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Krugman Channels Rawls in Sympathy for the Free Trade Losers

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.

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Jon Rowe is a full Professor of Business at Mercer County Community College, where he teaches business, law, and legal issues relating to politics. Of course, his views do not necessarily represent those of his employer. ...more →

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180 thoughts on “Krugman Channels Rawls in Sympathy for the Free Trade Losers

  1. If government policies can’t demonstrate their effectiveness on these grounds, according to the theory, then we don’t do them.

    I think that you buried the lede, because your last sentence is pretty much all that matters. At least it is all that ought to matter. Unfortunately the world is full of political and media folks saying things like:

    …but we now have an ideology utterly opposed to such redistribution in full control of one party…

    Nonsense, no one in politics is opposed to redistribution. If they were, then they wouldn’t be in politics. Every congressperson knows that they have to bring the pork back home to their district to get re-elected. Every mayor and governor knows that he has to get his name on some piece of infrastructure to have a shot at the next level. Every president wants his Obamacare to ensure his legacy. Redistribution is the whole game. Without it, there’s nothing.

    Republicans are no more opposed to redistribution than Democrats. The only difference is that each party wants to redistribute for the benefit of different groups. Same scams, different marks. The illusion of of a difference mainly serves to get us financially, intellectually, and emotionally invested in one set of scams by making us really really hate the scammers on the other side.

    We talk about free trade as if it is a choice. It is, but not in the way the people like to talk about it. The choice is accept the inevitability of widespread technological advancement or bury your head in the sand and pretend that it’s 1960 and America is the only country that can build a reliable car or assemble a television or make a microchip.


  2. There are many different viable “schools” of though on economics in the academy…
    …In addition to the Chicago School, I’m familiar with the Austrian School and Keynesianism (which, perhaps is the Harvard School?).

    And there’s a hell of a lot more if we dispense with the filter of what Jon Rowe (or anyone else, for that matter) finds “viable.” That, to me, is the central problem with economics as a discipline purporting to be a science, albeit a social science.

    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.

    In other words, economic theories aren’t accepted or rejected based on the degree of objective empirical evidence supporting them so much as the degree to which they confirm one’s ideological, political, priors.

    All three schools have respectability in the academy

    Which sounds like the sort of situation you would expect in the Humanities, say, literary criticism or film studies.

    Economics as it stands, I would submit, simply isn’t a well-developed science despite it’s “mathiness.” It could be and should be a strictly descriptivist, positivist, endeavor comprised of a corpus of nearly universally accepted theory supported by accepted facts.

    It should concern itself with the “is” while leaving the “ought” to the political process.


    • “And there’s a hell of a lot more if we dispense with the filter of what Jon Rowe (or anyone else, for that matter) finds ‘viable.’


      “In other words, economic theories aren’t accepted or rejected based on the degree of objective empirical evidence supporting them so much as the degree to which they confirm one’s ideological, political, priors.”

      You completely missed the point. Though the fault could be mine for the way I made it. I’m not a trained economist. I have had courses in college and graduate school. And have done much self study. I teach the subject in business courses at a very basic level; basically where I know enough not to make an idiot out of myself. (I consider myself a much better armchair philosopher or historian than economist.) My strength is I can research and report on what’s viable in the academy.

      By way of analogy, I have friends who are involved in the creation/evolution debate. I too am not a trained biologist. And I have no interest in becoming an armchair one. If I went into it cold, a smart Intelligent Design advocate or even a Ken Ham would probably beat me in a debate. But I know what prevails among the experts in the academy who study the issue. And it’s not ID or YEC.

      Out of all of the soft sciences, economics is probably LEAST susceptible to ideological bias and most grounded in objective empirical evidence. Once that work is done, then I can observe and report on what prevails.

      And I do so while crediting theories of which I personally am skeptical. For instance, I’m skeptical of Keynesianism. But I do understand that it prevails in the academy, not by my endorsement. But because it hasn’t been refuted on objective empirical grounds. Or so the credentialed experts tell me.


      • Out of all of the soft sciences, economics is probably LEAST susceptible to ideological bias and most grounded in objective empirical evidence.

        If that were true there wouldn’t be a Chicago school. It’s principles have been tested against Keynesians since 2008. Keynes won going away.


        • and to continue on nevermoor’s point, if that were true neither Arthur Laffer nor Stephen Moore would have any impact on public policy.

          the biggest problem that I see with economics is that economics-as-a-science is full of doubt about the labor market, the effect of minimum wage laws, the effects of modern trade deals, and macroeconomics generally, while economics-as-a-political-tool appears to have no such doubts; and economists who wish to influence political outcomes are far too happy to erase the differences between the two.


        • My position is between the liberals and the conservatives on this one. There is something to economics as a science. Its more than a philosophy with numbers. Venezuela currently and the Communist countries previously demonstrated you can only ignore basic economics for so long without completely ruining things. At the same time, I don’t see market forces quite the same way as natural forces like some of the more passionate advocates of the free market are won’t to. You can intervene in economy at times without too much distortion.


        • Most of the Chicago school’s ideas are orthogonal to Keynesian economics. As for monetarism, the part that isn’t orthogonal, the end result looked a lot more like a synthesis than Keynes defeating Monetarism. After all, stagflation happened in the 1970s and the Keynesian model thought that was impossible. By contrast, Friedman’s expectations-augmented Phillips Curve got it right.


    • “Science” or not, economics is a discipline. And my view of what makes a “discipline” is that it’s a field of study that has its own rules for what is in the pale and what is not in the pale, and those rules are related to “ought” statements in that they prescribe what’s considered acceptable evidence within that field of study. Members of the discipline bicker on the margins of those rules, and if they bicker enough, the rules change over time.

      My point is twofold. One, if the rules accept the values of freer trade, then it’s not surprising that freer-trade-friendly schools of thought are considered “viable” within the discipline. Two, whether economics counts as a “real” science or is “demoted” to the status of a humanity is a red herring. It still does what it does and “ought” statements are implicated in that. (I’d go even further and say that the “hard” science disciplines must and do address or at least assume “ought” statements. However, the only way I can demonstrate that begs the question I’m trying to prove, so maybe I’m off base there.)


      • I think I agree w/ this, but would offer my own observation that the common language of economics is rooted in micro-economics, which involves simple systems. As macro-economic theories are produced, there are more opportunities for divergence by emphasizing one set of factors over another.

        On issues like the minimum wage, on which there is less consensus than on other topics, the basic micro- language remains intact, so that even those economists who don’t oppose a minimum wage increase utilize basic micro-economic theory and assume that the increased price of labor will reduce demand for labor at some point, but (a) modest increases have not been shown to increase unemployment (arguing the elasticities); (b) that the jobs lost are the least efficient and thus there is utility in destroying low-paying jobs, which frees up labor for more productive work; or (c) government subsidies, such as the EITC, have already created a market inefficiency that needs to be limited.


    • The schools strike me as merely a collection of interconnected theories looking for empirical evidence to support them.

      Kind of like how physics has classical, quantum, and string – and know one I know is claiming physics isn’t a science.


      • Some seem to work better than others. Last I checked, the Austrians (and a few others) were still trying to adjust reality to make it fit their models, whereas the NK’s had no problems. It seemed pretty simple to them.

        The Great Recession was impossible, after all. (Once reason Greenspan seemed so flabbergasted. His entire economic model was insisting that what was happening could NOT happen)


    • In other words, economic theories aren’t accepted or rejected based on the degree of objective empirical evidence supporting them so much as the degree to which they confirm one’s ideological, political, priors.

      This is a common perception of economics, but does not conform well to how economics actually works. The Austrians are not part of the mainstream due to methodology disputes – they aren’t keen on empirical methods in general. And the ideological disputes within economics are pretty subtle these days – the difference between a New Keynesian and a New Classical is very slight differences in emphasis, their models of the world are the same, they just think different parts of that model are more or less important in practice.

      The same is true on the micro side of the fence. The more interventionist economists believe market failures are more prevalent and easier for the government to fix in practice than the less interventionist economists do, but this is just a different weighting of the same model, not a fundamental disagreement as to how the world works.


  3. Paul Krugman won his Nobel Prize defending “free trade.”

    I don’t think that’s quite correct; the work for which he won the Nobel was more descriptive than prescriptive. In fact, one implication of New Trade Theory is that, in theory, well-targeted protectionist measures could help a country’s economy develop, but Krugman himself has expressed skepticism that protectionist measures are, in practice, unlikely to be targeted well enough to do more good than harm.

    Quoting Krugman, not you:

    [T]he conventional case for trade liberalization relies on the assertion that the government could redistribute income to ensure that everyone wins

    There’s a bit of a sleight-of-hand here. The point of saying that the government could redistribute income to ensure that everyone wins is that if this is true, then it means that there’s a net welfare improvement. The gains to domestic winners are greater than the gains to domestic losers, usually much greater. This doesn’t mean that the government actually should do this, as this causes deadweight loss from taxation, and there are some issues with moral hazard.

    To give an analogy, when we banned slavery, that was a net welfare improvement, but it made some people, namely white slaveholders, worse off. Should we have compensated these “free black losers?”

    Of course, owning slaves is very different from benefiting from the system of privilege created by trade restrictions. But the similarities are greater than some would like to admit, as the indignant responses to this comment will likely demonstrate. For years, US manufacturing workers benefited from a system of unjust laws that privileged them over foreign workers, to the detriment of those workers and of American consumers in general. I hate to go all SJW, but while having your privilege taken away may be painful, it’s not the same thing as being oppressed.


    • Krugman won his Nobel for being critical of Bush. I’ve never met an economist who thinks his economics work was worthy of the award. And he was never a defender of free trade, strictly speaking. He was always sympathetic to government intervention in markets.


      • No, Krugman’s work on trade was a real contribution to the discipline and was worthy of a Nobel. There’s an argument to be made that Krugman’s mentor Jadish Bhagwati deserved a Nobel first, but Krugman made real advancements to trade theory.


          • If he’s unable to do advanced math, he’s certainly capable of hiring people to do it for him. A friend of mine’s worked with him, and hasn’t had a bad thing to say about the man.


            • Charles Stross wrote a book about that. Well, it was also about how you’d do a banking scam in a universe without FTL, and also how space piracy would work. (Effectively insider trading. You’d board the freighter, scan the cargo — generally information and templates — send that information groundside, where your partners would invest based on that knowledge. You’d hold the freighter a few days, then send it on — with all it’s cargo. You made so much more with the inside knowledge than from stealing cargo.)


      • Did the committee for the John Bates Clark Medal screw up in 1991, or were they just really prescient about what Krugman was likely to write in the NYT in the 2000s?

        Because the economists I knew before his Nobel Prize generally said he was probably on the short list and reasonably so.


    • The point of saying that the government could redistribute income to ensure that everyone wins is that if this is true, then it means that there’s a net welfare improvement. The gains to domestic winners are greater than the gains to domestic losers, usually much greater. This doesn’t mean that the government actually should do this, as this causes deadweight loss from taxation, and there are some issues with moral hazard.

      “This is good change, because it makes it possible for everyone in the country to be better off.”

      “Is that going to happen?”

      “Of course not.”

      Yes, definitely some sleight of hand.


      • When you don’t understand, you can just say so. It’s important that it be possible, in principle, for the winners from any change in policy to compensate the losers, because this means that the gain to the winners is greater than the cost to the losers. The alternative is that the gain to the winners is less than the cost to the losers, i.e., that there’s a net welfare loss.

        Nothing about the claim that a policy creates a net welfare gain implies that any such compensation will, or even should, take place. There are good reasons not to do so, as actually doing such compensation will result in a net welfare loss due to moral hazard and deadweight loss from taxation.

        On a related note, let’s clarify what we actually mean when we say that free trade creates “losers.” What we mean is that a certain class of American worker has traditionally profited from legal restraints on trade that protected them from competition from workers in foreign countries, and that elimination of those restraints on trade has slowed wage growth for that class of worker, while opening up new opportunities for foreign workers and lowering prices for consumers.

        The logic here seems to be that because someone has traditionally been privileged in some way, the loss of that privilege needs to be compensated. In which case we also should have compensated white men when employers started hiring black men and women for jobs which had traditionally been reserved for white men.


        • It’s important that it be possible, in principle, for the winners from any change in policy to compensate the losers, because this means that the gain to the winners is greater than the cost to the losers. The alternative is that the gain to the winners is less than the cost to the losers, i.e., that there’s a net welfare loss.

          You’re conflating net dollar change with net welfare change, as if every dollar has equal utility. It doesn’t. Taking away everything a group of median-income families has, distributing it among all the rest of us, so we have a few extra bucks each, and then giving Warren Buffet an extra hundred on top of that does not add up to a net gain in welfare.

          And the concern of the investment class for foreign workers touches me, it really does. I look forward to the day when it also includes caring less about saving a few cents than about whether their work includes being poisoned, crushed, or immolated.


          • Mike,

            My initial thought was to disagree, but your point is probably at least partially valid. Kaldor Hicks makes the simplification that an exchange is likely on net welfare increasing if in theory the net losers could be compensated by the gainers. As the post clarifies there is no actual requirement to make the compensation. KH efficiency is more sophisticated than Pareto efficiency, where every party actually has to gain. I am no economist, but I believe that compensating would indeed convert a KH efficiency into a Pareto efficiency. That is its value, it allows a way to simplify and model likely welfare increasing interactions.

            But, you are right that the person not getting the compensation may value it more (or less) than the person actually keeping the gain. It is a useful heuristic at best. Not a perfect model.

            I also agree that society needs to avoid poisoning and crushing people to save a few pennies. But most job losses are simply due to more efficient competitors capturing our consumer dollars. We can allow consumers to save money and competitors to produce more efficiently while also prohibiting poisoning and crushing. and thee primary beneficiary of the process is the consumer and the worker, who have seen standards of living increase by two orders of magnitude.


        • I’ve seen this argument a few times now, that global trade is beneficial for other nations, and American workers just need to suck it up and reflect on their historical privilege and feel appropriate levels of shame.

          It sounds almost like a conservative parody of liberal affirmative action, like an extension of Jesse Helms’ “White Hands” ad where someone admonishes the white guy that his historical privilege has been lifted and he should be happy now that the black guy has a job.

          This view of global trade as a zero sum gain where we can create wealth for 3rd World workers, or American workers, but never both, directly contradicts the main argument usually made for in favor of it.


          • Nonsense.

            The argument is that voluntary cooperative interactions increase net benefit to everyone directly involved.

            The “loser” in this situation is in actuality an incumbent who only loses by not getting the hoped for beneficial act of cooperation. The question thus revolves around whether or not a person has a right to demand others to cooperate with him, or to prohibit others from cooperating with third parties absent contractual (again mutually agreed to) obligations to do so.

            If I sell lemonade, do I have a right to demand people buy from me? How much? Do I have a right to prohibit others from competing with me by arguing that I will be harmed by the reduced income stream?

            In other words, what right, if any do I have in this projected income stream?

            I wouldn’t argue that people losing their hoped for sales or hoped for jobs are not harmed. They are, in a fashion. The question is what do we want to do about it. Allow it? Prevent it? Allow it and build safety nets to soften the loss?

            Modern economies seem to be attracted to the latter. This leads to what is known as creative destruction as EVERY job, product, supplier and investor continuously seeks to improve how well they solve problems for fellow humans or they become short term losers. It is a self amplifying process of human enrichment paid by the constant risk of losing out to better terms of cooperation.

            Global trade is just a bigger version of any other version of trade, and is in general positive, not negative sum. But the person (in this case the displaced worker) not chosen for cooperation is a loser until they make changes (such as getting a new and still efficiently relevant job. I can switch to a new recipe for lemonade or offer iced tea or become a plumber.


            • Will you count voluntary child slavery on the list of cooperative interactions?
              (I’ve already got someone else on record on this site as supporting that. Aside from me, who has merely financially supported it, and at any rate, I question my own ethics often).


              • I personally do not believe children are prepared to enter into binding relationships of this type with adults.

                I support places like Bangladesh establishing rules on child participation in labor markets. I am not a fan of people from first world nations dictating what these rules should be. We could provide suggestions, assuming the people of Bangladesh give a shit, and we can refuse to buy things built with child labor. I would be careful though that we don’t put good intentions ahead of good long term outcomes.


            • “Global trade is just a bigger version of any other version of trade”

              Gack. No, it most certainly is not. Trade within a nation-state must be in compliance with the background laws of the state. Trade between nations, where capital is allowed to flow freely but labor is not, allows capital to engage in regulatory arbitrage. Whether the issue is regulation of labor, environmental contamination, or dispute resolution mechanisms that are designed to defeat state sovereignity, there are plenty of reasons why international trade is not just a bigger version of intra-state trade.


              • You are correct. I should not have included the word “just”.

                My point was that the positive sum nature is still true. You are right that there are additional complexities and potential externalities.

                Regulatory arbitrage is on net one of the most important features of international trade. In general it prevents over-regulation and the regulatory sclerosis which kills off complex systems. Not enough regulation and the system can’t solve the problems of cooperation, too much regulation and the system becomes change resistant and captured by special interests and incumbents.


  4. A quibble, not to Jon Rowe but to the Cafe Hayek “open letter”: The open letter argues against Krugman’s statement that “the ‘case for ever-freer trade is largely a scam'” and goes on to explain why the conventional case for free trade is a good one.

    However, in his article, Krugman says, “the elite case for ever-freer trade is largely a scam” (bold added by me). He’s not arguing against freer trade. He’s arguing against a certain type of argument for it. And Cafe Hayek misses that point.

    Krugman’s point about redistribution and one party being opposed falls apart under JR’s criticism above (a criticism I didn’t think of until he made it but which strikes me as a good one). So Krugman deserves criticism there. But even so, his point holds if we tweak it a bit and look at certain kinds of redistribution to certain kinds of parties who lose out over freer trade. To be clear, though, I’m not sure exactly what the redistribution would or should look like (how do we identify the losers? how do we compensate or help them? who pays for the redistribution?)


    • and

      “Redistribution” as used in politics isn’t a neutral concept. It doesn’t mean “taking from someone to give to someone else.” Instead, it means “taking from the more fortunate to give to the less fortunate.” Which is why raising top-level tax cuts is described (primarily by GOP critics) as redistribution, but lowering bottom-level tax rates isn’t.

      So I don’t see how JR’s criticism lands at all.


      • If redistribution means “taking from the more fortunate to give to the less fortunate,” why do you say “lowering bottom-level tax rates isnt [redistribution]”? And why would critics of the GOP use the word to mean the opposite if that’s not how it’s used “in politics”?

        However, I get your point that redistributionism is not “neutral” and that there are varieties of ways to “redistribute” from some people to others.


        • You didn’t understand because my comment wasn’t literate.

          Raising taxes on the rich to fund government programs is criticized (from the Right) as redistribution.

          Lowering taxes on the rich matched with defunding of government programs that support the poor is not criticized as redistribution.


        • No. I don’t think it’s the “same scams with different marks” at all, and I don’t think small-scale local pork (which is far less prevalent, and likely part of the reason party unity is so much stronger and more damaging) is a counter-argument to that.

          It is also simply true that the GOP is opposed to redistribution in the sense of the word Krugman means, and the sense of the word that is relevant in the context of free trade discussions. The Democrats are not.


  5. Note that neither the Marxist nor Austrian schools are taken seriously by the mainstream, and the Keynesian and Chicago (AKA Monetarist) schools have largely resolved their differences, with New Keynesianism owing a lot to Monetarism. Which is why I disagree with this:

    Our capitalist world, for good or ill, belongs more to John Maynard Keynes than Milton Friedman.

    The main tool we use for macroeconomic stabilization is monetary policy. Krugman, a New Keynesian, endorses the use of fiscal policy only at the zero lower bound. I’d say Friedman won, but at best the Keynesians fought him to a draw.

    Also, the association of Keynesianism with big-government policies is largely a historical accident. Fiscal stimulus can be achieved either by cutting taxes or increasing spending, and fiscal consolidation can be achieved either by cutting spending or increasing taxes, and this is independent of the baseline levels of taxation and spending. You can use fiscal policy with baseline spending at 15% of GDP, and you can use it with baseline spending at 30% of GDP.


    • Marxism isn’t taken seriously because of 11/09/89. The mainstream would like to alienate the Austrians. But enough of them are embedded in the academy and successfully defend their ideas that I conclude it’s more viable than Marxist economics. I could be wrong on my observation. I’ve got some friends on Facebook who are notable Austrian economists. I might invite them to chime in (though I doubt they will).


      • Well, Marx himself is taken seriously by quite a lot of people, including a lot of mainstream academic economists, not to mention sociologists and anthropologists. “Marxism” is rather vague and extremely broad. The Soviet Union fell for a lot of reasons; it was not run according to Marx’s precise blueprint.


        • Well, Marx himself is taken seriously by quite a lot of people, including a lot of mainstream academic economists, not to mention sociologists and anthropologists.

          Question, Larry: It seems to me they mostly agree with is descriptive/analytical work, rather than his narrow normative or prescriptive views. Does that seem right to you?


          • Depends on whom you ask, and precisely what parts of his descriptive/analytical work and normative/prescriptive views you’re talking about. Obviously, views vary, especially on someone of Marx’s caliber.

            I’m not Hal Draper or David Harvey, but I’ve read a bit of Marx and secondary scholarship; if you have any specific questions, I’d be happy to address them as best I can.


            • (This isn’t a question, but…) seems to me that lots of academics who identify with Marxism adopt, and attribute to Marx or Marxism, things like a) a rejection of culturally determined authoritarian social structures; b) that capitalism is an inherently unstable economic system which only margianlly helps lower income people in the best of times and crushes them in the worst; that political arrangements under capitalism will inevitably be corrupted to serve the financially powerful; that the cultural norms enforced within a capitalistic society are determined by what fosters greater profits to the private owners of the means of production.

              All that is descriptive stuff (whether true or false), and I find that lots of academics accept those and related theses. What they don’t accept, in general or even on the margins, is that workers of the world should unite to reclaim ownership of the means of production based on the labor theory of value.


    • We’re at a 0% interest rate and have $19 trillion in debt. Both Keynes and Friedman lost, colossally.

      As for the “historical accident”, I think that’s a misreading of human nature (which Keynes was guilty of, as well). Once a democracy commits to the idea that prosperity can be generated from lowering taxes and giving things away, it’s inevitable that we’d see government grow. Government can only be kept small if benefits are dependent on taxes. When the concept of taxes is divorced from the concept of benefits, what follows is no accident.


      • 19 trillion. Sounds like such a HUGE number.

        So why not express it as a % of GDP? Something we can use to make more apples to apples comparisons, rather than just throw out a huge number and assert it’s crazy because it’s huge?

        Historically, how far out of whack is that as a debt? A little bit? A lot? About average?

        What about the deficit? How are we there — adjust for inflation, at least, if you think % of GDP isn’t a good number. Good? Bad? Average?

        I mean if you’re gonna try to steal that many bases, at least back it up a little.


      • How could that possibly mean that Keynes is wrong?

        I get how it falsifies freshwater (e.g. Chicago school) economic theories, but it’s perfectly consistent with standard saltwater (E.g. Harvard) models.

        Also, debt concern is entirely overblown. At 0% rates we should have a LOT MORE debt, since we could use the money to do good and productive things now, then use inflation to cut into the amounts ultimately owed. Failure to do sufficient stimulus is one of the dumbest unforced errors in the last decade of governance (though at least we weren’t as dumb as Europe, which decided to be actively counterproductive).


        • At 0% rates we should have a LOT MORE debt, since we could use the money to do good…

          So long as it’s long-term debt so that 0% figure is locked in. If it’s a huge stack of three-year notes at 0% now, in three years there’s the tough choice of coming up with enough free cash from the revenue stream to repay it, or borrowing at a higher rate to roll the debt over. The former seems unlikely; the latter implies that at some point in the future the government will have replaced those 0% notes with debt paying a much higher rate.

          (I admit that I’m old enough to remember when the Treasury was selling 30-year bonds at 13% interest. Part of me wishes I had listened to a couple of friends who advised me to put as much of my income as I could into those.)


        • No.
          There is no way whatsoever to determine whether the resources expended by government would not have been better employed in alternative uses, where they may have satisfied more urgent consumer wants. The government just ‘spends’, but there is no economic calculation taking place. There is no way to gauge the success or failure of their projects because they are not subject to profit and loss accounting. The opportunity cost will forever remain a mystery.

          We have to create *value*, which is where the energy of an economy comes from and the thing government is especially poor at doing. Government spending does not imply a real demand.


  6. “As Richard Nixon said, we are all Keynesians now.”

    That was probably AFTER he took the US off the gold standard.

    The problem, as with so much of gov’t legislation, is the time factor. A trade deal is passed and everyone promises that they will fund programs to help folks who are negatively impacted……..next year…or ‘when it’s needed” or even this year…Then, when it’s time to fund it, no one gets around to it. Kinda like my several of my state programs: Casino gambling law passes, funds to be used for the schools. The next year the cash rolls in and gets dumped into the general fund……school funding goes up a tiny amount….not one for one like what was promised…..


  7. As far as I can tell most economists believe in the free market in general and free trade in particular these days. There are no serious protectionists or anti-market economists left. The divide seems to be between the people that thing that free trade and the free market alone are enough to raise prosperity for everybody and the people that think that some sort of redistribution mechanism is necessary to create political support for the free market/free trade among the masses at least if not greater economic fairness. I’m in the latter category. I guess Krugman and other liberal economists would be to.


    • Absolutely. A little awareness of political reality can be salutary in economic considerations. It is especially needed now days when one of the major questions confronting us is whether political acceptance of liberal trade can be sustained when the most visible benefits are to humanity on a global scale while the most visible costs fall on humanity on a national scale. We forget, at our peril, that the political power and decision making authority is vested almost entirely at the national level.


      • Of course the critics of this approach believe that the welfare state and any form of wealth redistribution has more dangerous side effects than benefits and that the free market is more efficient at everything in general. They would prefer to ignore the politics behind it because many of them are fundamentally anti-politics.


  8. I have come to dislike the term “free trade” because its like “free speech”.
    That is, its a term that means whatever anyone wants, but stands as a unassailable icon. To challenge any of it is to challenge the entire edifice.

    As Lee mentions, there isn’t any serious “Unfree trade” advocate on the scene.

    So disagreement over trade rules come down to which rules are beneficial and which ones are harmful, and to whose interests.


    • Chip Daniels:
      As Lee mentions, there isn’t any serious “Unfree trade” advocate on the scene.

      I would have agreed with this before Trump won the Republican nomination. Insofar as he has any policy positions at all, he seems pretty meaningfully opposed to Free Trade.


      • Yeah, the word “serious” was doing the work in that sentence.

        I know there is a lot of fantasy wishing and hoping among desperate people that Trump would somehow slam down the gate on global trade, but its na ga happen.

        He isn’t serious in his intent, he doesn’t have any coherent notion of how to do it if he was, and no one around him does either.


  9. I am signing on with Lee here. I don’t think there is any serious or respected economist in the United States that disputes the benefits of free trade and/or the free market. What Krugman is noting is that the benefits of free trade can often be diffuse and cheaper consumer goods are nice but they can’t stack up to lost wages and having a well-paying factory job turn into a low paid Walmart greeter job.

    The left simply argues that some form of redistribution is necessary to ensure an equitable society. Something that libertarians and the right abhor with moral horror.


    • We abhor it with moral horror because we are wise enough to know that the leftys redistribution equitable Utopia will never materialise as the state gorges itself and economic dynamism wanes.

      We also cring at the immorallity of the left who believes it should have the authority to seize other peoples property by deploying state-sponsered, jack-booted thugs.


  10. Free trade is a pretty simple concept.

    Here’s an oversimplified example: lowering a barrier on a specific widget between the US and another country (say, China) will reduce the cost of Chinese goods, increase factory employment in China (where despite being low wage by our standards, the jobs are comparatively good), and drive US manufacturers of that widget out of business, causing people to lose their jobs. So every American is enriched by a few dollars because the widget is cheaper, a group of Chinese people are enriched (often fairly dramatically, in local context), and a group of US people are unemployed.

    The politics are obvious. The US unemployed people are pissed, and say the deal was a giveaway to China. The Chinese people don’t have a voice in America. And no one is all that passionate about the few dollars they saved on widgets. So a net good (by a real but not earth shattering amount, even ignoring Chinese gains) is politically toxic. Unless you can do something to protect the few unemployed workers. Which (as others observed) is easy to say but hard to do.


  11. Enough with Krugman already. Please stop giving him attention. He’s a political operative whose opinions on economic policy blow exclusively in the direction of his partisian politics. He has no real convictions.

    His primary analytica mode is post hoc, ergo propter hoc. He will mention two events, separated by time, magically pull some sort of causation out of a hat and call the result his clever economic analysis. The sadly uneducated and credulous will think they have gained a new insight thereby.


  12. So… I’m a graduate student in economics at a more or less “freshwater” university. I also have a degree in political science and considerable background in philosophy. Also, I’m a communist.

    Rowe’s essay here fails for a number of reasons.

    First, I’m confused: Rowe praises Don Boudreax’s Cafe Hayek post, but then argues the opposite. Boudreax argues that redistribution is unnecessary; Rowe seems to argue that it might be inefficient. Based on my experience as an actual scholar of political science and economics, free trade is sometimes unequivocally good, sometimes unequivocally bad, and sometimes causes overall improvement with losers.

    As a fellow “armchair” philosopher, I agree with the earlier commenter that Rowe’s gets the ideological motivation backwards. I myself am a communist because communism is fundamentally a moral position, not an economic theory. I admire Marx and Keynes because they are persuasive, not because they agree with my ideology. (Keynes owed more to Marx than he admitted; c.f. Joan Robinson.) But I have read a lot of economics, and I move forward based on empirical evidence and theoretical soundness, not on agreement with my ideology. It is Rowe who is coming off as a “YEC” equivalent: he might believe the conventional wisdom, but not on the evidence.

    As a communist and internationalist, I’m for free trade ideologically; as a student of economics, the case for generally free trade seems theoretically and empirically sound. But discussing the merits of “free trade” is a non-starter because the world already has nearly perfectly free trade, at least in everything but labor mobility. No one disputes the general benefit of free trade; what controversy exists is now about free trade absolutism.

    Harvard economist Dani Rodrik claims that the overall gains of increasing trade freedom are often minuscule, and the losses suffered by the losers can be one or two orders of magnitude larger than the social benefit. In other words, the effect of increasing already nearly perfectly free trade will result in 90-99% “redistribution” and 10-1% net social benefit. The inherent inefficiency of transfers probably makes redistribution of these benefits not feasible, but that’s an argument we shouldn’t increase trade freedom.

    Making an argument using “utils” is never very good: we can never directly measure utility. Economists have reasonable justification to talk abstractly about utility, but demanding that anyone directly demonstrate an improvement in utility is to demand the literally impossible.

    Finally, the word “redistribution” is extremely (and in my opinion unacceptably) vague, which seems to often mean “economic outcomes I do or do not like.”

    There are a lot of other issues with Rowe’s essay, but I think these will suffice for now.


  13. I think there are a few unspoken assumptions to the OP that could use some push-back.

    First, people talk about “free trade” as if it’s this natural thing that occurs in the absence of government interference. This is not accurate. Even where there are no overarching government regulations on what items or services can be traded, the underlying property rights regimes, tort law frameworks, and law enforcement norms all play huge roles in what kind of economic activity takes place. This is not an incidental phenomenon, but one that goes to the very heart of the matter.

    For example, if a legal regime does not consider clean air as a cognizable property right, then you’ll see people trying to capture gains for themselves by engaging in business that creates air pollution costs that can be effectively externalized in this no-property rights-to-clean-air system. In a regime where people are considered as having a right to clean air, then engaging in polluting industry at the expense of others would instead be considered a kind of theft, and the earnings resulting from that behavior won’t be enshrined as meriting property protection by the government.

    So this phenomenon that OP is talking about, where the economy is this neutral engine that just needs to be left alone, so that we can redistribute its benefits afterwards, is not a great picture of the potential for policy interventions.

    There was an interesting NYTimes article this weekend about something very similar. Apparently Hillary’s economic team is interested in tweaking supposedly-neutral background economic rules, with the aim of creating an economic climate more conducive to relative equality. These rules may include those regarding the ability of workers to organize, or how corporations distribute earnings, or how antitrust laws get enforced. Jacob Hacker of Yale University calls these kinds of measures “predistribution”.


    • Robert,

      I would agree that free enterprise requires shared rules, courts, laws, definitions of property rights and such. Some may argue that this can emerge outside of government, but that is beside the point. The distinguishing characteristic of free markets isn’t an absence of rules, it is on the nature of the rules. Sports have rules and umpires. However, the outcome on the field is intended to occur based upon the play of the players NOT based upon the active interference and influence of partial judges and umpires hoping to determine acceptable outcomes.

      It is important to clarify that markets do not apply to all human behavior, and that calls for freer markets do not necessarily transfer to an extension of markets to non economic activity. Markets are a problem solving system that apply to just a portion of human activity. Negative externalities generated by markets may need to be solved via non market mechanisms (or not) and politics and science are distinct problem solving domains of their own which may be more appropriate to address given problems.

      Caveats aside, the article you link and your comments imply that you value substantially more activist intervention in the activity some of us believe are best handled by markets. Back to the umpire analogy, you (and both political candidates IMO) appear to value umpires taking a more active role in game outcomes both during the game and before the game starts (“predistribution”).

      I can see some limited value in this, for example in creating systems which intrinsically and impartially (impartial as not based upon discretion) provide a boost or leg up to prior round “losers” as in the draft in sports. I would be extremely reluctant though to extend this influence too far as it would easily amplify into a situation where winning and losing is no longer determined by the play on the field at all, but rather by the zero sum world of political redistribution and cronyism.

      I suspect that the latter situation which is what I fear is actually what you prefer. That is an assumption of course.

      As for equality, your comment strikes at the heart of the major paradigm issue in framing the issue. There are at least three major framings of inequality and fairness:

      1). Rule egalitarianism. Equal rules applied impartially to all. Outcomes can be all over the map.
      2). Equality defined as rewards proportionate to contribution. If you score a touch down you get a point. Again, equal rules, but if contributions differ, so will outcomes.
      3). Equal outcomes regardless of contribution. This is oddly the dominant definition used in conventional cries on inequality.

      Progressives focus on equality of outcome regardless of contribution, classical liberals and conservatives focus more on all three. Libertarians more on just the first two.

      Your predistribution comments can be applied in various ways to any of these framings, as is revealed by the draft process in sports.


      • Caveats aside, the article you link and your comments imply that you value substantially more activist intervention in the activity some of us believe are best handled by markets. Back to the umpire analogy, you (and both political candidates IMO) appear to value umpires taking a more active role in game outcomes both during the game and before the game starts (“predistribution”).

        Mmm… not quite. I’m pointing out that the supposedly-neutral rules of engagement in fact have significant biases. On this theory, it’s not necessary to have “activist intervention” to make changes that have redistributionary effects. To continue the sports analogy, I think certain of the underlying rules predictably lead to inefficiencies, and should be reconfigured to work more sensibly. It’s a more foundational critique than you perhaps were expecting.

        Put another way, I think you are highly underestimating the extent to which the rules themselves were created in environments of, as you put it, “political redistributionism and cronyism”. For instance, real property claims in modern North America inevitably trace their origin to interests that were wrested from Native Americans via a system of violent ethnic cronyism. Therefore every instance of property alienation and land-based profit since then, however “neutral” it may seem when viewed through a small time frame, has been tainted by this original flaw.

        But the flaws are not merely that the the modern system invests the correct type of rights in the wrong people. The very type of rights being protected — the bedrock ground rules — have ineluctably changed as a result of these original illegitimacies. Fee simple alienation of land, while not nonexistent pre-colonialism, was rare; favored instead were rotating kinship systems that typically preserved usufruct rights. The two different ethnic groups would have preferred to interface with the systems which grew out of their respective cultures. But as a result of the “ethnic cronyism” mentioned earlier, the former regime prevailed over the latter, and neutrality was destroyed.

        You seem to have a very Lockean view of where property rights come from and why rules should be as they are, but Locke quite famously failed to deal with the fact that nearly all property can be traced to some serious past illegitimacy. Because initial positions can greatly affect the ultimate outcome even in simply-iterative systems, facially-neutral rules can be expected to have non-neutral effects, and thereby lose the basis of their justification.

        Moreover, the idea that offloading environmental costs on other people is a legitimate way to garner wealth was instituted at a time when the health effects of these economic activities were not well-known. In an important sense, it is analogous to a situation in which heroin dealers were able to generate profits in a free market, despite the fact that their operation clearly did not make people better-off, and would later be realized as the kind of behavior that no reasonable government would want to protect. So rules that enshrine practices like these as deserving government protection property rights, despite their dubious provenance, have benefited certain groups over others and still have significant influence on how “the game” is played: where people move their resources, how they plan their families and enterprises, how they deal with the natural world and other “commonses,” etc.

        I’m curious to hear your thoughts on how this “neutrality” of which you speak could retain significance in the face of these issues.


        • Actually I broadly agree in quite a few ways. The rules did not emerge from the mind of impartial philosopher kings. Sorry to be so brief with such a well thought out comment on your part, but I honestly don’t disagree with the main point. We may disagree on what do next, but I agree with you on how it developed.


  14. Jon,

    I broadly agree.

    The mistake that an oversimplified Rawlsian can make is to reduce a dynamic system down to a static moment in time.

    The argument for free markets on utilitarian or impartial observer grounds is that OVER TIME it leads to higher standards of living. Over the past two hundred years this has contributed (along with science and technology) to living standards growing about two percent a year or cumulatively over 100X better than our ancestors. Impartial observers choosing free enterprise economic systems have chosen wisely.

    It does so because it embraces change and creative destruction. However, those whose jobs are being destroyed by the change are always short time “losers”. They always have been and the study of history is the study of how those with privilege and incumbency have prevented change and progress to protect their position.

    The privileged incumbents can be the stockholders of a major corporation threatened by a new tech or competitor, or the entry level worker operating a soon to be obsolete machine.

    Free enterprise is thus a dynamic system where we agree to give up privilege and the power to prevent change in exchange for longer term economic progress. Implied in this is that the incumbents need to respond to the obsolescence and competition by doing something different in terms of their labor, capital or business tactics. Thus they shift to more productive enterprises. The laborer goes into a new field and the stockholder invests elsewhere.

    This is not a bug in the system. It is essential to how the system works so well over time. If government redistribution eliminates all the downside of creative destruction, then it also eliminates the need to respond to the obsolescence and change.

    So what are my points? First that free enterprise does meet the conditions of what an impartial observer would choose long term for themselves and their descendants. The emphasis is on long term.

    Second, Krugman’s rhetorical argument is not just disingenuous, it is destructive to the dynamic which justifies creative destruction. If “losers” were compensated fully, they would have no incentive to avoid losing or to respond productively going forward.

    Third, this is not an argument against all redistribution or safety nets for the constant stream of losers generated by dynamic markets. It is simply an argument against making the safety nets too large. Balance is critical


            • No. This is not a fair comment at all.

              First, I started my comment with the Rawlsian veil and that I believed that people could (and have) reasonably chosen a model which embraces change and creative destruction. They would not choose a system which threatens to sacrifice them. Oddly, that system in the 20th C was Marxism, with some hundred million eggs buried in mass graves.

              Every course of action has costs and benefits and any person denying this is indeed preaching religion. I am not denying that change cause pain. But not changing is worse.

              I support anyone’s freedom to choose a system other than free markets embedded in representative government. I support their freedom to choose a system which prevents change and creative destruction. But I also recommend they choose wisely and that they keep an open door to jump back into a proven system if their choice goes awry.

              Choose wisely.


      • The argument stands. You cannot make improvement without change and change tends to create relative winners and losers. Current beneficiaries often use their position to prevent change and resist the risk of loss. I could supply several thousand examples from history, but is it really necessary?

        Would you rather live in a world with or without change?


        • I would rather live in a world where we weren’t asked to make a binary choice between abstract theologies.

          The appeal to the “free market” as a system presumes that there is some natural state of grace, an Edenic state of naturalness from which we have sinfully deviated, and if we could only strip away the state interference, the natural workings of free rational actors would produce an optimum result.

          This is theology, not science.

          There are an almost infinite number of ways to combine market forces, private property, and state governance so as to produce a just society.


          • There are an almost infinite number of ways to combine market forces, private property, and state governance so as to produce a just society.

            Unfortunately, there are an actual infinite number of ways to do the whole “unjust” society thing.


            • Think of it this way: (necessarily!) every combination of private property rights (R1…Rn), market forces (F1 … Fn) and state governance (G1 … Gn) will be unjust according to some ideological framework I. Insofar as we want to minimize – rather than eliminate – injustice, we seem to have two choices: minimize injustice for a preferred I by changing the values of R1.., F1…, G1…. to make it more consistent (ie., just), or minimize the number of politically significant ideologies by which injustice is and can be identified. As long as people disagree about which ideology I to prefer there won’t be any agreement about what constitutes a just value assignment to variables R.., F.., and G…


              • Further complicating that people differ in ideological framework, they also differ in goals, values and particular contextual circumstances. Even if there was one universal agreement on how to frame justice, we would still disagree on how much importance to place on the value of justice compared to alternative and sometimes contradictory values.

                But it gets worse. Our values change over time, so there is no assurance that even if we chose today that we would still agree with our decision tomorrow.

                There is no perfect society. But there are better ones and worse ones according to our imperfect opinions, and we may very well not agree. But that just leads to an argument for variety, freedom of entry and exit, subsidiarity, tolerance and less rather than more conformity. More importantly it leads to an argument for competing models which prove themselves over time allowing us to learn as the systems evolve.


                • Sure, but this pluralism is also hard to swing in a capitalist society. Different cultures have had pretty different definitions of what constitutes “theft”, but capitalist systems will have to play favorites between them nevertheless. I think you’re brushing some really thorny foundational issues under the rug.


                  • For example, my assertion that property rights are variable depending on the size of the wealth.

                    That as wealth grows larger, the legitimacy of the individual’s claim to it grows weaker, and the public’s claim grows stronger to a point where total confiscation is morally permissible.

                    A minority opinion to be sure, but I am excited about a system in which this competing model is encouraged.


                    • Sounds like a model to destroy any sizeable wealth creation. If you juggle the context and just go with a model to destroy capital formation, social constructs would crumble to dust for lack of capital formation. I’m good with that, ha.


                  • Robert,

                    For simplicity’s sake I am sure I am sweeping a bunch of the thorny issues aside. Pluralism and tolerance and variety are, however, easier to “swing” in a more decentralized system than a less decentralized one.

                    Anyone can say life sucks, or capitalism sucks or democracy sucks. They may well be right. But the follow up question is “compared to what?”

                    Libertarian anarchists have their ideas on how they can create a better world than what we have now. They may well be right too. You seem to have some other ideas, and I respect that you may be right too. May I suggest you and the anarchists each give it a try on a small, voluntary scale and attempt to scale and prove your ideas?

                    If on thee other hand, you are just recommending some tweaks to the current system, then that is even easier. Persuade people of their utility and give them a try — again starting on a small scale.


              • Relative to ideology I.

                Eg., for all societies S, and all cultural/legal norms CL, and all politicaleconomic ideologies I, it’s not possible that S(CL) is just according to all I.

                We need fewer I’s if you ask me….


          • “I would rather live in a world where we weren’t asked to make a binary choice between abstract theologies.”

            I wasn’t asking you to.

            “The appeal to the “free market” as a system presumes that there is some natural state of grace, an Edenic state of naturalness from which we have sinfully deviated, and if we could only strip away the state interference, the natural workings of free rational actors would produce an optimum result.”

            Nothing in my argument implies in the slightest way some natural system of whatever or some abstract perfectly rational actor model. When you reply to someone in the comments, doesn’t etiquette and common sense dictate that you should actually reply to that person rather than make up some fictional argument that you wish I had made because then you could be right? Seriously dude, reply to me and what I actually wrote. I know it is easier to win arguments when you can substitute stupid, easy to win arguments for the real ones that are actually being made, but it is extremely bad form. If you are implying that Jon made this argument somewhere, then I apologize, but you should probably address him not me.

            “This is theology, not science.”

            Or to recap, if I had made a theological argument, you could take the high ground and claim I did. But I didn’t, so instead you pretend I did.

            “There are an almost infinite number of ways to combine market forces, private property, and state governance so as to produce a just society.”

            I both agree with you here and even more so with Jaybird’s retort. But why are you assuming I don’t?

            To go back to the Rawlsian initial position, I am specifically arguing for a just society which people would choose for themselves. And yes, this could well include an important role for free markets and creative destruction. No, they would likely NOT choose one where they are considered eggs which can be sacrificed for abstract theologies. However they could reasonably choose to enter a society which allows creative destruction in particular domains.* I also value their freedom to choose something else. Different people have different values and they may be on to something.

            * Creative destruction doesn’t imply killing eggs, it implies a system where incentives drive them to change course and try something else to better cooperate with fellow eggs. This creates a self amplifying problem solving system. Not a perfect problem solving system. Just a problem solving system applicable to some problems in some domains. There are others.


            • Swami, why do you assume that creative destruction is unique to capitalism? It’s easy to imagine situations in which, say, landless people expropriating land in a way that’d be anathema to a capitalist would lead to clear and enduring welfare gains. It really seems like you’re stealing a base here.


              • I am playing off the Krugman objection to free trade. The losers are victims of creative destruction.

                Any system which changes is going to have creative destruction. Markets don’t just allow change, they actively demand and incentivize it. Much of the interference in markets is incumbents and special interests (terms which can apply to all of us) attempting to benefit from the progress made by everyone else in the system, yet carving out privileged status for themselves. Change for everyone else but me.


                • If, as you admit, alternatives to capitalism can also exhibit creative destruction, and if capitalism can result in entrenched interests, then this seems to take a LOT of the wind out of the sails of your pro-capitalism argument.


                  • So to summarize.

                    1) There are other problem solving systems.
                    2) Markets are not perfect problem solving systems, nor are they the best system to solve all problems.

                    If this takes some of the wind out of markets, then so be it. Alternatively we could just say that there is no perfect problem solving system, just better and worse systems for a given set of problems.


                    • In determining what system(s) we want to use to solve problems, we need to identify what a solution looks like. And what a problem is. Which takes us to identifying our goals.

                      It isn’t so much that capitalism/free enterprise — or any other system — is objectively the best. Rather, capitalism is best/better at achieving certain things and if those things are highly valued, than capitalism is likely going to seem like the best/better option.


                      • To identify “our” goals carries with it a relatively defined social objectivity. At that point individuals not agreeing with the social objectivity see the goals as unjust.

                        When captalism starts to assume social objectivity it is no longer a free mode of capitalism, it is social capitalism.

                        I can’t really tell if Swami (which I guess is Roger) is accounting for all the social objectivity underlying the free enterprise/free trade conceptions that currently exist, or not.

                        At this juncture, it’s not a matter of competing models, it’s how deep to build certain social constructs.


                        • Hi Joe,

                          Could you elaborate please? Honestly I am not following what you mean by social capitalism, social objectivity and “how deep to build social constructs.”

                          I haven’t been following this site much for the last few years, so you guys may have agreed on some useful terms which I am not keeping up with.


                            • Thanks, Joe, great post.

                              My constructive feedback is that I would elaborate the distinction between individualism and atomism — which are in no way the same. Libertarians, to use your scale for example, are in no way atomistic. They do not value atomistic production. What they value is cooperation which is voluntary. They believe that humans accomplish much more together than separate due to division of labor, expertise, cumulative learning, scale effects and such. (The original title Mises was going to use for “Human Action” was “Human Cooperation”.)

                              IOW, another way of framing it is that there is:
                              1) Atomism (non social or familial)
                              2). Bottoms up voluntary social constructs
                              3). Top down imposed social constructs

                              There aren’t many adherents to 1 nowadays, as it is simply no longer viable with seven billion people. The critical spectrum is between 2 and 3. Free enterprise focuses more on 2, Marxism more on 3. Markets and science focus more on 2, government solutions more on 3. No system is completely either.


                              • I don’t completely buy into that individual means of production can’t be a step in a larger process. Therefore a division of labor is still available, within the concept of owner operation. It continues to make it viable with populations of several billions.

                                I would further argue that 2 and 3 will eventually become non-viable due to the subjective preference of means of production, and individual preferences in means of exchange.

                                I think it is the misstep of most economists (even Krugman) that there is little weight given to preferences into what people want to produce. It will likely, eventually, manifest a problem in comparative advantage, because there has to exist first subjective value high enough to drive the advantage. If the drive isn’t there the advantage isn’t there.

                                In short, people will abandon a economy and means of production that is not theirs. They will abandon a future that is not theirs.

                                The first step toward socialism is one away from the individual constructs.


                                • Division of labor can in theory be atomized to some degree, but there are limits.

                                  1). Specialization can be mega-amplified and extended via mechanization and capitalization. The specialist would need to be the same person with capital, with entrepreneurial ideas, with long term time horizons, etc

                                  2). Specialization creates dependence. In theory each of the above can be individually and continuously renegotiated and contracted out, but that process itself is cumbersome, risky and subject to exploitation as the critical person in the network can take advantage of the others dependence to exploit the situation until competitors arrive.

                                  When you put the two together, you basically get a justification for firms and an argument against atomization. Nothing prevents a firm from allowing a wide range of subjective preferences of the workers or various specialists, and nothing prevents the firm from tailoring products to specific and subjective consumer needs.

                                  I would agree that future technology may enable higher degrees of individualism or atomism in the future. But the path to it comes via increasingly large and complex networks of cooperation.


                                  • 1) The amplifying effect when the capital formation occurs at the level of the specialist, allows direct improvement of the process by the specialist. There is no reason to financial seek to improve the process. This is why each step into socialistic systems tends to degrade efficiency. In socialistic constructs the motive to improve the process is slowly disconnected from the operator, and moves further into hierarchical levels until you have top down motivation.

                                    The other piece that isn’t accounted, is we haven’t seen the full effect of automation deployed in a atomization system/model. Atomization systems can undercut the overhead required by firms.

                                    As far as capture by a specialist goes, any supply chain guy isn’t going to go with a single source. He will keep multiple sources running, if only to keep competition. In the end it is a big difference between one specialist trying to capture a chunk of the market verses a firm trying to capture a chunk of the market.

                                    2) do we want to unpack firm exploitation versus agent exploitation?

                                    The path to atomization is atomization becoming more efficient than what exists, not some social networking cooperative back patting.


                      • Kazzy,

                        Well, yeah….

                        But we already agreed we don’t even agree completely on what these goals are, let alone how to accomplish them. The distinguishing characteristic of free enterprise vs other ECONOMIC systems, is that free markets are decentralized, allowing consenting adults to pursue their goals and to experiment with how. Markets are decentralized complex adaptive problem solving systems. When negative externalities are controlled for, as they need to be, this creates a cumulative problem solving process. Science, btw, works quite similarly.

                        The alternative to decentralized problem solving systems is top down systems. To oversimplify in the sake of clarity, these are distinguished by goals set at the top, a path chosen at the top, and then everyone else is forced to agree with the goal, the path, the role the individual must follow to accomplish the goal and so forth. Top down systems fail spectacularly compared to balanced or decentralized systems, as the record of the 20th C clearly reveals. They get trapped on dysfunctional goals, they resist change and experimentation, they limit freedom, and in general suck. As I wrote elsewhere, the only reason communism didn’t fail even worse than it did (and it was the worst mistake in modern history) was because they were able to draft on the technology and institutional systems generated by decentralized markets.

                        Now, before anyone over-reacts, I will again add that free markets were insufficient. The three legged stool also required effective representative (hence partially decentralized) government and a decentralized scientific method (which emerged in 17th C Europe in a form unique to all history). I would also add that as Chip mentions elsewhere, these three legs themselves were rooted in an enlightenment philosophy or framework which paved the path to the three solution systems.


                • We can have “creative destruction” without impoverishing actual living human beings, especially the people — i.e. the workers — who have the least say about economic and public policy. (And how many capitalists *cough* Trump *cough* are reduced to penury and homelessness when they make spectacularly bad decisions?)

                  The choice is not between “change” and “no change” (or “no change for me”), but how we manage and ameliorate the effects of changes on people.

                  I mean, what’s the alternative, taken to its logical conclusion? Soylent Green? Worse?


                  • We do have change without impoverishment — more so by several orders of magnitude than in prior eras. Are you unaware of the long term changes in median income, life span, health, education, freedom, life satisfaction? Somehow this trajectory leads straight to Soylent Green in your mind?

                    The systems humanity had prior to 250 years ago led to the median person being substantially worse off than the worst off in the current systems. The combination of free markets, open access representative government and the scientific method have allowed us to improve the average and fund safety nets to elevate even the poorest to levels unimaginable in prior eras. At current growth rates, the people living in the poorest parts of the world will have living standards that put current citizens of the US and Switzerland to shame. I doubt we will need to eat anyone.


                    • Are you unaware of the long term changes in median income, life span, health, education, freedom, life satisfaction?

                      How much of that can be attributed to gummint helping “losers” via … well … actually governing?


                                  • My guess is that it’s technology. If I were to pick a point in time where medical care, for example, finally figured out what it was doing to the point where it did more good than harm, it’d be Lister.

                                    The industrial revolution when it comes to wealth creation in general was a HUGE leap for pretty much everybody (well, eventually).

                                    As for “life satisfaction”, I seem to recall reading that our happiness index is more or less the same place that it was prior to the invention of Novocain.


                                      • It’s the flip side to the Libertarian position that everything bad happens because of the government.

                                        If we reach the point where the underlying reason behind Lister’s discoveries are The Government (as well as Wankel’s rotary engine, Witney’s cotton gin, as well as whatever discoveries, if any, were made in Canada or Denmark or China), then we’re stuck wondering if it’s possible to falsify the theory.


                                        • I didn’t say that everything good happens because of government. I agree with Swam: it’s a mixed bag, none of which is sufficient but all of which are necessary.

                                          Good government improves individual’s quality of life. Bad government don’t. Some of that is gonna be – necessarily! as things go move on – increased social benefits to the un/under-employed.

                                          Well, unless we’re OK with a return to fiefdoms, anyway.


                                            • I don’t think I’d say that technology “improved” government. It constituted an aspect of socio-economic life that government could get right or wrong.

                                              But to my point, the two WWs actually changed government in that the old monarchies were displaced/rejected and the interests of the citizenry as individuals (rather than as subjects) were included as a necessary component of good policy. At least for the types of market-based democracies I think we’re talking about, anyway.


                                    • Jaybird,

                                      Global happiness and subjective well being have been trending up globally. This paper discusses the promising trends (up in 77% of all countries), and digs into the underlying causes/correlations. Happiness and subjective well being:


                                      Their conclusion:

                                      “ABSTRACT—Until recently, it was widely held that happiness fluctuates around set points, so that neither individ- uals nor societies can lastingly increase their happiness. Even though recent research showed that some individuals move enduringly above or below their set points, this does not refute the idea that the happiness levels of entire so- cieties remain fixed. Our article, however, challenges this idea: Data from representative national surveys carried out from 1981 to 2007 show that happiness rose in 45 of the 52 countries for which substantial time-series data were available. Regression analyses suggest that that the extent to which a society allows free choice has a major impact on happiness. Since 1981, economic development, democra- tization, and increasing social tolerance have increased the extent to which people perceive that they have free choice, which in turn has led to higher levels of happiness around the world, as the human development model suggests.”

                                      They also point out the importance of religious or quasi religious (Marxism) beliefs, and attempt to explain why the US is an outlier on this trend (we peaked early due to global dominance post WWII as rest of world was in shambles).

                                      I highly recommend this article. I have others too if anyone is interested.

                                      More inconvenient truths for the impending doom, Soylent Green faction among this site’s ranks.


                      • Much of it. You need science, markets and representative government. Absent one of the three I have no idea if we would even outrun the Malthusian curse, meaning we would just have more people and still live at the edge of poverty.

                        I have never recommended anarchy. I have never suggested markets are sufficient absent science and good government. I have never recommended eliminating safety nets or even all government safety nets.

                        I think the Swiss and Swedes and Canadians all have excellent standards of living using a variation on the standard enlightenment recipe of markets, science and open access government. The US is another variation, but the similarities are stronger than the differences.


                    • Swami,
                      quit assuming that the petroeconomy will persist.
                      America can only support about a third of its current population, 100 years out.
                      Bangladesh? Well, like Florida, it’s probably going to be a shitstorm (and yes, that’s a literal forecast for Miami. Models available from the US Government.).

                      Free trade would be fun , if it ever existed.

                      “not quite as free trade as you think” got us two world wars, and a hell of a lot of dead (including one pandemic, so…)


                  • I will take that as another vote for Larry’s brilliant projection that 250 years of progress somehow implies Soylent Green.

                    Should I link you to some graphs illustrating the unprecedented increases in prosperity/lifespan/education/freedom/happiness/child survival rates and escape from poverty experienced by the population of our planet in the past ten, fifty, or two hundred and fifty years? Would it helped if I spelled out the positive role markets played in this trend?

                    How can a person ignore empirical data of a steadily (albeit imperfectly) improving world and not only see doom, but somehow blame the imaginary doom on what is actually an integral part of the solution?

                    Hey, everything isn’t perfect, and we can certainly get a lot of things better, but your way of framing the world is absolutely amazing to me. You are like the extremist Muslims convinced that the problem with the world is that they aren’t being religious enough. Conflating the problem with the solution leads to perverse mindsets.


                    • Hey, everything isn’t perfect, and we can certainly get a lot of things better,

                      We agree! One step towards that is taking off the rose-colored glasses that assume that all’s for the best in this best of all possible worlds. Many changes businesses make are in fact failures. Others are net washes. The notion that anything that slows down the pace of change to help the people who are affected adversely will halt or severely slow down progress is just that: a notion, not a fact.

                      By the way, the biggest contributor to increased lifespan is basic public sanitation. That was given to us by government mandate, not by the free market.


                      • I didn’t actually suggest that anything that slows down the pace of change to help people affected adversely by change will slow down net progress. I specifically included my third point to offset that misunderstanding. And my second point expressly included that the danger would be with fully compensating losers. If you eliminate the incentives and signals of a market you know longer have a market.

                        I strongly support such things as unemployment insurance, effective job training, safety nets for the poor and so forth. Indeed, free enterprise is the system which will fund these.


                      • Mike,
                        Maybe in the first world. In the third world? Well, I’m helping to pay for some of that. Want to contribute? I can get you the names of some fantastic water filters.

                        Free market charity means you spend a little money paying way more than what the third world can afford, to get something good for yourself.


                • the Krugman objection to free trade

                  There is no “Krugman objection to free trade.” He is for free trade. All Krugman has done is point out what every free-trade advocate has always known and most have said: that in a regime of free trade, there will be domestic winners and losers, but that, on the whole, there will be more domestic wealth. It is 100% orthodox classical theory that the domestic losers could be compensated out of part of the overall gain going to the domestic winners, making everyone better off. I get a nice dress shirt at an affordable price from Malaysia or Indonesia, some of the surplus I would have had to pay for an American-made dress shirt gets taxed for some program to help out unemployed North Carolina textile workers. Or it doesn’t. Either way, the theory of free trade holds, as people knew and explained before Krugman or Rawls were gleams in their parents’ eyes.


                  • CJ,

                    We are just quibbling over words. You, Krugman and I all know that free trade does not require redistribution to be positive sum. The redistribution part is optional and not without risks and potential negative externalities of its own.


            • If you agree that there are many ways to produce justice within a market framework, then what use is it to give us a discussion on what a market system does or doesn’t do?
              Why use the word “system” in the singular?


              • I don’t know how to respond to this. I am using a generic term “system”. It is like using the generic term “car”. There are many particular cars which the term can apply to. But any discussion on generic term car may benefit from further elaboration of common shared properties. Right?


                • But we could point to both Haiti and Sweden and assert that they are both “capitalist systems”, right?

                  Since they both feature the private ownership of capital and both feature government intervention in the market.

                  So how does it help us differentiate why one is a dystopia and the other is a pretty nice place to live?

                  Maybe Krugman’s call for assistance to the losers of global trade is a good idea, or maybe not.

                  But unless he is challenging the idea of markets and private ownership of capital, to raise the discussion to such first principles just shifts the focus to an irrelevancy.


                  • Maybe Krugman’s call for assistance to the losers of global trade is a good idea, or maybe not.

                    I think he’s making a concession to reality, and in this case political reality. Which means, to me, that he isn’t just an economist anymore. He’s thinking about these things more wisely.


                    • Yes, and to insist that automobiles are wonderful, and the internal combustion system is a proven device to transport people, doesn’t help with the evaluation of a Yugo versus Lexus.

                      There is a difference between Sweden and Haiti, and it probably has little to do with markets or free enterprise.


                      • I would argue it has a lot to do with free enterprise. I will add that standards of living even in non free market countries (like Haiti and the old USSR) benefit from the discovery and creation processes of those countries with free markets.

                        Markets contributed to the development of steam power, modern steel, steam ships, railroads, the cotton gin, Jenny, Water Frame and Mule, precision clocks, the machinery of the various phases of the 250 year IR, to the harnessing of petroleum, the internal combustion engine, the factory system, integrated circuits, the green revolution and four or five hundred other major technologies and ideas which have been exported to countries not embracing free markets. Markets also helped fund science and government (and vice versa) in a self amplifying process. Markets weren’t sufficient but they damn sure were necessary.

                        I repeat. Markets are a part of the discovery and creation and problem solving process which have allowed us to improve the state of humanity over the past 250 years. A necessary part.


                        • Who is suggesting otherwise?

                          But its equally true that evolving norms on things like tolerance for religious and ethnic differences and the developing concepts of human flourishing have also contributed to building wealth.

                          For instance, highly developed countries have these cultural norms which result in peace and stability and trust and cooperation, which themselves are the foundation of markets.

                          Place like Haiti, don’t, which is why the marketplace is unable to help Haiti develop.

                          So the question in a society like America, is how do we handle people who get left behind? This is Krugman’s question.

                          More precisely, how do we handle these people in a way that supports and reinforces those cultural norms that are the prerequisites of markets?

                          If for example the left-behinds believe that the legal and political sphere offers them no hope or recourse, they may decide to abandon those norms, and just hypothetically, they may decide to support a wild radical who wants to round up aliens and rule by tyrannical fiat.

                          If there was, (again hypothetically), armed gunmen taking over Federal buildings in Oregon, markets would be of no use in building wealth because the rule of law was broken.

                          Markets are created, constructed, the end result of a lot of other tools and processes which are aimed at producing that fuzzy thing called justice.


                          • If markets are created as social constructs, and have little to do with subjective means of exchange they are social markets.

                            Your basically starting at types of socialism and arguing how deep to go with it.


                          • Chip,

                            I am not sure why, but I TOTALLY agree with the above comment. I think you said everything extremely well, and I agree completely that markets are built upon a shared cultural framework, one which Haiti does not have and which throwing free markets at them absent this shared cultural mindset would not produce what we expect.

                            To address some of your queries…

                            How do we handle people (you call them left behinds I called them victims of creative destruction) in ways which supports these norms?

                            The established way is to tax the productivity created by markets and use it to fund unemployment, schools, and various transfer programs. I support all these, with the caveat that they be effective (honestly many aren’t) and that they not incentivize failure and free riding (some do, and Krugman’s quip ignores this).

                            Honestly, when I look at poverty statistics in the US, I see that the majority of creative destruction is temporary. The unemployment ratio is quite low, as people transfer into different jobs. The majority of unemployed become re-employed (the size of unemployment benefits are negatively correlated with length of unemployment).

                            What if they lose hope?

                            Here we probably part ways. I believe the reason people are losing hope is because the various political parties and their cronies exaggerate problems. They rattle on 24/7 with propaganda on inequality, stagnation, racism, and “Soylent Green” cries of the impending apocalypse. It is hard to have hope when the media, politicians and political cronies constantly exaggerate problems and pretend progress is an illusion for fools. Yes, I am talking about both parties. They just differ in which problems they propagandize.

                            Said another way, the town criers are shouting from every roof top that the sky is falling and they wonder why some people are losing hope. I am not suggesting rose tinted glasses, just a balanced outlook which accurately describes what is happening rather than trying to convert people into victims so they can sell papers or gather votes.


                            • It is a curious phenomenon, isn’t it, that even as we can look at statistics telling us about increasing wealth, so many people are angry and fearful.

                              I could buy that some is inflamed by media, but that couldn’t possibly explain all of it.

                              I can understand that changing social mores and ethnic tension explains some of it, but not nearly enough to explain the empirical data we are seeing.

                              And its not just a mirage is it, that young people are facing a job market with less security and more volatility than their parents?

                              And those Rust Belt towns with all the shuttered factories, and those millions of factory workers who are now forced into early retirement or working at lower wages- that’s not just a one-off anecdote is it?


                              • Yeah, but your concluding comments amount to “problems still exist.” If We are going to play that game, we have to also include the things that got better.

                                You pick the generation, and I will provide the list of all the things globally or domestically which got better.

                                I will be the first to admit that progress is subjective and multidimensional in the extreme. However, I believe the vast majority of people, if they gave me their top ten priorities, and that if we then empirically measured how these factors have changed over the past generation, the past century or the past 250 years, that they would agree that the world and nation is a vastly better place now than previously’ based upon THEIR values. At worst, they would not buy into this doom and gloom Soylent Green BS.

                                I could go on for hours about human nature and how we focus on the glass half full and how media and politicians prey on this bias.

                                But back to my original point, PART of the reason they are losing hope is that we are actively trying to exaggerate problems and dismiss progress. We should not do this. If we continue to do this, we give up any high ground to cry about how hopeless people are. Honestly I think some people want them to feel hopeless so they will adopt their ideology.

                                I guess they can accuse me of the opposite. I am fine with peddling realistic hope, or to quote a recent book title, rational optimism. False hope, no.

                                I say no to false hope and false gloom.


    • A fair argument for public funding of adult education* whenever workers are displaced whether due to globalization or obsolescence. Or for allowing early retirement at full benefits if the worker is above a given age. It’s also a good argument for more public incentive for telecommuting, since labor mobility** is often limited thanks to real estate markets.

      Redistribution doesn’t have to be lifetime welfare. It can be more targeted toward getting people back on their feet. Make it part of unemployment insurance, or a one time fee paid before a move or shutdown is completed.

      *A model similar to the VA Vocational Rehabilitation

      **Or government relocation assistance


      • Oscar,

        Sorry I didn’t respond earlier. I agree in spirit with effective transfer programs and safety nets that don’t create negative incentives. The devil then is just in the details. I find that many government programs once created don’t pay attention to these details. Indeed they often get captured by bureaucracies rewarded by stimulating the problem rather than the solution.


    • First, welcome! Not sure I’ve seen you before so… hello.

      Based on the definition provided here, would you say that America currently practices free enterprise? Or, assuming that “enterprise” exists on a spectrum, how free is American enterprise?


      • Sorry, Swami aka Roger.

        I think every modern economy uses a healthy dose of free enterprise. The US is relatively free compared to the range of historic options, as is Sweden, Canada and Singapore. There are various organizations which attempt to rank freedom of nations annually, including market freedom.

        Within the US, there are relatively more and less free industries or markets. Insurance, health care and finance are among the least free in the US. In some cases for good reasons, in others for not so good reasons. In other words, I understand why they are more regulated, and don’t always disagree.

        Just to clarify, free markets does not imply an absence of government. In most cases, modern societies use government to protect property rights, enforce contracts, provide courts and police, public goods, safety nets and national defense.

        What makes the market free is the freedom to enter or exit any market and the freedom to engage in any mutually voluntary interaction on terms agreed to by the participants. If there was a perfect free market (there isn’t and I am not arguing for one), anyone would be free to enter and compete in it, free to exit or not cooperate in it, free to determine the price and terms as long as the other directly affected party agrees. It is an ideal not as a normative ideal but as a conceptual ideal. IOW i am describing a perfect circle not arguing that circles should be perfect (as Chip seems to assume)

        Free markets are useful with an extremely good track record in lots of situations. That is why all succesful societies use them to some degree. They can’t afford not to. But most societies also find that it is best to NOT use free markets in some areas and domains. We can disagree on where to draw the lines, but I am not suggesting that there should be no lines.


        • Roger? Ugh… go back in the hole you crawled out of.


          I was asking primarily because your discussion of privilege and the market’s ability to combat it but immediately thought of a million ways in which privilege is leveraged to distort markets and further entrench — rather than undermine — privilege.

          I belief this is largely what rent-seeking aims to describe.

          ETA: Which isn’t in anyway of a refutation of your argument but rather part of the discussion of just how free enterprise our society is.


    • If “losers” were compensated fully, they would have no incentive to avoid losing or to respond productively going forward.

      Well, they wouldn’t have a financial incentive (assuming the monetary loss of “losing” was equal to the monetary gain of being a loser), but presumably other incentives would be in play. Like dignity and independence and productivity and so on.

      Unless those folks really ARE losers, knowwhatImean?

      Adding: Bootstraps!!

      Add 2: “If we allow “the market” to compel those folks to be something which they aren’t then we – as a society – won’t have any blood on our hands wrt their suffering.”


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