Tuesday, November 14, 2006

U.S.A.! U.S.A.!

by Tom Bozzo

Jacob Weisberg apparently thinks (via DeLong) that "free trade is the real election casualty," which is silly — I'd hope that an endless stream of American casualties in George W.'s Excellent Middle-East Adventures will be the real electon casualty, at least down the road; though the value of Joe Lieberman's campaign pledges may fall first.

Even if Weisberg were right, the Hicks-Kaldor-Pareto fallacy being what it is, I'm not convinced I should care. It also doesn't bother me that my shiny and still relatively new ICBM (*) was assembled in China. But while doing some office tidying, I did come across a postcard, stuck to some packaging for the laptop sleeve, saying:
Waterfield bags are designed and made in San Francisco, where rent is high, labor expensive, and competition is intense. We wouldn't go anywhere else.
I don't imagine we'd be worse off in the Hicks-Kaldor-Pareto sense if that attitude were more widespread.


(*) Intel Chip-Based Mac.
Here I was worrying that the Chinese were selling rockets to any economist who asks for one.

The Pareto condition w/r/t trade has been pissing me off all semester, since it strikes me as a total copout to say "compensate the losers, but compensation is a political issue, so we wash our hands of it." Not to mention the fact that the liberal economists then turn around and argue that taxes are BAD! BAD!, I tell you, so where exactly are those funds to compensate the losers from trade going to come from?
I think it's mostly in the Chinese national interest to keep WMDs out of the hands of economists. The North Koreans may be another matter, but I'd just as soon spend my money on LEGO.

I agree that the compensated Pareto business is a huge copout for many left-of-center economists. It's not a big leap at all to reach the conclusion that if compensation for the losers from Policy X will not be forthcoming, then Policy X is not Pareto improving and also that the social welfare maximizing decision may be to forego Policy X. Regarding the latter, I think the "no interpersonal comparisons of utility" concept is so strongly beaten in to many economists that they're willing to at least consider the totally ridiculous as to, say, what the marginal utility of wealth might be for Dick Cheney vs. other grad school dropouts -- so there's more hand-wringing than is really warranted over social welfare considerations. (The flipside is failing to pursue policies that make many people better off because of tears shed over a few rich losers; see estate tax repeal.)

In fairness to many left-of-center economists, they would tend to favor stuff like trade adjustment assistance, and wouldn't in principle mind taxing the 'winners' to pay for it.
Sorry, I meant "liberal" as in classically liberal, not as in left-of-center. :-) My sense is also that left-of-center economists are more serious about *actually* compensating the losers, as opposed to simply flapping their lips about Pareto optimality.
More serious, yes, to the point where they may be partly let off the hook -- but not entirely, sad to say.
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