The Rethinking of Free Trade - It Was Inevitable
Not that rethinking free trade is anything new - economists and social scientists have always found a variety of different angles from which to examine the issues linked to free trade.
What will be different now is that we will be hearing more about this rethinking in the news, Businessweek’s article “Economists Rethink Free Trade” marking a sort of turning point in current thought:
But something momentous is happening inside the church of free trade: Doubts are creeping in. We’re not talking wholesale, dramatic repudiation of the theory. Economists are, however, noting that their ideas can’t explain the disturbing stagnation in income that much of the middle class is experiencing. They also fear a protectionist backlash unless more is done to help those who are losing out. “Previously, you just had extremists making extravagant claims against trade,” says Gary C. Hufbauer, a senior fellow at the Peterson Institute for International Economics. “Now there are broader questions being raised that would not have been asked 10 or 15 years ago.”
While I do understand how free trade does provide benefits in the aggregate by leveraging the power of comparative advantage, the economic models we use do not necessarily capture the nuance of the real world.
Of course those models are still evolving as we gather more real world data, but I also think that we have to make sure that future calculations factor in institutional imbalances, social responses and political responses to different aspects of free trade.
The presentation of free trade is what might actually be flawed. What I mean by that is that for years it has been assumed that free trade is always right for every nation at every time, and if there was a problem, it was always transitional. Which may be true - but its hard to tell that to the people living within that transition.
The assumed superiority of unbridled free trade is what I believe causes people to have such negative kneejerk reactions. It has always been an assumption among liberal economists that free trade is the ultimate evolution of human progress. Which has led to ideology that has made it hard to examine free trade without turning it into a for-or-against argument.
But to come back to the article, I am not surprised that this type of piece appears now that the economy is taking such a hit and affecting foreign markets as well. I would also predict here that we will be seeing more books attacking the concept of free trade. I hope that it does not lead to a new round of protectionism, but rather inspires us to seek a more equitable and sustainable global economic system.
