At first, the U.S. POW camps for captured Germans were dominated by Nazi’s who threatened and even killed anti-Nazi “traitors.” But as American thoughts turned to the post World-War II era the camps were cleaned up and a reeducation plan was begun. In other countries, this might have been a euphemism for torture and forced labor but in the U.S. camps it meant libraries filled with books that the Nazi’s had banned and open discussion sessions led by professors from Harvard, Brown, Cornell and elsewhere. The story is told in The Washington Post Magazine article, Learning Freedom in Captivity.

Here is one interesting quote:

By mid-1944, new leadership had been installed at Concordia and many of the worst Nazis had been removed. Concordia’s canteens and library were filled with books that had been banned by the Nazis. Treichl read and reread the American bestseller The Road to Serfdom by Friedrich Hayek, which detailed the flaws in socialism and contrasted it with democracy.

Treichl went on to become head of Austria’s largest bank and honorary president of the Austrian Red Cross. To this day he has kept his beloved copy of The Road To Serfdom.

I find this story heart-warming and a fascinating tidbit of history but it also troubles me. What are we to make of a reeducation camp with The Road to Serfdom as text? Clearly, we cannot dismiss such a thing as a contradiction in terms because apparently it did some good. More broadly, Hayek warns against the hubris of social engineering – yet what was the post WWII reconstruction of Germany and Japan but social engineering on a grand scale? How do these lessons apply to Iraq? Could we fail in Iraq precisely because we do not have the power to reeducate?

In a hard-hitting NYTimes op-ed, Nicholas Kristoff writes:

I’d like to invite Richard Gephardt and the other Democratic candidates to come here to Cambodia and discuss trade policy with scavengers like Nhep Chanda, who spends her days rooting through filth in the city dump….Here in Cambodia factory jobs are in such demand that workers usually have to bribe a factory insider with a month’s salary just to get hired.

Along the Bassac River, construction workers told me they wanted factory jobs because the work would be so much safer than clambering up scaffolding without safety harnesses. Some also said sweatshop jobs would be preferable because they would mean a lot less sweat. (Westerners call them “sweatshops,” but they offer one of the few third world jobs that doesn’t involve constant sweat.)…

The Democratic Party has been pro-trade since Franklin Roosevelt, and President Bill Clinton in particular tugged the party to embrace the realities of trade. Now the party may be retreating toward protectionism under the guise of labor standards.

That would hurt American consumers. But it would be particularly devastating for laborers in the poorest parts of the world. For the fundamental problem in the poor countries of Africa and Asia is not that sweatshops exploit too many workers; it’s that they don’t exploit enough.

Be sure and look at Kristoff’s heartbreaking audio-slide show, the Realities of Labor available at the above link, halfway down the right hand side. Hat tip to Life, Liberty, and Property.

Brad DeLong laments that international capital in the late twentieth century did not flow to poorer countries the way it did in the late 19th century. Tyler comments here.

The key point that I think Brad and Tyler both miss is that in the late 19th century a lot of the capital was flowing within the structure of the British Empire. Whatever its faults (and there were many), the Empire did provide investors with the rational expectation that their property would not be expropriated. More broadly, the capital flows of the 19th century were accompanied by flows of intellectual capital – in the form of the rule of law and similar institutions. Japan and the East Asian tigers show that it is possible for a country to adopt these institutions without the imposition of Empire but it is not easy.

My latest paper (written with Eric Helland) has just been published in Advances in Economic Analysis & Policy. If you don’t have access to this journal you can find the working paper version along with many of my other papers on the forthcoming and published papers section of my web site. Here is the abstract:

We reexamine Mustard and Lott’s controversial study on the affect of “shall-issue” gun laws on crime using an empirical standard error function randomly generated from “placebo” laws. We find that the effect of shall-issue laws on crime is much less well-estimated than the Mustard and Lott (1997) and Lott (2000) results suggest. We also find, however, that the cross equation restrictions implied by the Lott-Mustard theory are supported. A boomlet has occurred in recent years in the use of quasi-natural experiments to answer important questions of public policy. The intuitive power of this approach, however, has sometimes diverted attention from the statistical assumptions that must be made, particularly regarding standard errors. Failing to take into account serial correlation and grouped data can dramatically reduce standard errors suggesting greater certainty in effects than is actually the case. We find that the placebo law technique (Bertrand, Duflo and Mullainathan 2002) is a useful addition to the econometrician’s toolkit.

A colleague reminds me of this wonderful (1996-pre political commentator) essay by Paul Krugman, Ricardo’s Difficult Idea, explaining why some otherwise intelligent people find the idea of comparative advantage so difficult to understand.

I agree with the sophisticated points that Tyler makes above regarding free trade. The more basic point, however, is that contra Paul Craig Roberts and Charles Schumer, the theory of free trade does not rely on factor immobility. In fact, the theory shows that free trade and factor mobility have similar effects. Free trade in commodities tends to create factor-price equalization – i.e. the same prices for wages and capital of equal productivity everywhere in the world even when the factors themselves are immobile. But factor price equalization is exactly what would be produced by factor mobility. You can be against free trade or be for it but being against the theory in one form and against it in another is just wrong.