My question for Dani Rodrik

Politics works better in some areas than others.  Fairfax County has wonderful parks, libraries, and schools.  French politics has brought about a good health care system.  There are many other examples.  The mechanisms are various and often involve accident.  Sometimes governments luck into good institutional arrangements.  Sometimes a far-sighted visionary is at work.  Tiebout competition, or efficient Beckerian bargains across interest groups, may kick in.  Sometimes the median voter rules, that median voter is a good judge of outcomes, and what is good for the median is good for the nation as a whole.  Sometimes venal interest groups control politics, yet the desires of those groups happen to coincide with welfare maximization.

We can, in principle, rank policy areas along a spectrum.  Assign a "10" to the most efficient policy-generating areas and assign a "0" to the least efficient.  Don’t worry too much about what the scale means, this is Blog Land.

Where do you put trade restrictions along this scale? 

I give them a 1.5, at best a 2.  I think trade restrictions are hardly ever generated by processes which coincide with the general welfare.  I view trade restrictions as almost always motivated by the classic, crude "diffusion of costs, concentration of benefits"  logic.

If we redefine the problem more broadly, it could be said that trade policy as a whole gets an 8 or a 9.  Most of the wealthier countries, agriculture aside, have fairly free trade, as they ought to.  But what if we focus on evaluating only the quality of the trade restrictions?  How good are the restrictions we get in tracking the ideal welfare-improving restrictions?

I say 1.6438.  That is why I think Bhagwati is essentially correct to be fighting "the last war."  What is your number?

Comments

Sounds about right. The theoretical best-case welfare-maximization is pretty small, the likely downsides pretty large, and the public-choice risks approach certainty. This is one of those cases where active policy could improve outcomes, but most likely won't, to the extent that the best policy is not to even try.

If you include in the term "trade restrictions" domestic support (i.e. as wealthy countries do when they are operating through the IMF, or when they are negotiating at the WTO and don’t happen to have strategically valuable domestic support in the particular sector under discussion at that particular moment in time), then the number must rise. Sometimes some kinds of large scale infrastructures with public goods characteristics are good for the economy over the long term, as are stable political institutions (i.e. predictable rules of the game).

Sometimes it is even good to help badly educated and poorly equipped farmers in starving countries by subsidising inputs that will improve productivity. Or you can have them grow peanuts of course, no reason why that shouldn’t work.

Trade restrictions alone is a 2, but targetted import restrictions along
with export promotion seemed to work well for Japan and its emulators.

How do you evaluate trade restrictions when they are used to allow industries with significant economies of scale and rapidly falling prices to become establish in the domestic market and achieve these advantages that could not be achieved without the restrictions? We have seen this happen often in Asia markets such as in Japanese autos or Korean semiconductors.

There is a wide variety of research that show this type of policy has allowed government support to generate a comparative advantage in industries that in turn leads to these industries being low cost exporters. Modern economic theory behind this implies that the old classical economic concept of comparative advantage as a static, unchanging concept does not apply to many modern industries where advanced economies usually export very similar products to each other.

As Bryan Caplan argues in his new book, efficient policies are unpopular because they make it clearest, what
the policy is actually doing. For example, a simple tax on investment to give cash payouts to union
members would be very unpopular, while the extremely inefficient labyrinthine labor laws are nearly
impossible to get rid of.

Where does this belief come from that French politics has brought a good health care system? I'm French and Tyler Cowen is like the only "libertarian" who praises this system. And as someone who is doing "field research" it seems pretty weird as well.

Great post except the throwaway stuff at the beginning.

How would we ever know whether Fairfax has "wonderful parks, libraries, and schools" from an policy point of view? The statement is likely true only in the sense that most wealthy suburbs have attractive parks, libraries and schools. No facts about costs are offered. Are the parks a wise use of land? It is hard to imagine that a majority of Fairfax taxpayers use and value their libraries (though we know Tyler is an intensive user).

(And Sécessionniste's challange should be answered as well.)

Fairfax County competes for young families of means, so it is in a competitive market with other upscale counties. Because Fairfax County residents are less destructive of public goods than are the residents of poorer counties, this means public goods are cheaper to provide exactly where they are less needed. This leads to what I call the Welfare State for Those Who Don't Need the Welfare State.

Property taxes in Fairfax County are very high. A few months ago I was mailed a budget of Fairfax County, and it is far from a shining example of good government. Like the French healthcare system, Fairfax County government is expensive...can't forget that.

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