Wednesday, June 29, 2016

International trade is good. So now what?



The famous 'elephant graph' has been popping up lately on the heels of a Donald Trump speech and a Bernie Sanders NY Times editorial, both critiquing international trade. While this graph is only a high-level representation of one aspect of globalisation (it masks absolute well-being, non-monetary gains from technology, and fractal inequality, to name a few), it does encapsulate the core anti-trade argument of rich-world policy advocates.

As you can see, {poor-world, all-class} folks have gained enormously from international trade in the last few decades, but {rich-world, low/middle-class} haven't. While {rich-world, low/middle} incomes haven't actually gone negative, positional, cultural, and finer-grained measures almost certainly provide empirical backing for the overall story that many sub-populations in the rich-world are struggling in ways they weren't previously.

So does this mean Trump and Sanders and other anti-free trade advocates in the rich-world are right to push for more protectionism? The answer isn't obvious to me.

While I'm not as convinced that protectionism and less free trade would actually help {rich-world, low/middle} people (there are decent technical and moral complications), let's assume this tradeoff does exist.


Solutions that don't suck

As a baseline moral judgement, having {rich-world, low/middle} 'take one for the team' by accepting lower income growth in exchange for {poor-world, all-class} income growth is indeed required if no alternatives exist. This is a harsh, but valid utilitarian truth: it is simply wrong to drag globally poor people down in order to make globally rich people richer, especially by means of reducing the freedom to transact with willing partners.

That said, I refuse to believe there are no other alternatives. Clearly hundreds of small policy improvements exist that would help {rich-world, low/middle} and don't come at the expense of the global poor. They can be grouped into two categories:
  1. Directly redistributing more wealth from the {rich-world, rich} by way of welfare policy improvements, such as a universal basic income or negative income tax. Without significant cultural or social changes in the conceptualization of work this might not be a sustainable solution. 

  2. Reform income-generating systems themselves. This would have the same practical effect of transferring resources from {rich-world, rich} to {rich-world, poor/middle}, but would require much less cultural change to be effective. This could be accomplished in two main ways: 
    • Reduce barriers to growth and flourishing. These mostly come in the form of policies or institutions that facilitate 'upward redistribution', or rent-seeking in economic parlance. Things like occupational licensing, minimum wages, IP law, restrictive land-use regulation, and employment-linked health and retirement benefits reduce the power and options of poor and middle-class people.
    • Increase the capacities of {rich-world, poor/middle}. This approach is potentially the most attractive, but also the trickiest. Whenever you hear the mantra of 'more job retraining!' or 'better education!', you're sitting here. This logic is based on meta-induction: throughout history, people have adapted to changing socioeconomic conditions, and we just need to facilitate that process as painlessly as possible. The dirty little secret among an increasing number of policy wonks is that to truly build-up most {rich-world, poor/middle} demographics and get them integrated with the future economy, we'll need big, deep cultural change. This is a deeply pessimistic place to be, and is compounded by the quiet resurgence of biology-based explanations for demographic differences in economic success. I would also include here certain environmental-justice factors, like lead exposure, which clearly feed into these controversial theories.
In addition to these two basic strategies, higher-order changes like reducing political corruption and decay would help with the practical decisionmaking and implementation processes of any solutions.

Returning to the core normative calculation about international trade policy, it's important to qualify the discussion with a reminder that democratic decisionmaking and legitimacy is itself a good thing. It's also really important for the maintenance of the international order more broadly. Free trade is not a suicide-pact, and citizens of a specific country are not required to prioritize the global poor in their policy and voting preferences. I'm merely saying they should. Ideally, rich countries should pursue those policy avenues described above which don't tear down poor countries. But if doing so truly threatens the stability of a rich country's institutions, the best long-run course of action might very well be a period of decreased trade liberalisation.

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