Right in the Short Run

In the past few days, we’ve gotten two tasty treats of trade skepticism. The first comes from Dani Rodrik, who has always been a bit heterodox. Here’s an excerpt:

The Cheerleaders’ Threat to Global Trade: [N]o country’s growth prospects are significantly constrained by a lack of openness in the international economy. … Closed markets may have been a fundamental problem during the 1950s and 1960s; it is hard to believe they still are. The greatest risk to globalisation is elsewhere. It lies in the prospect that national governments’ room for manoeuvre will shrink to such levels that they will be unable to deliver the policies that their electorates want and need in order to buy into the global economy.

Globalisation’s soft underbelly is the imbalance between the national scope of governments and the global nature of markets. A healthy economic system necessitates a delicate compromise between these two. Go too much in one direction and you have protectionism and autarky. Go too much in the other and you have an unstable world economy with little social and political support from those it is supposed to help.

The article has been mentioned at MaxSpeak and Brad Delong’s site. Perhaps one of the ways that the liberalizers go to far is by refusing to limit the scope of liberalization. The case for opening to trade is far stronger than the case for opening to international capital, but liberalizers insist that the two go hand in hand. A larger problem is the notion that free traders should support free trade agreements, even though these agreements require signatories to take on policies that have nothing to do with trade, like recognizing intellectual property and opening to foreign investment.

Next up is Alan Blinder:

Pain From Free Trade Spurs Second Thoughts: Mr. Blinder, whose trenchant writing style and phrase-making add to his influence, remains an implacable opponent of tariffs and trade barriers. But now he is saying loudly that a new industrial revolution — communication technology that allows services to be delivered electronically from afar — will put as many as 40 million American jobs at risk of being shipped out of the country in the next decade or two. That’s more than double the total of workers employed in manufacturing today. The job insecurity those workers face today is “only the tip of a very big iceberg,” Mr. Blinder says.

…

[H]e says the harm done when some lose jobs and others get them will be far more painful and disruptive than trade advocates acknowledge. He wants government to do far more for displaced workers than the few months of retraining it offers today. He thinks the U.S. education system must be revamped so it prepares workers for jobs that can’t easily go overseas, and is contemplating changes to the tax code that would reward companies that produce jobs that stay in the U.S.

I am skeptical that we can identify which jobs won’t be going offshore. There are some that clearly won’t be leaving — plumbers, mechanics, and so on — but others for which it will be unclear whether offshoring is possible. Should we really discourage people from going into these uncertain fields of work?

Does anyone remember the supposed death of the information technology worker? Supposedly there were too many computer guys and programmers chasing jobs that would only tomorrow be entirely outsourced to India and the Czech Republic. While many programmers still worry that their job will leave them for another continent, the IT slump went away shortly after the economy emerged from the 2001 recession. The lesson I took from watching this happen was that the media frequently overstates the degree to which industries are susceptible to international migration, and that an industry can experience outsourcing while still growing domestically.

But I think Professor Blinder’s point about revamping the education system is an important one. This is particularly relevant for people whose jobs were outsourced. While Trade Adjustment Assistance is good, a large scale worker retraining program could be very helpful for those who lose, or fear losing, from international competition.

For much better informed commentary, there is Andrew Samwick, who discusses the Blinder article, and Brad Delong, who reposts nearly the whole article for your reading enjoyment. Also see Greg Mankiw.