A few readers have observed that Paul Krugman‘s general neglect of public choice problems is especially odd because it takes such problems very seriously in the area he knows best: trade policy. Here’s what Paul says in his 1993 AER piece, “The Narrow and Broad Arguments for Free Trade“:
The broad argument for free trade, to which many economists implicitly subscribe, is essentially political: free trade is a pretty good if not perfect policy, while an effort to deviate from it in a sophisticated way will probably end up doing more harm than good.
Elaboration:
Now suppose that a new trade theorist comes along and informs the countries that markets are imperfect, and free trade is not really an efficient policy after all. There is, however, no simple and easily defined policy that can take its place, and the gains from optimal deviations from free trade will be small. What should the countries do?
It seems quite reasonable to argue that the countries should stick with free trade rather than try something complicated that could easily lead to a breakdown in cooperation. The perfect may be the enemy of the good: free trade may be a reasonable, rule-of-thumb way of avoiding what could otherwise degenerate into a prisoner’s dilemma, in which a seemingly more sophisticated
strategy might fail.
Furthermore:
[Countries] seem to protect in order to redistribute income to selected producer groups. Although there have been some attempts to model this political process, notably the clever recent effort by Gene Grossman and Helpman (1992), it is not yet possible to offer as neat a story as that of optimal tariff warfare. Nonetheless, it is not too hard to imagine that setting trade policy also amounts to a kind of prisoner’s dilemma: in a country in which each interest group gets the protection it wants, the net effect may be to make even the interest groups themselves worse off than if there had been a prior commitment to free trade.
Paul’s punchline:
These examples suggest how one can be both a new trade theorist and a free-trader. That is, one can believe quite strongly that the international economy bears little resemblance to the perfectly competitive, constant-returns world of pre-1980 theory and yet at the same time continue to support free trade as the best policy we are likely to get. That is indeed the position that I personally hold.
My question: Why on Earth didn’t Paul say exactly the same thing when Tyler asked him about tech policy? How can Paul look at the endless triumphs of the tech industry over the last three decades and not say, “It would be a disaster if government started picking winners and losers based on political horse-trading and flowery rhetoric about fairness”? How can Paul look at the strangling of construction in high-wage areas over the same time frame and not say, “It would have been far better if government just pretended the negative externalities of construction didn’t exist”?
In all seriousness, Paul: How?!
P.S. I’m speaking in Laredo, Texas tomorrow on The Myth of the Rational Voter. If you attend, please say hi!
HT: Cameron Harwick.
READER COMMENTS
Market Failure Dork
Oct 24 2018 at 5:26pm
Paul didn’t give the answer that fits your question because your question isn’t the question that Tyler asked. Here’s what you quote Paul as saying about tech, emphasis mine:
This seems entirely consistent with, again quoting you quoting Paul, again emphasis mine:
Your criticism of him seems to be that he does not adopt the tone that you feel is most consistent with his statements, or with common-sense observation. Such a criticism is consistent with your viewpoint, and I do not criticize that viewpoint. But your question is, “Why on Earth didn’t Paul say exactly the same thing when Tyler asked him about tech policy?” Well, look at what he was asked: “The major tech companies have become increasingly controversial. Do you think there’s a significant market failure there? And if so, what would it be?” He gave an answer that is in accordance with that question.
If they were doctors, and Tyler had asked him, “Does this body seem diseased to you?” it would have been reasonable to say, “Yes, this one seems to have the flu,” and unreasonable to say, “The human body is an amazing wonder! It is a glorious miracle that works incredibly well most of the time without us even understanding how! Oh, this one has the flu. PRAISE THE BODY!”
Here is Paul’s final statement on policy solutions to the tech companies in the interview with Tyler, emphasis added:
Paul’s position on tech seems to be the one that you want.
In the end, your complaint seems to be that Paul had the conversation with Tyler and not with you! You are not the only envious one…well, maybe if you blog enough about Paul, he will give you your answer. Probably not….
Philo
Oct 25 2018 at 12:35pm
Good questions. By the way, you don’t need to capitalize ‘earth’.
Sebastian H
Oct 26 2018 at 12:59am
In the areas we know best, government intervention looks like a bad idea because we understand that the nuances are too tricky for most politicians to understand. But we simplify other areas of knowledge and assume that government can understand those well enough for great regulation.
A similar thing happens with the question “are conservatives discriminated against in parts of the academic world?” I can’t claim to provide a definite answer to that question, but I can note that professors offer explanations against discrimination that they laugh at when offered by businesses. “Women freely choose other professions”. “There aren’t enough X programmers with the right resumes”. “They aren’t psychologically suited for our profession.” “They don’t fit in”. “They aren’t smart enough.” “They don’t express interest earlier in their educations.”
None of those explanations would be taken to overwhelm even relatively small statistical disparities in corporations. But only in the academic world are all of those taken at face value to explain enormous statistical disparities. They seem perfectly plausible to people in the academic world when speaking about the academic world they know so well. And they may even be correct. But they don’t extend the understanding beyond their own domain.
David Khoo
Oct 26 2018 at 8:31am
Well, if you don’t believe that the “endless triumphs of the tech industry over the last three decades” are actually utility improving to begin with, unlike the fruits of free trade, then there is no issue here. Using Facebook reduces human happiness according to several recent papers, even if you had no issue with its effects on politics, privacy or public norms. There is very little evidence that any of that technology has increased productivity — the famous Productivity Paradox. There is very little evidence that any of that stuff has made us better off or happier, as opposed to simply being desirable to use which is something entirely different.
The blankets the settlers of the New World handed out to the natives were so comfy and desirable to use, and completely free! However, I don’t think anyone thinks that they were utility improving. Maybe the world would have been better off if some body had stepped in to regulate then…
RL Xiao
Oct 28 2018 at 5:40pm
It seems to me that you claim that utility is comparable and people 1000 years ago could be happier than people nowadays. If you think Facebook doesn’t improve human utility, that is your subjective point of view, please don’t represent human. The marvel of market or competition is, a product or firm survives because it is better than others in improving human utility by definition.
Back to the first statement, were people 1000 years ago happier than us? I don’t think so. At least, I will not be happy to come back to 1000 years ago since I possess the knowledge from nowadays. Nonetheless, this is not a important question because human society as a whole entity has no vision for long term payoff to weigh the alternative choices.
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