Sunday, April 24, 2016

Liberal Macroeconomics and Free Trade

Friday, April 22 the WALL STREET JOURNAL had an opinion piece entitled “Five Big Truths About Trade,” by Alan S. Blinder.  It was an excellent description of why trade benefits a society.  It was also revealing because it illustrates why liberal macroeconomics is failing the general population of the US and many other countries.  The very fact that Dr. Blinder felt that the opinion piece was timely reveals that failure.  However, all one would have to do to know that the failure has occurred is to realize that Dr. Blinder's analysis of the benefits of free trade are accurate and to compare that to the absolute nonsense being spouted by all of the leading political candidates for the US presidency. 

The reason for the failure can be seen in the opinion piece.  It correctly points out that trade has winners and losers.  But then it goes on to suggest that the public sector can somehow provide assistance that will mitigate the detrimental effects on the losers.  It does this as an article of faith.  There is absolutely no justification presented for why one should believe that the public sector has any incentive to mitigate the harm that is incidental to the benefits related to free trade.  That failure to look at the incentives of the public-sector and provide any analysis of why one would believe that the public sector could mitigate the effects of trade is telling.  Liberal macroeconomists repeatedly make the assumption that the public-sector can somehow address the costs associated with a functioning marketplace.  Better they should brush off their microeconomics and analyze whether the public sector has any incentive to undertake the tasks that they blithely assume it can address.

By cultivating a blind faith in the public sector's ability, they are only encouraging the protectionism being demonstrated by current leading political candidates.  After all, if the public sector can solve this problem and hasn't with the current policies it is pursuing, then it is perfectly logical to assume that it could solve the problem with the different policy like protective tariffs.  By failing to address the fact that the public sector is not the appropriate mechanism for mitigating the side effects of free trade, Liberal macroeconomists are in fact cultivating very protectionism that this opinion piece is designed to offset.