1/16
"Free trade is perhaps the closest thing to a universally held value among economists."
The problem is not that "free trade" is in fact a bad thing. It is that most economists don't seem to have a sense of what "free trade" actually looks like.
nytimes.com/2025/01/10/bus…
"Free trade is perhaps the closest thing to a universally held value among economists."
The problem is not that "free trade" is in fact a bad thing. It is that most economists don't seem to have a sense of what "free trade" actually looks like.
nytimes.com/2025/01/10/bus…
2/16
In a world of free trade, countries exports goods in which they have a comparative production advantage in order to pay for the import of goods in which they don't. Trade, in that world, is broadly balanced, and international capital mostly funds trade finance and...
In a world of free trade, countries exports goods in which they have a comparative production advantage in order to pay for the import of goods in which they don't. Trade, in that world, is broadly balanced, and international capital mostly funds trade finance and...
3/16
direct investment in developing countries with high investment needs. In that world, no player, including any government, is strong enough to impose distortions on the global trading system that shift trade away from comparative advantage.
direct investment in developing countries with high investment needs. In that world, no player, including any government, is strong enough to impose distortions on the global trading system that shift trade away from comparative advantage.
4/16
It's debatable whether this has ever been the case in the past 300 years, but it certainly is not the case today. Our current trading environment is one in which some countries aggressively obtain competitive advantage (which is not the same as comparative advantage)...
It's debatable whether this has ever been the case in the past 300 years, but it certainly is not the case today. Our current trading environment is one in which some countries aggressively obtain competitive advantage (which is not the same as comparative advantage)...
5/16
at the cost of weak domestic demand, and use trade surpluses to export their domestic demand deficiency to their trading partners. We live in a world of massive trade imbalances that are extraordinarily far from the free trading world of "Econ 101".
at the cost of weak domestic demand, and use trade surpluses to export their domestic demand deficiency to their trading partners. We live in a world of massive trade imbalances that are extraordinarily far from the free trading world of "Econ 101".
6/16
The global economy must always balance, which means that global economic integration often comes at the expense of national control over the economy. In our hyper-globalized world (Dani Rodrik's phrase), this also means that countries that retain...
rodrik.typepad.com/dani_rodriks_w…
The global economy must always balance, which means that global economic integration often comes at the expense of national control over the economy. In our hyper-globalized world (Dani Rodrik's phrase), this also means that countries that retain...
rodrik.typepad.com/dani_rodriks_w…
7/16
open capital and trade accounts automatically import their trade and industrial policies from those of their trade partners that aggressively manage their domestic economies behind closed trade and capital accounts.
carnegieendowment.org/china-financia…
open capital and trade accounts automatically import their trade and industrial policies from those of their trade partners that aggressively manage their domestic economies behind closed trade and capital accounts.
carnegieendowment.org/china-financia…
8/16
What most economists mistakenly call "free trade", in other words, is the role the US plays in absorbing and balancing industrial policies and trade intervention in other countries. The weird irony is that if the US were to impose policies that reversed...
What most economists mistakenly call "free trade", in other words, is the role the US plays in absorbing and balancing industrial policies and trade intervention in other countries. The weird irony is that if the US were to impose policies that reversed...
9/16
the impact of trade intervention abroad, this would actually bring the global trading system closer to free trade, even as most American economists would declare that these policies push both the US and the world further away from free trade.
carnegieendowment.org/research/2024/…
the impact of trade intervention abroad, this would actually bring the global trading system closer to free trade, even as most American economists would declare that these policies push both the US and the world further away from free trade.
carnegieendowment.org/research/2024/…
10/16
This, by the way, is not so much a criticism of "economists" as it is a criticism of mainstream US and US-educated economists. Those of us who have spent our lives and careers outside the US don't find nearly the consensus that exists among US economists on trade.
This, by the way, is not so much a criticism of "economists" as it is a criticism of mainstream US and US-educated economists. Those of us who have spent our lives and careers outside the US don't find nearly the consensus that exists among US economists on trade.
11/16
So when the NY Times cites Jason Furman as saying “Everyone in this room agrees with your book. No one outside of this room agrees with your book,” it should be understood that "in this room" is not the economics profession but rather mainstream American economists.
So when the NY Times cites Jason Furman as saying “Everyone in this room agrees with your book. No one outside of this room agrees with your book,” it should be understood that "in this room" is not the economics profession but rather mainstream American economists.
12/16
Outside of the US, and certainly in China, where I live, it is widely accepted that trade and industrial intervention can promote or even create industries. If that weren't the case, every country would embrace completely open trade and capital accounts, and yet so few do.
Outside of the US, and certainly in China, where I live, it is widely accepted that trade and industrial intervention can promote or even create industries. If that weren't the case, every country would embrace completely open trade and capital accounts, and yet so few do.
13/16
Economists often sneer at the stupidity of those who aren't formally trained economists, but where does this arrogance come from? It is not as if economics is a science that attracts the best and the smartest, and that everyone else with skin in the game is an idiot.
Economists often sneer at the stupidity of those who aren't formally trained economists, but where does this arrogance come from? It is not as if economics is a science that attracts the best and the smartest, and that everyone else with skin in the game is an idiot.
14/16
I don't want to be rude, but in my day (and probably today too), after they graduated, most of the smartest people in the top schools went into science, Wall Street, medicine, policymaking, law and high tech, and not into PhD programs in economics.
I don't want to be rude, but in my day (and probably today too), after they graduated, most of the smartest people in the top schools went into science, Wall Street, medicine, policymaking, law and high tech, and not into PhD programs in economics.
15/16
When so many of these people ("no one outside this room") are in such disagreement with everyone "in this room", it requires the arrogance (and the internal politics) of late medieval theology to maintain confidence in the beliefs of those in the room.
When so many of these people ("no one outside this room") are in such disagreement with everyone "in this room", it requires the arrogance (and the internal politics) of late medieval theology to maintain confidence in the beliefs of those in the room.
16/16
I would argue that if economists really are concerned about the fact that they have lost so much credibility, one solution might be to consider the conditions under which their Econ 101 models are wrong and "everyone else" with skin in the game might be right.
I would argue that if economists really are concerned about the fact that they have lost so much credibility, one solution might be to consider the conditions under which their Econ 101 models are wrong and "everyone else" with skin in the game might be right.
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