The Everyday Economist

Tyler Cowen has written an excellent piece in the New York Times about the food crisis. Here is the conclusion:

Lately, it’s become fashionable to assert that, in this time of financial market turmoil, the market-oriented teachings of Milton Friedman belong more to the past than to the future. The sadder truth is that when it comes to food production — arguably the most important of all human activities — Mr. Friedman’s free-trade ideas still haven’t seen the light of day.

Read the whole thing.

Nicholas Kristof on the desirability of the proposed free trade agreement with Colombia.

The Financial Times editorial board has joined the fray:

Trade policy has no effect on net employment: you can as easily have full employment, or chronic unemployment, under autarky as under free trade. The purpose of liberal trade is not to “create jobs” – the term is a badge of economic illiteracy – but to change the pattern of work and raise living standards overall.

Indeed.

Once again, economic nationalism is all the rage during an election cycle. Barack Obama and Hillary Clinton seem to have devoted much of the last week vociferously denouncing NAFTA and free trade in general. However, the true question is whether either of them actually believe what they are saying. For example, our friend Jimmy P. at U.S. News highlights a quote on globalization from Obama’s book:

We can try to slow globalization, but we can’t stop it. The U.S. economy is now so integrated with the rest of the world, and digital commerce so widespread, that it’s hard to imagine, much less enforce, an effective regime of protectionism. A tariff on imported steel may give temporary relief to U.S. steel producers, but it will make every U.S. manufacturer who uses steel in its products less competitive on the world market…. U.S. Border Patrol agents can’t interdict the services of a call center in India, or stop an electrical engineer in Prague from sending his work via email to a company in Dubuque. When it comes to trade, there are few borders left.

That hardly sounds like his rhetoric from the last several weeks. So either Obama doesn’t believe what he wrote or he doesn’t believe what he is saying. I think that it is the latter. He knows that by winning Ohio next week, he inches closer to pushing Hillary Clinton to the status of an also-ran and thus he is pandering to the economic unease of Ohioans. Additionally, economists of all stripes seem to agree that NAFTA is not the cause of Ohio’s economic woes (see, for example, Angry Bear and Mark Thoma) and there is no doubt that this group includes Obama’s economic advisor Austan Goolsbee.Meanwhile Steve Chapman highlights the myths about NAFTA:

What everyone forgets is that we got the best of that bargain, since our tariffs were very low to begin with.”Mexico had very good access to the U.S. market” already, says Charlene Barshefsky, who was U.S. Trade Representative in the Clinton administration. “What NAFTA did was level the playing field.” Critics complain that while exports to Mexico have risen, imports from Mexico have risen even faster.But that’s not because we embraced free trade. It’s because our economy has been more robust than theirs. Prosperous consumers buy more goods, from both home and abroad, than struggling consumers. Absent NAFTA, the trade imbalance with Mexico would not be smaller. It would be bigger.

Let’s hope that a President Obama’s views on trade would be more like those from his book and less like those in his recent speeches.

The Financial Times reports:

Increased trade, outsourcing and offshoring do not create unemployment but boost the number of jobs in advanced economies, a study of European labour markets says on Tuesday.

The European Economic Advisory Group, a consortium of European academics organised by the Munich-based Ifo Institute, argues that although globalisation can lead to a fall in demand for certain types of skill, it also tends to sweep away job-destroying rigidities in labour markets.

The evidence from the group’s work suggests the positive effects of globalisation outweigh the negative effects.

Eduardo Porter writes:

Last week, tens of thousands of poor Mexican farmers marched down Mexico City’s fancy Paseo de la Reforma demanding that Nafta be reversed, their cows and donkeys occasionally taking a nibble from the grass along the median strip. Florida’s sugar barons sent their lobbyists to Capitol Hill.

This shared outrage underscores how egalitarian free trade is: undermining inefficient producers who survive behind protective barriers, be they fabulously wealthy sugar producers in Florida or campesinos on tiny plots in Michoacán.

Read the whole thing.

John Steele Gordon writes:

But so far, and despite waverings on the margins, it remains the fact that the Republican party, long the champion of protectionism, is now essentially the owner of the ideology of open trade, while the mainstream of the Democratic party, a party founded on that ideology and proudly identified with it for virtually its entire existence, is in the process of a stunning reversal.

True, Democrats do not flat-out oppose lower barriers to trade, or flat-out endorse explicitly protectionist measures. Instead, their views are usually couched in terms of environmental concerns and workers’ rights. Congressional Democrats, for instance, will claim that they are not against free trade; they just insist on provisos in free-trade agreements that no sovereign nation could possibly accept. [Emphasis added.]

HT: Bryan Caplan

Alan Blinder writes:

Increasingly, Americans seem to be losing faith in globalization. Why?

One very old reason is that the jobs destroyed by international trade are far more salient than those it creates. And with our huge trade deficit, imports do seem — as a matter of arithmetic — to be destroying more jobs than exports are creating.

But think about that simple arithmetic for a moment. We do not yet have full data for 2007, but in 2006 imports exceeded exports by a whopping 5.5 percent of real gross domestic product. Because jobs are roughly proportional to real G.D.P., it is tempting to conclude that trade “destroyed” 5.5 percent of all American jobs. Yet the unemployment rate in 2006 averaged 4.6 percent. Are we to believe that, if trade had been balanced, the unemployment rate would have been 5.5 percentage points lower — making it minus 0.9 percent?

Many Americans are justifiably distressed about rising income inequality, but foreign competition gets far too much of the blame. In fact, the best and most comprehensive studies of the inequality question assign international trade only a bit part in the drama. The main protagonists are all domestic, including changes in technology, the decline of unions, failures of public policy and changing social attitudes toward inequality.

Dan Klein writes:

Adam Smith said the division of labor is limited by the extent of the market. He saw that productivity increases when work is subdivided and specialized. But specialization only makes sense if the market is big enough to reward the investments and risks in specialized production.

Free international trade increases the extent of the market. International buyers and sellers thicken the market, and make the markets for specialized goods more competitive and reliable. That’s what makes further specialization justified in the minds of entrepreneurs. They go forward with specialization, and they enhance productivity. They make things used by people the world over.

That’s why we all gain from increases in the extent of the market. Large, thick, international markets invite the productivity investments, and the result is better stuff at lower prices for all of us.

Read the whole thing.

Also, for those interested, I have previously written about the division of labor here.