At a time when pandering politicians scapegoat trade, it is unfortunate to see some of the world’s greatest economists join, incorrectly, in the chorus. Dani Rodrik and Joseph Stiglitz have recent articles in Project Syndicate doing just this.
For example, Stiglitz argues that “in the US, the bottom 90% has endured income stagnation for a third of a century,” but fails to say how much trade contributed to this stagnation, or to note how trade has increased welfare by making the products these people buy cheaper. Stiglitz’ main point that stagnation and inequality are problems and need to be addressed is no doubt correct, but he suggests without foundation that trade is the problem. He writes against TPP and TTIP, without confronting the possibility that these would both make people better off.
Rodrik makes an even broader point. He distinguishes what he thinks of as narrow areas, such as climate change or global pandemics, in which global cooperation may be beneficial, from economic policies, in which he asserts that global cooperation is unnecessary and harmful. (He does make an exception for terms of trade theory and optimal tariffs, but neglects to explain why these don’t justify international cooperation.) He makes the point “good economic policies—including openness—benefit the domestic economy first and foremost, and the price of bad economic policies is primarily paid domestically as well.” Note first, that Rodrik seems to accept something Stiglitz does not—that openness is good. Note second, though, that Rodrik, like generations of economists before they discovered politics, assumes that governments will do the right thing on their own. What he seems to miss is that if foreign governments, hurt also by the bad economic policies of the protectionist government, assert their interests through reciprocity, that can add to the political forces for openness. See my review of his earlier work in this area. He seems to miss that this incremental political force might help achieve beneficial openness.
Rodrik’s error is in thinking that international economic cooperation is only useful where the larger effect is externalized, and is not useful where smaller externalities exist. Perhaps this is true in some areas in a politically perfect world, but it is not true in the world in which we presently live. Of course, his main point, calling for better, more broadly accountable, domestic politics cannot be gainsaid, but until the day of perfect domestic politics, international reciprocal negotiations causing governments to take account of harm they cause foreign persons, will be needed.
