Roberts and Autor do a very good job of zeroing in on why free trade might not be good, and why it might not have been good in the case of China. The reason is distribution - trade can hurt some people, especially if the government is not perfectly efficient in using redistribution to cancel out the distributional effects of trade (which of course it never is). This has been known for a long time, but economists often wave their hands and ignore distribution.
Autor et al. have basically made a splash by failing to ignore this very important thing. They treat distribution as important by assumption, and then they check that assumption by showing that govt efforts to cancel out the distributionary effects of trade have been woefully inadequate. Roberts, to his great credit, does not do the "annoying online libertarian" thing, and simply wave away distributionary concerns (as, say, Bryan Caplan might do if he were doing podcasts). In fact, Russ once again comes off as a very pragmatic, situationalist, intuition-driven sort of fellow - the kind of thinker I believe we need more of (and that Brad DeLong says have made America great).
One very interesting point in the discussion is when Autor says that trade between rich countries is basically all upside. I think that this is a hugely important point that gets completely ignored in today's trade policy discussions, including by some of my favorite writers like Paul Krugman. Unfortunately, Russ doesn't follow up on this point, but it matters a lot, since the trade agreements we're now considering - the TPP and TTIP - are almost entirely agreements with rich countries. Some people seem to be treating the Autor paper like it applies to TPP and TTIP, but it just doesn't, and I wish this were talked about more.
Autor also mentions a couple of other potential downsides of trade. He mentions trade diversion from multilateral agreements - unfortunately this doesn't get followed up on. He also mentions trade deficits, correctly pointing out that in real terms, trade deficits are a loan, not a gift. This means that running trade deficits today is, at the country level, an impatient thing to do - it sacrifices the consumption of future generations to allow our current generation to consume more. Sadly, this point is not pursued much, but I guess podcasts have time constraints, and this one was already a bit long.
Anyway, a very good episode. I think I will do more reviews of EconTalk episodes! One thing I think Russ needs to get better at is critiquing empirical papers. In this episode, he brings up the possibility of multiple comparisons (which of course Autor accounted for, Autor being Autor). A better critique might have been to question the structural assumptions of the linkage model that allowed Autor et al. to conclude that the China trade shock reduced employment in aggregate. Now that econ is becoming more empirical, being able to get into the empirical weeds like that is going to be more and more important.
Update: Others have responded to the episode, as requested by Russ. This is great, since Autor's work, and the new controversy over trade, needs to be publicized a lot more!
Update: Others have responded to the episode, as requested by Russ. This is great, since Autor's work, and the new controversy over trade, needs to be publicized a lot more!
Some of the podcasts are good. Some are horrendous. Roberts' basic schtick is: everything is unknowable, so why bother? It is very easy for someone in his position (old and retired with a full pension) to maintain this worldview. For his fellow travelers, it is convenient to maintain this worldview because it support the discredited view that "free markets" always get it right. For the rest of the species, in particular the young, it is a horrendous worldview.
ReplyDeleteAnd you're just doing this because your BFFs, the John Cochranes, suggested a recent guest. Are you trying to get a job at his father in law's fund?
I'd give Russ more credit here. He learned econ at the very height of theoryderp. That influence is difficult to overcome. But he's rapidly learning both the value and the content of empirical econ.
DeleteAnd you're just doing this because your BFFs, the John Cochranes, suggested a recent guest. Are you trying to get a job at his father in law's fund?
Buahahaha. Hellz no. Who'd work for a fund headed by a guy who thinks you can't beat the market? ;-)
most facepalmy reminder of Russ' empirical naivete was in the Banerjee episode when he spent 15 minutes expounding his 'skeptical' take on the Law of Large Numbers
Deleteagree that lack of statistical chops and inability to STFU about Keynes aside, Russ is a mensch for sure
Also, note that this blog post publicizes Autor, and any publicization of Autor is a good thing.
DeleteI didn't follow the trade deficit discussion. If you view it as borrowing, then you have to explore the macroeconomic "use of funds". But Autor said:
ReplyDelete"And to pay that back, presumably we have to either make more stuff for export, which will create a lot of employment. Or we have to devalue the U.S. currency, which will lower our standards of living but will also have the effect of making those debts easier to service."
He seems to be using a nation as household model, accepting GDP paths as given, and then working out the accounting identities. Is there context to clarify that passage?
"Unfortunately, Russ doesn't follow up on this point, but it matters a lot, since the trade agreements we're now considering - the TPP and TTIP - are almost entirely agreements with rich countries."
ReplyDeleteTIL Mexico, Malaysia, Vietnam, Peru, and Chile (5/12 involved in the TPP) are rich countries. Anyway, also unfortunately, these deals are less about tariffs and formal trade barriers and more about IP law, geopolitics, and investors rights. If anything there's more protectionism (h/t Dean Baker) in these deals than liberalization.
I'll have to listen to the episode (I gave up on Russ long ago when he insisted there was no evidence of a need to invest in infrastructure), but the abstract of the paper doesn't sound like any consideration was given to what trade with China has meant for the Chinese people. Given the appearance that it has lifted a billion people out of the global poor, that seems like an important consideration.
ReplyDeleteSo altruistic of you, sacrificing the jobs of the American working and middle classes to help out the Chinese!
DeleteStuff like this is, unfortunately, why Donald Trump is doing so well. You think the blue collar guy or gal in Michigan who saw their job go to Shenzhen appreciates that there are some peasants who are doing better off at their expense? Probably not, and this election they're voting to make the professional classes eat their words, or if possible make them as un/underemployed as they are currently. Your statement also contains the implication that there was no other way of lifting a billion Chinese out of poverty except by how things went down, which is dubious.
If you accept that affected workers should be protected, then the right counterfactuals are explicit protection vs. implicit protection. Does it make more sense to implicitly subsidize those U.S. workers via trade controls, or should we explicitly subsidize them while allowing free trade? American manufacturing lost real value when the rest of the world recovered from war, stabilized property rights, and listened to market pricing. Trade inhibitions only improve U.S. manufacturing value to the extent that it inhibits the development of competing labor pools.
Delete"Does it make more sense to implicitly subsidize those U.S. workers via trade controls, or should we explicitly subsidize them while allowing free trade?"
DeleteI don't think that's a difficult question. Clearly, the latter. Both because of the aggregate gains to trade available to us to redistribute and because of the large gains to trade partners like China. (Which are discussed in the podcast)
Minimum basic income/EITC/minimum wage. Subsidized training and education. Investment in research (to foster new industries). We should be paying for these with some of our gains from trade, but we're not.
"Does it make more sense to implicitly subsidize those U.S. workers via trade controls, or should we explicitly subsidize them while allowing free trade?"
DeleteI don't think that's a difficult question. Clearly, the latter. Both because of the aggregate gains to trade available to us to redistribute and because of the large gains to trade partners like China. (Which are discussed in the podcast)
Minimum basic income/EITC/minimum wage. Subsidized training and education. Investment in research (to foster new industries). We should be paying for these with some of our gains from trade, but we're not.
I think people like Krugman could agree trade between rich countries is all upside.
ReplyDeleteIt is jaut that the treaties under negotiation are about granting ridiculously long copyright to Walt Disney and allowing dudes to patent lineas if codes. They argue this goes too far in protecting distribution monopolies (so called intellectual property)
Don't get fooled by the fact that the treaties are boasted as trade treaties, they say.
Noah is it a loan if the debt is in dollars you can just print and give away? It seems like the 'if we print money we get inflation' constraint is...kind of loose in today's world for a certain number of special countries. If labor continues to be slack -- and is there any evidence of real tightness anywhere? wage stagnation for anyone but your fellow elites in New York / Sf -- then whats to stop the Fed from just monetizing the trade deficit debt ?
ReplyDeleteThe problem with econometrics is sample size. Since in economics, as Rogoff et al have said, data is hard to come by (Sumner has said the same thing about a futures market for NGDP), and since partial equilibrium is hard to disentangle from general equilibrium, what econometrics does is simply toggle the answer from Yes/No depending on the sample size. An enormous waste of time, except for those who have grant money to do an econometric study. Make work for young economists.
ReplyDeleteHey Noah, Scott Sumner doesn't agree that a trade deficit is a form of a loan. In a response to a commentor he says "Australia buys 1000 laptops from China, In return Australian workers build a condo and a sell it to Chinese buyers. That's a trade deficit for Australia but not a loan."
ReplyDeleteThoughts?
If the Chinese people occupy said condo it's balanced trade. If they merely collect Australian dollars from renting out the condo, they or some other Chinese person is going to use those Australian dollars later to buy some real goods. So no, Sumner is wrong.
DeleteThanks Noah. And don't worry I got your back with his new post
ReplyDeleteThanks Noah. And don't worry I got your back with his new post
ReplyDeleteActually I largely disagree with your recent article "There's Trade, and Then There's Good Trade"
ReplyDeleteYes, but as Krugman says:
ReplyDeleteAnd TPP is another modern trade-agreement-that-really-isn’t, with the most important provisions involving intellectual property and dispute settlement. People inside the administration argue with me that the trade provisions are important, especially for some poor countries, and that the IP and DS stuff isn’t as bad as portrayed; I grant that it’s not a slam-dunk case. As I said, I’m only a lukewarm opponent.
All rent seeking stuff then.
So, please consider at least that the TPP and TTIP are not trade agreements, or only partial trade agreements.
ReplyDeleteAn definition on what constitutes a trade agreement and a scoring mechanism are needed!
Free markets just as free trade presuppose a kind of lawlessness, in which vested interest can be overcome.
ReplyDeleteIf agreements mostly involve non-negatives (a negative being removal of bareer to trade), one has to ask if vested interest is in the lead.
Legal battles are expensive. The option of legal process in international disagreements gives vested interest a huge advantage.