Author Archives: jdingel

Lant Pritchett at Reason

Why did Reason wait five months to run this interview with Lant Pritchett, Harvard economist and author of Let Their People Come (free pdfs)? It’s great!

On institutions and migration:

[T]he beautiful thing about institutions that create property rights is that they’re a free good. If we allow in another 10 million, 20 million, 30 million people, then what has created American wealth—its economic institutions that allow entrepreneurship, that allow free markets, that allow people to innovate, that allow people opportunity—none of that is eroded by letting in more people.

America isn’t Kuwait. The wealth of Kuwait is that they’re sitting on this pool of oil. The wealth of America is that we have developed fantastically successful economic institutions. Those institutions are not zero sum. No one has suggested we should have limited America’s natural population growth because with 300 million people there are fewer benefits of our institutions of property rights to go around. It’s the same thing with migration.

On moral philosophy:

Right now all kinds of things that cause much smaller differences in human welfare get much more attention. If we say we are going to discriminate against ethnic Indians in Mexico vs. other citizens of Mexico, there would be a hue and cry across the world. But if we say we’re going to discriminate in favor of people of Mexican descent born in the United States vs. people of Mexican descent born in Mexico, this creates absolutely no moral outrage.

Obama on farmers

As a senator from Illinois, Obama loved the corn lobby, argues Emmanuel. But perhaps as president, Obama would be enjoy a broader base of support and not have to mollify the farm lobby? Then he’d push sensible economic policies?

Look at this gem Tim Lee found:

Encourage Young People to Become Farmers: Obama will establish a new program to identify and train the next generation of farmers. He will also provide tax incentives to make it easier for new farmers to afford their first farm.

I realize that no politician would say this, but the fundamental problem in agriculture is that there are too many farmers. We prop up farms that should have gone out of business a long time ago for no good reason. Why on Earth would the federal government want to spend money encouraging people to go into an already over-staffed industry? Will we also have a program to encourage people to go into the typewriter-repair business?

Less egregiously, Obama proposes a $250,000 subsidy payment cap, but the White House is pushing for $200,000.

Bush threatens to veto farm bill

Is President Bush finally facing down Congress on agriculture in his lame duck year? Here are the guts of tonight’s FT story by Alan Beattie:

President George W. Bush has threatened to veto the “farm bill” unless provisions he says amount to tax rises are taken out, and a cap on subsidies given to richer farmers is lowered…

Even if the White House is successful in getting Congress to trim spending, it is unlikely to make US farm programmes consistent with the offer to cut payments that Washington has already made in Doha…

Collin Peterson, the Minnesota Democrat who chairs the House of Representatives agriculture committee, has said failure to agree a bill by the expiry of the current bill on March 15 would mean reverting to a law dating from 1949 that would massively raise support prices for a range of commodities…

Reformers were dismayed by the draft House and Senate bills, which, they say, have done little to reduce the price supports that encourage overproduction and environmental degradation, and have added only minimal amounts of money for fruits and vegetable farming, which currently receives little support.

Against offshoring alarmism

Fresh policy brief from J. Bradford Jensen and Lori G. Kletzer of the Peterson Institute on “‘fear’ and offshoring“:

Commentators, including Princeton University’s Alan Blinder, estimate 40 million jobs could be at risk of being offshored over the next 20 years and suggest American workers should specialize in services that can be delivered face-to-face. In contrast, Jensen and Kletzer expect the process of globalization in services will proceed much as it has in manufacturing: They estimate only 15–20 million jobs are at risk of being offshored to low-wage, labor-abundant countries; approximately 40 percent of these jobs will be in the manufacturing sector, long considered “at risk.”

They expect these losses to be offset by job gains in high-wage activities from services exporting. The United States will retain its comparative advantage in high-skill, high-wage production and increase these activities in tradable service industries as trade barriers diminish. While the loss of low-wage activities that are offshored and the gain from high-wage service exports will cause dislocation, the globalization of services production is likely to have productivity-enhancing effects similar to the impact of globalization in the manufacturing sector, offering significant potential to improve living standards in the United States and around the world.

More thoughts after I read it this evening.

Can decoupling insulate Asian growth?

Decoupling is a matter of degree and type, reports the FT:

Thailand is a good example. Recent economic growth has been powered primarily by exports, about 12.5 per cent of which went directly to the US last year, down from about 20 per cent when the previous US recession struck in 2001.

Yet Thailand is not as insulated as this might suggest. Sethaput Suthiwart-Narueput, chief economist at SCB Securities, says Bangkok remains vulnerable to a US slowdown since most of its exports to China – about 9.5 per cent of total shipments, up from 4.4 per cent in 2001 – are components used to make goods bound for the US.

The picture is not black and white and decoupling is not an “either/or phenomenon”, says Paul Sheard, global chief economist at Lehman Brothers. Asia emerged relatively unscathed from the 1991 US recession but was much harder hit by the “tech recession” of 2001. Similarly, this time, depending on the precise nature of any downturn, commodity-rich Australia, Indonesia and Malaysia might fare better than, say, countries specialising in electronics, such as Taiwan or South Korea.

Is Obama better on globalization?

I’ve previously reported on speculations that Obama is more of a free trader than Clinton. At the Guardian, Daniel Koffler argues that friends of markets, domestic and international, should be attracted to Obama:

Obama’s language of personal choice and incentive is a reflection of the ideas of his lead economic advisor, Austin Goolsbee, a behavioural economist at the University of Chicago, who agrees with the liberal consensus on the need to address concerns such as income inequality, disparate educational opportunities and, of course, disparate access to healthcare, but breaks sharply from liberal orthodoxy on both the causes of these social ills and the optimal strategy for ameliorating them…

Goolsbee and Obama’s understanding of the free market as a useful means of promoting social justice, rather than an obstacle to it, contrasts most starkly with the rest of the Democratic field on issues of competition, free trade and financial liberalism…

Whereas Clinton has recently taken to pulling protectionist stunts and rethinking the fundamental theoretical soundness of free trade, and Edwards is behaving like the love child of Huey Long and Pat Buchanan, Obama instinctively supports free trade and grasps the universe of possibilities that globalisation opens up, and seamlessly integrates it into his “audacity of hope” theme. As he remarked in a recent debate: “Globalisation is here, and I don’t think Americans are afraid to compete. And we have the goods and the services and the skills and the innovation to compete anywhere in the world.”

At the moment, Obama’s and Clinton’s positions on trade are roughly equivalent – both deserve credit for taking initial steps toward dismantling the obscene US government-supported agricultural cartels – but the present dynamic is Obama moving more and more in the direction of economic freedom, competition and individual choice, and Clinton wavering if not moving away from it…

Perhaps it goes without saying that Obama’s belief in freedom in labour markets and freedom in capital markets, sets him apart from the Republican field as well as the Democrats. Under ordinary circumstances, one would expect Republicans at least to respect free trade, but alas, they are inconsistent at best. As for freedom in immigration, even in politically propitious times, the modern GOP makes tactical concessions toward its xenophobic wing; in this season of famine, the Republican candidates, even those who have supported immigration in the past, have set up their nominating contest as a race to see who can take the most thuggish and contemptuous possible attitude toward Mexicans (the euphemism for this posture is “out-Tancredo-ing Tancredo”).

Ironically, the nativist lunacy sweeping through the GOP underscores the conceptual connection between free trade and immigration, as mutually supporting pillars of economic freedom. Obama properly understands economic freedom as the best vehicle for accomplishing the historic goals of the left, which Irving Howe and Lewis Coser long ago described as wanting “simply to do away with those sources of conflict which are the cause of material deprivation and which, in turn, help create psychological and moral suffering.”

While this is encouraging, it’s hard to verify claims about candidates’ motivations. And how much sway does Goolsbee really have?

UPDATE: Emmanuel says Obama is tied to the usual protectionist lobbies: “Obama is as protectionist as they wanna be, especially on corn. His rhetoric and actions do not suggest otherwise.”

Projecting beliefs

Sallie James writes:

John Edwards had by far the worst trade policy proposals of the front-running Democrats. It says something good about America that Mr Edwards’ brand of populist nonsense has been rejected by the primary voters.

No way. Find me one piece of evidence that voters are choosing to prefer Clinton and Obama due to their trade policy proposals.

Or, as Adam Posen put it:

International economic issues will never be the decisive factor in a US national election, and in fact will be a lower priority on any candidate’s or new president’s agenda than discussions of Iraq withdrawal, broadening health care, tax reform, repairing America’s standing in the world, and decreasing partisanship in Washington.

Adam Posen on the next president

Adam Posen writes:

Unfortunately, a new US president of either party is likely to be more antiglobalization, or at least take a more defensive approach to it, than either of her or his predecessors was.

There are many reasons why. First, now that unemployment is rising, the US workforce has finally reacted to the economic insecurity caused by its lack of health insurance and job protections, all curtailed further by the Bush administration. Second, both parties have moved away from the center, especially in Congress, and it was always a coalition of moderates from both parties which supported trade liberalization. Third, the foreign policy misadventures of the Bush administration have fed isolationism and fear of the openness among the US electorate. Fourth, in the United States just as in Western Europe, there is a seductive—though fundamentally unfounded—belief that the economic emergence of China, India, Brazil, and the former Soviet Union has shifted the relative advantages of globalization away from the rich countries, so their approach to trade and investment should be more defensive.

American antiglobalization, however, will take different forms depending upon which party captures the White House. If a Democrat wins, there will be proposals to impose “minimum labor and environmental standards” on future trade agreements, and perhaps unilaterally on current trading partners. While these can be benignly motivated, in practice they will likely be hijacked by outright protectionist interests and used as an excuse to block imports or trade deals. In any event, such measures are likely to escalate a number of conflicts with major emerging markets and interfere with economic growth in the developing world…

If a Republican, particularly from the conservative majority wing of the party, wins the White House, then the new American antiglobalization stance will likely first take the form of anti-immigration measures…

Initially, such a Republican anti-immigration stance will be less directly disruptive of the global trading system, and less broadly confrontational with the developing world, than the Democratic labor standards for trade agreements would be. Ultimately, however, it will be more harmful to the US economy, which is increasingly short of labor at both the high- and low-ends of the skills distribution, will be even more encouraging of isolationist sentiment, and will be more likely to divide the United States from the rest of advanced economies as well as from it developing neighbors…

[W]hile outright protectionism and head-on assaults on economic integration thankfully are not in the cards, and whoever succeeds George Bush will inherently be an improvement in most areas, the United States probably will be moving backwards on globalization initially in the next administration.

Krugman’s James Meade Memorial Lecture

In the LSE’s James Meade Memorial Lecture from June 2007, Paul Krugman discusses three trade topics on which he has been “chastened.” [90 min, 21 MB mp3]

The first topic is trade and growth. This is a masterful discussion, in which Krugman explores the relationship between economic theory, evidence, and economists’ gut instincts. It is a worthy successor to Anne O. Krueger’s 1997 AEA presidential address. In the same fashion that she tried to explain why import substitution industrialisation was approved by economists in the 1950s and ’60s, Krugman tackles the beliefs of economists who were overenthusiastic in translating economic theory about the gains from trade into supposedly “rigorous” support for claims that trade openness could boost easily boost growth by a few percentage points.

The second topic is trade and income inequality. Much of this is covered in Krugman’s Vox column that ran the day after the lecture. There are a few more details, such as Krugman’s insightful rebuttal to the fact that Stolper-Samuelson effects no longer bite once there is complete specialization. (The fragmentation of production processes enlarges the spectrum of tradables, extending that limit.)

The third topic (income inequality in developing countries) is not very interesting, partly because Krugman only comments briefly on the subject and partly because I think that growth matters more than equality in countries that are desperately poor.

Krugman thinks we really face a problem of political economy with regard to trade and inequality, rather than a purely economic one. Interesting, he is skeptical of labour standards and fair trade, as they don’t address the underlying economic forces (comparative advantage) that are driving the big trends.

A few of the questions from some of the heavyweights in the LSE audience aren’t bad either.

If you don’t have much time to spare, I recommend at least the first twenty minutes of the lecture.