Friday, May 11, 2007

There's a new economics blogger in town

If you want to read how increasing economic inequality is, all things considered, good for America, you can turn to Gary Becker, an economist at the University of Chicago and high-profile blogger. If you want to know why it makes no sense to pay Harvard's janitors a "living wage," Greg Mankiw, a star economist at Harvard who also maintains a popular blog, might be your man.

Evidently chafing at the uniform, right-tilting tone of many econo-blogs, Dani Rodrik, an economist based at Harvard's Kennedy School, started his own last month. He's wasted no time in stirring the pot.

Early on, he suggested that many economists overstated the degree to which dropping trade barriers lowered costs for consumers (the standard argument for why free trade is worth it, despite the cost in lost jobs in many industries). Mankiw took the bait, and the subsequent entries on both sides touched on complex aspects of economic theory as well as whether, and to what degree, economists can simplify their arguments when speaking to non-specialists.

More recently, Rodrik blasted a pro-free-trade economics paper cited by Ben Bernanke, chairman of the Fed. That paper claimed that reducing eliminating all existing restrictions on trade would raise the income of the average American household by $4,000 to $12,000 (a 3.4 to 10.1 percent bump up in GDP). Rodrik, however, called the paper "egregious" and offered a different set of calculations. These suggested that eliminating all trade barrers would raise American income by a mere 0.1 percent by 2015.

Lots of these entries got technical pretty fast, but not the following one. A reader, "DM," wrote in with what he thought was an argument-ending parable:

Let us say an new barber moves into my neighborhood. He offers the same quality service as my old barber, but is cheaper. So I use the new barber. A factory in China can make the the same socks, but for less than a factory in North Carolina. So I decide to buy my socks from China. Why is it that Dani wants [to] interfere with my sock purchases, but not where I get my haircut?

Roderick's response:

DM thinks we should not apply a different set of standards to exchanges involving international trade than we do to those that are purely domestic. I agree! What I think he overlooks is that in fact we do encumber domestic exchanges with a lot of restrictions, and in some cases even outright prohibitions. Domestic laws prevent you from selling yourself into bondage, to hire out your children for factory work, to flout minimum wage requirements, to exceed maximum hours of work, to employ workers in conditions that violate mandated health and safety requirements, and so on. DM's new barber would not remain in business long were he not to comply with standards set by the local health board--regardless of whether DM would want to use him or not. These are instances of what the political philosopher Michael Walzer has called "blocked exchanges." In each of these instances, one could have made an argument that it is improper for the state to come in between two consenting adults. Maybe DM thinks these domestic restrictions should be removed as well. But no matter. The point is that restrictions do exist in domestic exchanges as well. Individuals are never completely free to sign certain contracts.

Rodrik says that most economists assume that only "barbarians" are opposed to the most complete free-trade regime possible. "Reassuringly for those who believe in a symmetric universe," he wrote this week, "there are barbarians on both sides of this issue."

Posted by Christopher Shea at 04:44 PM

Print | E-mail to a friend | Permalink | Subscribe via rss