debate about it to bog down the passage of the stimulus package.

Dartmouth’s Matthew J. Slaughter, an international economist who served on President George W. Bush’s CEA, has called for “A New Deal for Globalization,” which BusinessWeek describes as a “form of income redistribution to spread the gains from free trade to more workers.” So the payoff of all this may not be so much an increase in isolationist and protectionist trade policies, but in a radically increased role for government welfare programs.

I think we have to take the concerns of those who are displaced by layoffs and outsourcing seriously, but if I have to measure the proportion of my concern between a North American worker who has typically had years, and perhaps decades, of employment at a level allowing for them to live comfortably and save if they so choose, and a person in a developing country that has had no such opportunity, there isn’t much of a choice at all. The situation of an unemployed worker in the US is qualitatively better (and no real comparison in the end) than their unemployed counterpart in a developing nation.

Letting a preferential option for the poor in the developing world influence our trade policy would move us toward more liberal trade agreements and away from protectionism. Economists need to do a better job not only understanding but also communicating the tangible benefits of free trade (as David Ranson does here). And religious leaders need to focus not only on the situation of workers in their congregations but on the suffering of fellow Christians and the plight of the poor around the world.

  • Angela–an economist

    I loved reading your comment in “Economists are People Too” and agree with many of the points you made but disagree with some. I am an economist and so I can relate to all the issues your comment addresses, and I can take it a step further because I am a Neuroeconomist–one who evaluates economic decision-making through the understanding of the human brain.

    Your comments are well taken about the consideration of the global poor when making judgment about international trade. However, I have a problem too with the consideration of the global poor. We cannot both be concerned about our “imperial” wellness of “us” *and* also about the wellness of those who are not “us” in this country. Economics teaches us that we have tradeoffs driven by scarcity – the very reason why economics exists as a study.

    If we had no scarcity, we could provide for the well-being of others without the associated cost to ourselves; there are opportunity costs associated with sharing scarce wealth with more and more people. Thus, what I am trying to say, we cannot both be feeding more and more mouths without having less to eat ourselves; the size of the pie is fixed.

    Free trading was established to benefit both us and the others–those less fortunate and still developing nations. The problem we are facing is that of equilibrium. When a rich and a poor trade, by necessity the rich will become poorer and the poor richer – unless, of course, the rich uses tools of the “imperial” and not of the human. But in spite of the “negative” trading at this point, we also reap the benefits of free trade.

    Though we lose jobs in the US because the cost of US labor is so high, we receive cheaper goods in return and those people with no jobs now or with jobs that pay less than before, can retain their standard of living as a result. Imagine if we did not trade freely with other countries and the jobs did not leave the US. Assume this scenario for the moment. We could not purchase cars made in any other country but in the US; we could not eat any fresh fruits in the winter because all those come through free trade from the other side of the world where it is summer then; we could not purchase clothes for our kids for $5 a piece but would cost us well over $30 for the same good.

    What level of jobs would you think you would need to have to sustain a country as vast as ours on goods manufactured with huge union wages? There are two sides to every coin, I suppose it is human nature to choose the side to look at that requires fixing without looking at the other side.

    The other side of the free-trade coin is the no-trade at all. That is because no country would want to pay tariffs to sell something in the US if the tariffs will increase the price of those goods to so high that no consumer would ever buy them! With tariffs, *all* trade with *every* country would automatically stop in short order and the US would be left to fend itself on too short a notice. Such action would not be to our benefit but to our detriment.

    As for the tax rebate… that is one more economic argument that has 300 years of history. I personally think that there should be no tax rebate at all. Rather than tax rebate, I think the money should go to schools to afford a better education to our young. As a university faculty, teaching lower level classes to incoming freshmen and even to later year students, I can tell you that the US is facing a major catastrophic outcome not because of free trade and lost jobs, but because our 20-year old students pull a calculator for 5*2. Now *this* is going to be a problem of massive economic magnitude to solve in the next 15 years!