Paul Krugman won his Nobel Prize defending “free trade.” I am an unrepentant capitalist and believer in free trade. Among the experts in the academy, for a professional economist to reject free trade is like for a biologist to reject evolution. So Krugman early in 2016 caused alarm with this column which lead some to claim Krugman no longer supports free trade.
Reading the article, I don’t think Krugman rejected free trade. Rather, he did something sneaky. He tried to slip in — what I see as (John) Rawlsian sentiment — to “the” case for free trade, that which in fact reflects Krugman’s larger policy desires. As we will see below, Krugman’s is “a” case for free trade, not “the” case for it.
Here is the offending quotation:
[T]he conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins — but we now have an ideology utterly opposed to such redistribution in full control of one party, and with blocking power against anything but a minor move in that direction by the other.
The folks at Cafe Hayek rightly objected.
I’m no expert in economics; knowing my limits then, I defer to them. I sympathize with Milton Friedman’s “Chicago School.” There are many different viable “schools” of thought on economics in the academy. And, as noted above, some are not viable. Mercantilism/protectionism isn’t viable (it’s like Young Earth Creationism in science).
In addition to the Chicago School, I’m familiar with the Austrian School and Keynesianism (which, perhaps is the Harvard School?). The Chicago and Austrian Schools appeal to those with right of center views on economic matters. One could say Keynesianism appeals to left of center folks. But a hell of a lot of right of center folks are Keynesians. As Richard Nixon said, we are all Keynesians now.
All three schools have respectability in the academy (one reason why out of all the soft sciences, right of center folks may prefer economics). Though, Keynesianism dominates. And all three schools are agreed in their defense of free trade.
Paul Krugman is a capitalist. Laissez-faire ideologues have a tendency to look at those to their economic left and term them “socialists.” Just like people like Noam Chomsky and Cornel West can look to Presidents Bill Clinton and Barack Obama and see “pro-business” conservatives.
Whatever respectability that the kind of capitalism the Chicago and Austrian Schools would endorse has in academic circles, in the real world, the kind of capitalism that prevails is that which also prevails in the academy: private markets do the bulk of the work with regards to means of production, distribution and exchange. But governments play a much, much bigger role than they would in laissez-faire Utopia.
Our capitalist world, for good or ill, belongs more to John Maynard Keynes than Milton Friedman. Another important name is John Rawls, who again, whatever you have heard about him was not a Marxist. He was an egalitarian. And a utilitarian. And a capitalist.
I think he saw the writing on the walls that the kind of “equality” delivered by the communists and socialists of his day wouldn’t put the food on the table, or grow the pie as big as capitalism could. As an egalitarian, he may have lamented that observation. But he understood we needed some degree of inequality of economic outcomes to rise the economic tides, as it were.
But when possible to redistribute as those tides rose to make the lives of the least off better, Rawls demands we do it. That’s what we see in Krugman’s sentiment on how free trade should work in his first best world.
As a capitalist, I understand we don’t live in laissez-faire Utopia and am therefore open minded on policies inconsistent with such. For instance, like Milton Friedman, I support the universal basic income. I am also open to such Rawls like ideas of redistribution, provided we can do so while growing the pie in a utilitarian sense.
So for instance, to use one of my teaching examples (I like to keep my math between the 5th and 8th grade levels): Say you have A, B, & C, each who possess 10 utils. The pie is 30 and we have equality. After a free trade move, A & B have 15, but C only has 6. The pie grew from 30 to 36. On utilitarian grounds (greatest good for the greatest number), it’s a desirable move.
But what about C? C is the free trade loser. C may be the American Steel industry. Rawls would say, yes, do the free trade move, but figure out a way to take two points from A & B and redistribute to C. So we would still have 36, a bigger pie; A & B, each with 13 would be better off. And C would be left no worse off with 10. The fact that we have more inequality isn’t relevant.
Now, this doesn’t necessarily mean the above endorses anything seriously inconsistent with laissez-faire. I am more familiar with the work of Richard A. Epstein than Robert Nozick (who is a place I would look if I wanted to dialog on Rawlsian grounds). But from reading Epstein, a question he demands we ask is what empirical evidence is there that these government programs and policies actually pass Rawls’ test? What if they either don’t grow the pie or inhibit the maximization of the pie’s growth? What if government’s policy doesn’t get us from the 30 to the 36, but perhaps even below 30?
If government policies can’t demonstrate their effectiveness on these grounds, according to the theory, then we don’t do them.