Author Archives: jdingel

The strong dollar surprise?

The dollar is falling. Everyone knows it needs to fall even further. But there are worries that it could suffer a sudden plunge when currency traders realize it’s not falling fast enough. In a comment in the FT, Jeffrey Garten says betting on a weaker dollar is “nearly a risk-free proposition.” And that makes him unhappy:

At an opportune moment, they [central bankers] could make a sharp and powerful co-ordinated intervention in the currency markets to buy dollars. This surprise move would not change long-term trends, but it would show speculators that shorting the dollar is not always without consequence. The intervention could therefore bolster prospects for an orderly dollar decline and demonstrate that the US and the European Union are capable of jointly using powerful policy levers.

What? How would that help?

Do free traders neglect immigration?

At the end of a post about Social Security, Dean Baker implies free traders are lax in supporting freer immigration to the United States. At the risk of taking his closing quip too seriously, here’s why I am not fully persuaded.

Most economists who support freer trade also support freer immigration. Heck, Jagdish Bhagwati even has a version of his biography tailored to focus on immigration. And 500 economists signed a petition supporting more open immigration. So, although they could always do better, I think free traders are fulfilling their responsibility of advocating freer immigration. (One reason their contribution may be underappreciated is that economics is less central to the debate about immigration policy than trade policy.)

Then there are non-economist free traders. Here, Baker’s case holds up better. For example, the Heritage Foundation has used the argument that trade and migration are substitutes as a reason to support trade deals. On the other hand, Cato’s free traders are staunchly pro-immigration.

Two questions:

(1) Can anyone name an economist who is a notable free trader but opposes more liberal immigration policy?
(2) Are economists devoting too much of their policy influence to trade and not enough to migration?

Beattie on Doha

Alan Beattie:

As returns from the dead go, the fact that the so-called “Doha round” of global trade talks was revived in January of this year was a comeback to rival that of Lazarus.

But unless (a subject on which the New Testament is silent) Lazarus spent the year after his miraculous recovery standing on the spot, squabbling irritably and periodically threatening to relapse into unconsciousness, it seems unlikely that the analogy can be continued beyond the initial resurrection.

[HT: Erixon]

The cost of US protectionism: 1859-1961

Doug Irwin estimates the Anderson-Neary trade restrictiveness index for a century of US trade policy to calculate the costs of historic protectionism:

As Paul Krugman (1997, 127) has written: “Just how expensive is protectionism? The answer is a little embarrassing, because standard estimates of the costs of protection are actually very low. America is a case in point… The combined costs of these major restrictions to the U.S. economy, however, are usually estimated at less than half of 1 percent of U.S. national income.”

However, what has been true for the past few decades has not always been true. In the heyday of America’s high tariff policy in the late nineteenth century, the static welfare cost was closer to one percent of GDP, although the associated redistribution of income was much higher, about eight percent of GDP according to estimates by Irwin (2007). This large redistribution and associated deadweight loss may be one reason why the political debate over trade policy was much more intense a century ago than today. By the mid-twentieth century, the deadweight loss was only about one-tenth of one percent of GDP, which not only makes the historical figures of one percent of GDP seem much larger, but partly explains why, after the early 1930s, trade policy was no longer a leading political issue in the country as it had been in the late nineteenth century…

A fundamental reason for the relatively low cost of protection in the United States is that it has always had a large domestic economy that was not very dependent upon international trade. Another reason is that for most of its history the United States used import tariffs as opposed to more distortionary trade policy instruments, such as import quotas and import licenses. For example, the cost of U.S. trade restrictions was much higher in the 1970s and 1980s than decades before or after because quantitative restrictions and voluntary export restraints were used to limit imports of automobiles, textiles and apparel, iron and steel, semiconductors, and other products (de Melo and Tarr 1992, Feenstra 1992). Foregone quota rents are generally orders of magnitude larger than the tariff-induced distortions to domestic resource allocation.