The greatest threat this blog has ever faced

I see that Dani Rodrik has now set up his own blog. Great. Just great. Back in the day, I use to have the monopoly on blogging about the global political economy. Now Rodrik -- and his fancy-pants Albert Hirschman Prize -- comes along to make the competition more difficult. It's not enough that the man is responsible for Jaghdish Bhagwati's jeremiad against yours truly. In all seriousness, Rodrik is a smart economist who can speak to non-economists -- so it's a very good thing that he's joined the blogosphere. And while we have some overlap in interest, his take is quite different from mine. So, in fact, everyone wins! For example, I have to take issue with the central argument of this Rodrik post: Imagine some change in the economy leaves Tom $3 richer and Jerry $2 poorer, and I ask you whether you approve of this change. Few economists, regardless of their political and philosophical orientation, would be able to give a straight answer without asking for more information.... In other words, most of us would care about the manner in which the distributional change occurred--i.e., about procedural fairness.... Yet when we teach comparative advantage and explain the gains from trade, we typically overlook this important conclusion. We expect our students to focus on the net gain triangles and disregard the rectangles of redistribution. In particular, we do not ask whether the trade opportunity involves an exchange that most people would consider unacceptable if it took place at home. So it is immaterial to our story if the gains from trade are created, say, by a company shutting down its factory at home and setting up a new one abroad using child labor. (By the way, I chose $3 and $2 in my example as these values are commensurate with the relative magnitudes that come out of trade models under reasonable elasticities.) The thought experiment clarifies, I think, why the archetypal man on the street reacts differently to trade-induced changes in distribution than to technology-induced changes (i.e., to technological progress). Both increase the size of the economic pie, while often causing large income transfers. But a redistribution that takes place because home firms are undercut by competitors who employ deplorable labor practices, use production methods that are harmful to the environment, or enjoy government support is procedurally different than one that takes place because an innovator has come up with a better product through hard work or ingenuity. Trade and technological progress can have very different implications for procedural fairness. This is a point that most people instinctively grasp, but economists often miss. I don't disagree with Rodrik's political argument here per se -- but I do have a few quibbles about it's generalizability: 1) Let's change the redistribution to the following: a) Tom is 30 cents richer; b) Jerry is two dollars poorer; c) 135 people are two cents richer. That's actually a more accurate picture of trade's effects. In focusing striictly on the employment effects, however, Rodrik elides the biggest gain from trade -- lower prices. He's correct that this is weak beer politically, but it's still worth remembering. 2) If the redistribution takes place because of regulatory races to the bottom like Rodrik claims, then he's got a point. What if, however, the redistribution takes place because of honest-to-God wage differentials? There will still be political objections even if Rodrik's provedural fainess critreria are met. How often does Rodrik's story happen as opposed to a standard wage story? As I've said before [Yes, several times--ed.], races to the bottom are pretty rare [UPDATE: for a counterargument that supports Rodrik, check out this Steven Pearlstein column in the Washington Post.] 3) Finally, it's worth pointing out that national identities matter more that questions of procedural fairness. When the the U.S. textile industry moves from the Northeast to the South to take advantage of cost differentials, there is less complaint than when the industry moves from South Carolina to China. I suspect Rodrik's procedural concerns affect how attitudes about trade. But the simple act of redistribution across borders -- regardless of the reasons -- matters even more.