Monday, March 12, 2012

Word Games

. Monday, March 12, 2012

Dani Rodrik has an op-ed on attitudes towards trade and ethics:
In the very first meeting, he had asked the students how many of them preferred free trade to import restrictions; the response was more than 90%. And this was before the students had been instructed in the wonders of comparative advantage! ... 
Or maybe they did not understand how trade really works. ...
I began the class by asking students whether they would approve of my carrying out a particular magic experiment. I picked two volunteers, Nicholas and John, and told them that I was capable of making $200 disappear from Nicholas’s bank account – poof! – while adding $300 to John’s. This feat of social engineering would leave the class as a whole better off by $100. Would they allow me to carry out this magic trick?

Those who voted affirmatively were only a tiny minority. Many were uncertain. Even more opposed the change.
Rodrik takes this as evidence that peoples' views of trade are muddled. I'm not so sure. His for-instance in the case is not about trade but about something much closer to theft: for no explained reason Nicholas is made worse off and John better off, but there has been no exchange involved. "The class as a whole" is not better off under this scenario -- i.e. it is not Pareto-improving -- except under a very specific and narrow definition of "better off" that does not reflect what happens during trade. Nicholas is better off, John is worse off, and everyone else neither gains nor loses.

More likely students were confused ("many were uncertain") or objected to the capriciousness of the redistribution. Another, later, thought experiment of Rodrik's seems to bear that out:
Let’s assume, I said next, that Nicholas and John own two small firms that compete with each other. Suppose that John got richer by $300 because he worked harder, saved and invested more, and created better products, driving Nicholas out of business and causing him a loss of $200. How many of the students now approved of the change? This time a vast majority did – in fact, everyone except Nicholas approved!
This example is much clearer and also more closely resembles real-world trade dynamics, at least as we often conceive of them. From this Rodrik concludes:
So the students were not necessarily against redistribution. They were against certain kinds of redistribution. Like most of us, they care about procedural fairness. ...
Too many economists are tone-deaf to such distinctions. They are prone to attribute concerns about globalization to crass protectionist motives or ignorance, even when there are genuine ethical issues at stake.
Or maybe not. Maybe, as Rodrik notes in his piece, his sample was of Harvard students who possess high human capital and are thus exceptionally likely to benefit from open trade. When they did not, as in some of Rodrik's other thought experiments, it was because their comparative advantage was being eaten away by some policy or other. The majority of Americans don't have the same preferences, possibly because they do not work in fields with a strong comparative advantage. So maybe "crass protectionist motives" are salient after all.

Perhaps not. I do not doubt that some attitudes towards trade involve ethical concerns. But Rodrik isn't able to separate out what's driving what in this discussion, so tossing off the old models of trade politics is a bit premature.

Word Games
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