One question I have about the Free Trade consensus is, what about Japan, South Korea, and the United States? As far as I know, these three countries represent the greatest success stories for how to transform poor, agrarian nations into industrial power houses. And as far as I know, all of them did it by flouting free trades rules. America had high trade barriers throughout its industrial development, as did Japan. South Korea engaged in mass subsidizing of local business. All of these tactics violate free trade norms, and all seem to have produced the greatest examples of economic development in the history of the world.

Incidentally, the only free trade success story I'm aware of is Chile. But if it's a question of pitting the Chile model against the U.S., Japan, and S. Korea models, the Chile model doesn't even come close.

I mean this as a genuine question: How do free traders persist in arguing that protectionism kills, when protectionist policies have served a critical role in the most successful economic developments in history?

Great to have so many quality people talking about this in TPMCafe.
As with all things it is a bit complicated, but the crucial thing here is the political dynamics. Free trade agreements have winners and losers. There are ways to make it so that the gains by the winners ameliorate the losses to the losers, but politically they are often seperate - and the losers need the leverage. Ideally, with better leaders it could be clear how to proceed on a grander bargain for everybody, but as it is, politically, these are zero sum games, and the actual existing propsed agreements carry with them lots of baggage for entrenched interests.
I agree with everything you have written in principle, but I am not sure that you have laid out a politcally feasible roadmap.

The reason (one of them at least) for the liberal objection to so-called "free trade" has little to do with economic efficiency.  Distribution is traditionally more of a liberal concern than efficiency.  The chief problem seems to be related to the "entrenched interests" you mention.  Whether protectionism or free trade serves these interests better seems to me a toss-up, since they are normally first in line for the newly available global contracts (not to mention the multi-nationals).  What promoters of free trade have to address, the biggest problem liberals have, is the massive power imbalance created when a highly capitalized corporation from a highly developed nation takes as its workforce the labor classes of a developing one with little or no civil rights institutions protecting them.

As for the label "progressive," please don't play coy with rhetorical questions like this: "And what in the world is 'progressive' about trying to hold back the forces of history, anyway?"  You've made an assumption that free trade, as envisioned and implemented under the current globalization regime, is an inevitable force of history.  Any thinking progressive-liberal will recognize that nothing is inevitable, and sometimes historical forces may work against the progress of justice.

To benefit from the lessons of history, we must transcend history, not just react to it.  Mindless creatures might only have the capacity to react, but we are not mindless.  I would hope not, at least.

I am a Christian.  Would I consider not being a Christian because the KKK called themselves Christians (I'm an African-American, and yes, I'm offended by the KKK), or because the Crusades were carried out by Christians, or because the religious right call themselves Christians?  Of course not.

History doesn't define socialism.  Marx didn't define socialism.  The Soviet Union and Communist China and Castro's Cuba didn't define socialism. Socialism is an ideal, not a history.   And it happens to be an ideal that Jesus Christ himself espoused.  That's why I'm a socialist.  And I have to transcend history in order to do so, just like I have to transcend history to be a Christian.

From each according to his ability, to each according to his need. 

Yes, it's called the "Marxist Creed," but I think Marx plagiarized the New Testament to come up with it (we know which came first, I would hope), and I think it should be the motto of progressives, not just their vision for the future.

Sometimes the best ideas for the future are the best ideas of the past.  How many of us question the wisdom embodied in the US Constitution - I certainly don't, despite the fact that it had to be amended to treat me as something other than someone else's personal property, and if not property, than someone deserving only 3/5s of a vote.

Progress is adapting the best ideas of the past to make them better, not just dismissing them because of the errors of history.  Dismissal is reaction; adaptation is transcendence.

Mr. Blinder makes some sound economic arguments (although it is tiresome to hear economists always touting the benefits of free trade like it's Gospel), but as a last commentor stated, the real problem comes with the "entrenched interests" comment.  Blinder is correct to argue that liberals traditionally favored free trade, as Democrats from Woodrow Wilson and Franklin Roosevelt saw it as a way to shape up large industries and provide for lower prices.

Today however free trade is hard to evaluate just as an idea.  The "trade" agreements put before Congress are full of pork and protectionism.  Restrictions on ag imports, restrictions on drug imports, and giveaways to big Business.  To call this "free trade" is to promote an old myth.

In the wake of CAFTA and the collapse of the FTAA, we need to start over again on international trade.  Trade talks have died in an interest group friendly fervor.  Closed commerce is NOT an option, but in the days of China and huge trade deficits, we should discuss some liberalzing policies and some restricting policies. 

The reader who brings up the question of power imbalances is making a very valuable point. Liberals, hopefully progressives, are mindful not only of progress, and historical trends, but also of justice, especially for the most vulnerable. While opposing a seemingly inexorable trend may seem quixotic, I have to wonder how justice is served by the exploitation, by wealthy multinational corporations, of workers everywhere.

Another point I'd like to raise is this, the conflict between the nearly limitless ability of multinational corporations to reduce and/or eliminate their dependence on workers, especially American workers, and the fact that real living humans are limited in their ability to adapt to the changes forced on them by the corporations. We have often heard the word "retraining" used to counter concerns over American workers who lose their jobs to Chinese workers, but there are severe limits on the actual real-world value of training.

First of all, there is the question of who will pay. IMO it should be the company that moved the jobs to China.

Second, there is the regrettable fact that some - perhaps many - people simply cannot absorb additional training or education, for any number of reasons. They were well-suited to the jobs they had, and those jobs are simply gone.

Thirdly, even for workers who can be successfully retrained, who will hire them? What happens to the semi-skilled worker who loses his job at age 50, or even 40? That worker is going to find it hard to get hired no matter what new skills he acquires, due to age discrimination on the part of employers. There is little or no real legal remedy for this, and yet the hard fact is that people do get older.

Are American politicians obliged to take into account the well-being of the residents of China, and India? Or is their obligation confined to those who live here, in America?

 http://bluepeople.typepad.com

Why is it that economists and policians of all stripes ultimately agree that the solution to everything is "growth".

The only thing that separates them is which course of action will lead to growth either faster or better.

The US right now has enough "stuff" that growth is not needed. What is needed is a reallocation of the wealth we already have. First government wealth needs to be shifted from the military/police sector to the human services and infrastructure sectors. With a military budget which is equal to the rest of the world combined we have distorted our economy and made it less efficient and less competitive.

The same thing goes for personal wealth. We have allowed a small minority to gain control of so much of the wealth and political power in this country that it has increased poverty, lowered educational achievement, made health care less efficient and caused excessive indebtedness by the middle class as it attempts to maintain the standard of living enjoyed by the previous generation.

So everyone proposes growth, as in: "a rising tide lifts all boats". There is no evidence that this has ever been true. It is just a way of offering hope in the future for those at the bottom in the present. The UK decided to equalize wealth during much of the 20th Century and ended up with a better society as a result.

With the cost of elections so high only the rich and those supporting business interests can raise enough funds to run. As a consequence only these points of view get expressed by elected officials. Why economists support this type of false hope is an interesting question.

We could provide everyone in this country with a decent lifestyle without any "growth" if we just decided to use our resources more equitably. 

Finally, growth is unsustainable. We are already seeing the first signs of running out of "stuff".

My 2 cents here:

A No Growth Economy 

This may seem off the topic of trade, but trade is just another way to promote "growth" at the expense of someone elsewhere. Having gutted our middle class we are looking for new worlds to conquer.

Niko, currency is finite is not a useful view.  Currency is finite, but it's not fixed.  In the US, the banking system, starting with the Federal Reserve, adjusts the supply of available currency every single day.  And that changes its value.  The money you have in your pocket (if any) doesn't have the same value today that it did yesterday.  Indeed, it's value isn't even defined until it is used in a transaction.

Designing and writing computer operating systems is my bag, and resource allocation is one of the fundamental problems of operating system design and implementation, if not the fundamental problem. And I can tell you that a model of resource distribution in which the parties hoard bits and pieces of the totality of available resource is not just a bad idea, it's an unworkable idea.  Anyone who has had exposure to OS design knows that effective resource allocation requires central pooling of resources, and allocation policies to deal with potential shortages in that pool.

Economies are operating systems.  Capitalism is the stupid way to design an operating system, because a system so designed can and likely will be stopped dead in its tracks not even by a shortage of resources, but by an inappropriate distribution of resources.  We have a name for this stoppage in computer science - it's called deadlock. Deadlock is likely the most serious problem in computer science, to be avoided at all costs. A capitalist economy, however, not only doesn't work to avoid it, it acts as if its not possible.

Consider the economic phenomenon of insurance.  Insurance is pooling of resources, made purposeful in situations where no single individual actor in the system might be expected to have the resources to deal with the purchase for which the pool is formed.  Insurance is not capitalism, it's socialism, by the way.

Why, ultimately, do capitalist economies always have to be growing?   Because growth is their only escape valve regarding resource allocation problems.  But it's not good enough.  Not even.

Seems to me that every expectation Mr. Blinder has for progressives would more likely be found in a libertarian.  Or maybe it's that we should stop setting up straw men in the form of labels.  Perhaps what's required is a political belief and expression which no longer depends on slick answers but on (oh dear, are we allowed to use this word again?)...  nuance. 

It's true that the phrase "forces of history" doesn't warm my heart. 

"Forces of history" aren't persuasive reasons for, say, free trade. "Free trade" is often not really free.  It is not always empowering to the many. If you're serious about history, you have to admit that one man's "progress" has too often been at the expense of another man's setback. The progressives I know therefore don't call anything progress which requires sacrifice from the many for the advancement of the few.

We are all increasingly aware -- along with the psychologists and sociologists -- that for such a fortunate society, America has become a society of increasing depression and anomie.  So the answer lies not in whether Bill Gates takes his idea and does it in India, depriving us of Microsoft.   Microsoft, after all, behaved like a cookie monster and is probably still fighting suits stemming from its bullying.  In that very real sense, Microsoft and others of its ilk do not represent "progress" except in a strictly limited technological sense.

Progressives don't want bullying, over-consumption, anomie, depression, huge gaps between rich and poor, not even if it makes their downloads faster and their coffee stay hotter longer.  It's not that all of these things are necessarily the result of free trade, it's just that they're the way "free trade" is being misused by an oligarchy and excused by those who have the wherewithal to take pride in  consumption and display..  The progressives I hang out with recognize that.  The right wing just abhors us.

GREAT post Kuvasz (Mr Mill).

"Creative destruction"?

Well, in the small southern towns where industry has moved overseas and left communities depressed and jobless, the army is finding it's best recruiting area....not because the young men and women want to fight in Iraq, but because they have no other options.

.....and so they are sent into "the gap" (Thomas P Barnett's name for the area of the world that resists globalization) to fight a 30 year war.

The "forces of history". Please. Forced globalization (Muslim world & Latin America) has nothing to do with the will of the people....and everything to do with an idea supported by capitalist elites that rationalizes the destruction of social systems as "creative"...and cites "the poor" as an excuse for kicking people to the curb.

"The Poor" in Bolivia seemed to like the status quo.

Marx was mentioned in the discussion....and more than once I've wondered if the globalization folks aren't Marxists. After all Marx did say that society had to go through the capitalist stage before attaining communism....and it would be a global revolution. He later modified his theory to exclude the desert cultures of the ME.

Professor Blinder keeps forgetting some important parts to his equation promoting "free trade".

In general, exchange of goods and services from a more efficiently producing economy to another benefits both parties. As has been remarked often, cheaply produced jeans in China benefits US because more people can afford to buy and wear them. Cheaply produced IT enabled services (doctors office transcripts, radiological readings) in India benefits US consumers of healthcare.

Some, like senator Charles Schumer have argued that this "Ricardian Principle" does not hold when factors of production are also movable between countries that are involved in the exchange. The basic idea is that by freeing US labor to do more "value added" knowledge-based work, cheaper labor in India and China on mechanical routine work is beneficial. After all, we all would like to have someone come clean our houses, do our laundry, mow our lawns rather than spending time doing it ourselves. But perhaps even this argument about movement of factors of production is not correct. Jagdish Bhagwati and others have shown that in their earlier work.

The key question is:

Is there a way to assure that we get the highest returns on the US knowledge assets, and is there a way to assure that those returns are broadly enjoyed?

This is where the answer is NO. The amazing profits for Wal*Mart are not shared, particularly by that segment of society that is being hurt by its moving to cheaper manufacturing in China. For the longest of time, while the manufacturing base was being moved off-shore, we lamented the loss of these "mechanical" jobs, but like Prof. Blinder says, decided not to wade in against the "tide of history". But now with the internet bringing down the barriers to the transfer of knowledg across boundaries, the "knowledge industry" is also being undermined in US, and now middle class America is waking up to feeling the downside of the distribution. If the software worker in Silicon Valley had huge investment portfolio that included Wal*Mart & HP (and the oil companies these days), then he/she would not feel the loss of that job to outsourcing. Does Bill Gates care whether his appreciation of MSFT stock comes from jobs primarily in Beijing and Bangalore? Why should he?

But Joe Americain does not benefit from the MSFT dividends or the looting by the oil companies. At the same time, Joe Americain is out of his nice software job, and is probably looking at applying to Wal*Mart for one of their sales associate jobs, since all that is left in town are these.

Prof. Blinder's premise is false. Progressives (whatever value judgement is attached to that word) are protesting this loss of geographical control of US knowledge assets, putting US prosperity at risk. 

I've found a few hyperlinks regarding googling "population budget" yet they were not for America, they were for a few other countries that used that term.

http://www.brillig.com/debt_clock/

The debt clock shows that we are dependent on population since a decrease in population increased each person's share of the debt.

I realize that isn't too scientific.

I want to thank you Professor for contributing to this website. Economics is one of those subjects that many liberals and progressives are illiterate about and the more liberals with specialized knowledge in this field that can contribute some wisdom on this the better. Unfortunately, no amount of information will convince those who are the most reactionary and willfully ignorant. The issue of liberalized trade as it relates to progressives  is not unlike the issue of creationism/intelligent design and how it relates to conservatives.

Please don't go out of your way, but TPMcafe could use alot more people with economic literacy here to help get progressives straight on economics and trade. So invite your friends!

With no grow and a growing population you are likely to lead to an explosive social situation.  More people dividing a relatively shrinking pie is potentially very dangerous.  Furthermore, it is not obvious to me that people in general and certainly Americans don't want to be free to choose what they want and thus growth facilitates that choice.

As a veteran of the WTO protests in Seattle, I can tell you that progressives are teeming with fair trade alternatives to corporate free trade, alternatives that would not stifle progress but, rather, would direct progress in ways that promote smart economic growth AND economic justice AND ecological health.




Really? I would love to know what those "alternatives to corporate free trade" are. I've never heard anti-WTO types talk about ANYTHING that is even halfway coherent on the subject.




I'd be curious to know what sort of trade would somehow EXCLUDE those eeeeeevil corporations that are now supposedly the exclusive beneficiaries of free trade.




As I see it, there are at least three main issues in the trade debate. First, with an expansion of trade comes an expansion in the amount of job turnover. Anti-free traders look at job losses and say that expanded free trade is bad (conveniently forgetting both the expanded payrolls in other organizations AND the lower prices that are enjoyed by all). Pro-free traders add up the pluses and minuses and argue that on the whole, we come out ahead. If free-traders are reluctant to acknowledge the costs of free trade, anti-free traders are almost always reluctant to acknowledge the benefits. And the benefits are almost always greater than the costs.




A harder case to rebut is that trade doesn't just destroy any jobs, but rather it destroys many good jobs. Manufacturing jobs that pay well and allow non-college graduates a shot at a middle class life are being eroded and free trade is one of the things that is doing the erosion. It's hard to deny this, but it is also hard to deny Prof. Blinder's assertion that technology is a much larger disruptive force than trade and you don't see too many Luddites these days attacking Intel plants. So the question has to be asked: why is technology good but trade bad?




The last issue has to do with the fear that free trade will inevitably mean the domination of the weak by the strong. Poor countries will be awash in American brands and those will be the ones who benefit. Again, leaving aside the issue of lower prices for people, the main objection to this view is that it totally misunderstands how multinational companies operate. People tend to go to poor countries, see the familiar brands like Coke, Pepsi, Marlboro and Nike and say, "How horrible! All those local companies must be getting creamed." What they fail to recognize is that global brands like Coke are far and away the exception in international trade. The vast majority of multinational companies go into a local market develop local products adapted to local tastes, hire local people to manage them and try as hard as possible to blend in to the local scene. It's just that the most visible, prominent companies are often exceptions to this rule.