This Global Show Must Go On

Here is my NYT column on globalization, excerpt:

Despite all these gains, the prevailing intellectual tendency these
days is to apologize for free trade. A common claim is that trade
liberalization should proceed only if it is accompanied by new policies
to retrain displaced workers or otherwise ameliorate the consequences
of economic volatility.

Yes, the benefits of a good safety net
are well established, but globalization is not the primary source of
trouble for most American workers. Health care problems, bad schools
for our children or, in recent times, bad banking practices have all
produced greater disruptions – and these have been fundamentally
domestic failings.

What’s really happening is that many people,
whether in the United States or abroad, are unduly suspicious about
economic relations with foreigners. These complaints stem from basic
human nature – namely, our tendency to divide people into “in groups”
and “out groups” and to elevate one and to demonize the other.
Americans fear that foreigners will rise at their expense or “control”
some aspects of the economy.

One approach is to appease these
sentiments by backing away from trade just a bit, or by managing it, so
as to limit the backlash. Giving up momentum, however, isn’t
necessarily the right way forward. If we are too apologetic about
globalization, we can feed core irrationalities, instead of taming
them. The risk is that we will frame trade as a fundamental source of
suffering and losses, which would make voters more nervous, not less.

Do read the whole thing.  A few further points of note:

1. Virtually all of the "second best worrying" about trade could be applied also — in fact more so — to technical progress.  Or to trade across the fifty states.  Yet when it comes to foreigners, the worries acquire a more dangerous credibility.  That is the real second best problem, not any theorem you might derive about trade and externalities.

2. I don’t see the evidence that marginal strengthenings of the safety net will diminish anti-foreign statements.  Yet this has become an article of faith among the globalization "middle roaders."  A crude look at the cross-sectional evidence does not indicate a clear pattern.  France and Germany have a strong safety net but they are skeptical about economic globalization; Sweden and the Netherlands are more sympathetic.  Switzerland, with a weaker safety net, is pro-globalization for the most part.  Like Will Wilkinson and unlike Bryan Caplan, I am for a safety net but often a bigger safety net makes people even more fearful of loss and change.  Note it is the Bismarckian welfare state, the world’s most advanced at the time, which turned to The Dark Side during the 1930s.  I’m hardly suggesting causality here but it didn’t halt the process either.

3. Yes I know about Denmark but job retraining programs in the U.S. hardly have a stellar record.

4. When it comes to improving the quality of economic adjustment, the overwhelming priority should be to delink health insurance from having a job.  I doubt if that will decrease skepticism about foreigners, however.

5. Most of the world’s wealthy economies are, if only because they are smaller and less diversified in terms of resources, more open than is the United States.  They do just fine and by no means do they all spend more on social welfare than does the United States.

6. Cite Samuelson and Stolper all you want, here is yet another paper showing that outsourcing has not been placing significant downward pressure on American wages.

7. China is now the world’s leading supplier of photovoltaic cells. 

But it is really the first point that is the key.

Addendum: Brad DeLong comments extensively.


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