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My question for Dani Rodrik
Politics works better in some areas than others. Fairfax County has wonderful parks, libraries, and schools. French politics has brought about a good health care system. There are many other examples. The mechanisms are various and often involve accident. Sometimes governments luck into good institutional arrangements. Sometimes a far-sighted visionary is at work. Tiebout competition, or efficient Beckerian bargains across interest groups, may kick in. Sometimes the median voter rules, that median voter is a good judge of outcomes, and what is good for the median is good for the nation as a whole. Sometimes venal interest groups control politics, yet the desires of those groups happen to coincide with welfare maximization.
We can, in principle, rank policy areas along a spectrum. Assign a "10" to the most efficient policy-generating areas and assign a "0" to the least efficient. Don't worry too much about what the scale means, this is Blog Land.
Where do you put trade restrictions along this scale?
I give them a 1.5, at best a 2. I think trade restrictions are hardly ever generated by processes which coincide with the general welfare. I view trade restrictions as almost always motivated by the classic, crude "diffusion of costs, concentration of benefits" logic.
If we redefine the problem more broadly, it could be said that trade policy as a whole gets an 8 or a 9. Most of the wealthier countries, agriculture aside, have fairly free trade, as they ought to. But what if we focus on evaluating only the quality of the trade restrictions? How good are the restrictions we get in tracking the ideal welfare-improving restrictions?
I say 1.6438. That is why I think Bhagwati is essentially correct to be fighting "the last war." What is your number?
Posted by Tyler Cowen on May 3, 2007 at 10:39 AM in Economics | Permalink
Comments
Sounds about right. The theoretical best-case welfare-maximization is pretty small, the likely downsides pretty large, and the public-choice risks approach certainty. This is one of those cases where active policy could improve outcomes, but most likely won't, to the extent that the best policy is not to even try.
Posted by: Dave at May 3, 2007 11:08:32 AM
I have to agree, with one exception. Trade restrictions can be effective at hurting someone else more than they hurt you, which allows them to be used for political pressure. Even though it can be effective in such a way, I'm still against them. Free Trade all around.
Posted by: taoist at May 3, 2007 11:09:21 AM
If you include in the term "trade restrictions" domestic support (i.e. as wealthy countries do when they are operating through the IMF, or when they are negotiating at the WTO and don’t happen to have strategically valuable domestic support in the particular sector under discussion at that particular moment in time), then the number must rise. Sometimes some kinds of large scale infrastructures with public goods characteristics are good for the economy over the long term, as are stable political institutions (i.e. predictable rules of the game).
Sometimes it is even good to help badly educated and poorly equipped farmers in starving countries by subsidising inputs that will improve productivity. Or you can have them grow peanuts of course, no reason why that shouldn’t work.
Posted by: aaron_m at May 3, 2007 11:12:22 AM
The correct answer is 1.6437.
Posted by: Alex Tabarrok at May 3, 2007 11:36:37 AM
Trade restrictions alone is a 2, but targetted import restrictions along
with export promotion seemed to work well for Japan and its emulators.
Posted by: cvj at May 3, 2007 11:39:05 AM
Nice post.
Tyler says that Fairfax County has wonderful parks. In general, local play parks in the US suck. A few piece of equipment erected indifferently and ignored. The contrast with Stockholm is striking. There, people obviously put more effort into making it function as a place for kids and adults. The equipment is better and more fun (maybe tort system explains the difference). There is almost always a kiosk to provide basics and sitting areas (the kiosks are often manned by youngsters who I believe are not subject to normal Swedish labor law). In the US I have seen a few exceptions but not many, and not in my neighborhood of Fairfax. If they were instead turned over to community private not-for-profit associations, I'm sure they would be much better.
Posted by: Daniel Klein at May 3, 2007 11:46:51 AM
How do you evaluate trade restrictions when they are used to allow industries with significant economies of scale and rapidly falling prices to become establish in the domestic market and achieve these advantages that could not be achieved without the restrictions? We have seen this happen often in Asia markets such as in Japanese autos or Korean semiconductors.
There is a wide variety of research that show this type of policy has allowed government support to generate a comparative advantage in industries that in turn leads to these industries being low cost exporters. Modern economic theory behind this implies that the old classical economic concept of comparative advantage as a static, unchanging concept does not apply to many modern industries where advanced economies usually export very similar products to each other.
Posted by: spencer at May 3, 2007 12:00:46 PM
3.14159265. Because this kind of discussion has a tendency to go around in...
Posted by: Roehlano Briones at May 3, 2007 12:06:38 PM
As Bryan Caplan argues in his new book, efficient policies are unpopular because they make it clearest, what
the policy is actually doing. For example, a simple tax on investment to give cash payouts to union
members would be very unpopular, while the extremely inefficient labyrinthine labor laws are nearly
impossible to get rid of.
Posted by: Person at May 3, 2007 12:16:14 PM
Zero, of course. Trade enhances efficiency and you cannot have too much of that. The harmful side-effects of trade (externalities, job losses), etc. should be taken care of explicitly. With zero, traders have the property rights (Coase), so the argument (and compensation) for them to stop has to be persuasive.
Posted by: David Zetland at May 3, 2007 12:18:53 PM
Where does this belief come from that French politics has brought a good health care system? I'm French and Tyler Cowen is like the only "libertarian" who praises this system. And as someone who is doing "field research" it seems pretty weird as well.
Posted by: Sécessionniste at May 3, 2007 12:51:15 PM
I'm going to go ahead and give them a zero, just based on the fact that I know of not a single trade restriction that helps, or conceptually could help me personally, and at least a dozen that directly harm me.
Posted by: Noah Yetter at May 3, 2007 1:07:13 PM
Great post except the throwaway stuff at the beginning.
How would we ever know whether Fairfax has "wonderful parks, libraries, and schools" from an policy point of view? The statement is likely true only in the sense that most wealthy suburbs have attractive parks, libraries and schools. No facts about costs are offered. Are the parks a wise use of land? It is hard to imagine that a majority of Fairfax taxpayers use and value their libraries (though we know Tyler is an intensive user).
(And Sécessionniste's challange should be answered as well.)
Posted by: John Kunze at May 3, 2007 1:56:33 PM
Taking public choice theory into account, namely the fact that politicians will take a rational inch and add a mile ending with an exception to free trade that is about a mile too wide, then the value I place on virtually all trade restrictions is 0.
I believe inspections are a necessary evil to prevent things like nuclear weapons smuggling, as well as to make sure things like fruit flies or "contagious" fruit fungus don't spread over borders.
I also favor trade sanctions against a regime if we guarantee we would go to war against that country if/when those sanctions fail to accomplish anything. I am also highly dubious on the value of war except to reverse an invasion.
Posted by: happyjuggler0 at May 3, 2007 3:26:45 PM
Fairfax County competes for young families of means, so it is in a competitive market with other upscale counties. Because Fairfax County residents are less destructive of public goods than are the residents of poorer counties, this means public goods are cheaper to provide exactly where they are less needed. This leads to what I call the Welfare State for Those Who Don't Need the Welfare State.
Posted by: Steve Sailer at May 3, 2007 4:10:06 PM
Compared to many other policies, trade restrictions outside of agriculture are simply not that destructive. Surely if the drug war and msc unnecessary wars rate a 0, trade restrictions should rate at least a 4. A bit worse than the average policy. If Cambodian Communism is your 0 I think trade restrictions rate at least a 7, maybe an 8.
Posted by: michael vassar at May 3, 2007 7:06:56 PM
Property taxes in Fairfax County are very high. A few months ago I was mailed a budget of Fairfax County, and it is far from a shining example of good government. Like the French healthcare system, Fairfax County government is expensive...can't forget that.
Posted by: Scott W at May 4, 2007 2:47:42 AM
Fairfax schools are good relative to some others, but good compared to what they could be with the money spent?
Don't think so. As for libraries...apparently you haven't been to my part of Fairfax. Parks? Where are these great parks you speak of? Fairfax is a high cost high wealth area. It is to be expected that our facilities are better than many places. Considering the money spent they aren't anything special.
Posted by: Fairfax Resident at May 4, 2007 8:24:54 PM
Posted by: 鑽石 at Apr 2, 2008 8:33:38 PM
