"Trouble With Trade" - Krugman 12/28/07

I find it refreshing that Krugman does not shy away from the issue of international trade by falling back on an exclusively economics argument. It is mostly true from a "pure" (whatever that means) economic argument that trade is a net benefit at the highest aggregation of stakeholders. It is, however, also true that even if the trade maxim that "trade will occur when it is mutually beneficial for both sides," does not offer guidance with respect to the component parts of the two sides involved in a trade. If the USA trades with Vietnam, economic theory says that both will gain something (The US gains cheaper goods, Vietnam gains the wages) -- but what it doesn't do is consider the effects on the individual within both units of analysis. Consider to whom the biggest benefit accrues in the case of a lower cost computer component. The less educated, lower wage American who used to make this part is a net loser as he/she doesn't have a job -- and their only benefit is to get a computer cheaper (which probably isn't high on the unemployed person's list). The more educated, higher wage American keeps his or her job, even if they are in the industry, because this is where R&D are done -- and they get a lower cost computer. This lower cost computer may only cost them 1.7% of their gross annual income instead of the 2.0% it would have otherwise.

I want to be careful not to sound overly protectionist, because I think that possibility is effectively off the table and that it unneccesarily rejects the basic economic rights of the individuals in lower wage countries. I think Krugman sums it up well with the following:

So am I arguing for protectionism? No. Those who think that globalization is always and everywhere a bad thing are wrong. On the contrary, keeping world markets relatively open is crucial to the hopes of billions of people.

But I am arguing for an end to the finger-wagging, the accusation either of not understanding economics or of kowtowing to special interests that tends to be the editorial response to politicians who express skepticism about the benefits of free-trade agreements.

It is tiring to listen to the "you don't understand" economics folks chanting at the thrown of free markets, and though I do not espouse all of the solutions proposed by the competing interests - I find this pulk-pull to be critically important for the contemporary political arena to hash out. Let us make sausage!