speeches · June 14, 2004

Speech

William Poole · President

Free Trade: Why Are Economists and Noneconomists So Far Apart? Trade,GlobalizationandOutsourcingConference ReutersAmerica,Inc. NewYork,NewYork June15,2004 PublishedintheFederalReserveBankofSt.LouisReview,September/October2004,86(5),pp.1-6 Freetrade—areyouferitoraginit?Why? Beforeproceeding,Iwanttoemphasizethat I’m sure that this audience knows that theviewsIexpressaremineanddonotneces- most economists support free trade sarilyreflectofficialpositionsoftheFederal policies; however, public support for ReserveSystem.Ithankmycolleaguesatthe these policies can be characterized as lukewarm FederalReserveBankofSt.Louisfortheircom- atbestandcertaingroupsareadamantlyopposed. ments;CletusCoughlin,vicepresidentinthe It is not unusual to hear the following reserva- ResearchDivision,wasespeciallyhelpful.How- tions expressed about trade: “Trade harms large ever,Iretainfullresponsibilityforerrors. segments of U.S. workers.” “Trade degrades the environment.” “Trade exploits poor countries.” We have all heard these criticisms and lots of THE GAP others. A1990surveyofeconomistsemployedin Manyeconomists,includingme,trytochange theUnitedStatesfoundthatmorethan90percent publicattitudesbyexplainingtheadvantagesof generallyagreedwiththepropositionthatthe freetradeinspeechesandarticlesintendedto useoftariffsandimportquotasreducedtheaver- reachawiderangeofaudiences.But,let’sface agestandardofliving.2Theseresultsaresome- it:Wearenotverysuccessfulinchangingpublic whatdated;however,mostobserversagreethat attitudes.Why,andhowcanwebecomemore “[t]heconsensusamongmainstreameconomists persuasive?WhatIwillexploretodayisthegap onthedesirabilityoffreetraderemainsalmost thatseparateseconomistsfromthegeneral universal.”3Idon’thaveanydatatoreportecon- public.1 omists’viewsonparticulartradedisputes,but I’llfirstpresentsomeevidenceonthegap amwillingtoofferthefollowingassertion:In betweeneconomistsandthegeneralpublicon mostspecificcases,disinterestedeconomistsdo attitudestowardtrade.I’llthenoutlinetwoprin- notdefendtraderestriction.By“disinterested ciplesthathelptounderstandthisgapandthat economists”Imeaneconomistsnothiredby helptoframerevealingquestionswhenstudying firmsengagedintheparticulardisputesandnot particulardisputes.Finally,I’llofferafewsug- employedbygovernmentagenciesinvolvedin gestionsonclosingthegap. thedisputes. 1 SeeCoughlin(2002)foradditionaldiscussionofthisgap. 2 SeeAlston,Kearl,andVaughan(1992). 3 SeeMaydaandRodrik(2001,p.1). 1 INTERNATIONALTRADEANDFINANCE Iffact,Isuspectthatdisinterestedeconomists’ Muchevidenceexistssuggestingthatthe attitudesaboutspecificdisputesareevenmore generalpublicunderstandsthebenefitsfrom lopsidedinfavoroffreetradethanthe90percent freetradeintermsofincreasedproductselec- whogenerallyfavorfreetradepolicies.Thereason tion,higherquality,andlowerprices.ThePew isthatspecificdisputesalmostalwaysinvolvein ResearchCenterfoundthat81percentofthe aprettyobviouswayspecialfavorstoparticular respondentssaidthatitwaseither“verygood” industries.Incontrast,economists’attitudesin or“somewhatgood”thattrademakesavailable generalareinfluencedbytheoreticalcasesin differentproductsfromdifferentpartsofthe world.5 whichprotectionmaymakesomesense.Idonot Despiteanintuitiveunderstandingofmany wanttotrytoexplainthesetheoreticalcaseshere, ofthebenefitsoffreetrade,thegeneralpublic butdowanttonotethatactualtradedisputes hasstrongreservationsaboutembracingsucha rarelyfitsuchcases. policy.Onesetofreservationsconcernsdistribu- Let’snowconsiderattitudesheldbythegen- tionaleffectsoftrade.Workersarenotseenas eralpublic.Publicopinionpollsrevealthatthe benefitingfromtrade.Strongevidenceexistsindi- attitudeofthegeneralpublictowardfreetradeis catingaperceptionthatthebenefitsoftradeflow notsimplyoneofeitherbeingforfreetradeorfor tobusinessesandthewealthy,ratherthanto protectionism.4Questionsaskingaboutfreetrade workers,andtothoseabroadratherthantothose inprinciplerevealsupportforfreetrade,albeit intheUnitedStates.ApolltakenbytheGallup notasstrongaseconomists’.However,questions OrganizationinNovember1999foundthat56 askingaboutfreetradeinpracticerevealstrong percentbelievedthatincreasedtradehelped reservations.Thatis,whenwegettospecific Americancompanies,butthatonly35percent tradedisputes,publicsupportforfreetradetends believedthatincreasedtradehelpedAmerican tocrumble,whereaseconomistsrarelysupport workers.Infact,59percentbelievedthattrade traderestrictioninspecificdisputes. hurtsAmericanworkers. AmajorityofAmericansdosupportfree Relatedtoconcernaboutadversedistribu- tradeinprinciple.AFebruary2000surveyby tionaleffectsoftradeistheviewthattradeis thePewResearchCenteraskedthefollowing disruptive.Regardlessofwhetherasufficient question:“Ingeneral,doyouthinkthatfreetrade numberofnewjobsarecreatedtocompensate withothercountriesisgoodorbadfortheUnited forthejobslost,manyAmericansarereluctant States?”“Good”wastheresponseof64percent tosupportfreetradebecausetradecausespainful oftherespondents,while“bad”wastheresponse adjustmentsforthosewholosetheirjobsevenif of27percentoftherespondents.Theremaining theyfindnewjobsrelativelyquickly.Thecosts 9percent“didnotknow.”Thegeneralpublic’s incurredbytheseworkersarenotnecessarily supportforfreetradeis,therefore,agoodbit offsetbythecreationofnewandpossiblybetter lowerthaneconomists’support. jobs.6 4 AwealthofinformationontradeopinionscanbefoundatthefollowingwebsitemaintainedbytheProgramonInternationalPolicy Attitudes:www.americans-world.org/digest/global_issues/intertrade/trade-general.cfm. 5 Otherpollsfindsimilarresults.EPIC-MRA—apollingfirmconductingeducational,political,industrial,andconsumermarketresearch analysis—foundlargemajoritiesagreeingthattradeallowsAmericanconsumerstohavealargerselectionofgoodstochoosefrom(87percent), improvesthequalityofAmericangoods(80percent),andallowslow-incomefamiliestobuymanyproductsthattheymightnototherwise afford(74percent).PollingbyEPIC-MRAalsofoundthatAmericansexpectedthattheywouldeitherbepayingmuchmore(24percent)or somewhatmore(37percent)iftheywereabletobuyonlyAmerican-madegoods. 6 AnOctober1999surveyconductedbytheProgramonInternationalPolicyAttitudesaskedrespondentstochoosebetweenthefollowing twostatements.First:“Evenifthenewjobsthatcomefromfreertradepayhigherwages,overallitisnotworthallthedisruptionofpeople losingtheirjobs.”Second:“Itisbettertohavethehigherpayingjobs,andthepeoplewholosttheirjobscaneventuallyfindnewones.”The firststatementwasfavoredby56percentoftherespondents,while40percentfavoredthelatterstatement. 2 FreeTrade:WhyAreEconomistsandNoneconomistsSoFarApart? Especiallynoteworthyisthatthesentiments Additionalresultsrevealaperceptionthat ofpollrespondentslikelyreflectaltruismrather countriesthatdonotmaintainminimumstan- thanself-interest.First,onlyasmallminorityof dardsforworkingconditionshaveanunfair Americansperceivetheeffectsoftradeonthem- advantagethatallowsfortheexploitationof selvestobenegative.Second,Americanstendto workersandtheproductionofgoodsatunduly viewothersasmorevulnerabletoincreasingtrade lowcost.Herethereisconcernaboutthejobsof thanthemselves.Thus,itappearsthattheconcern Americanworkerscompetingwithcheapimports. aboutthedisruptiveeffectsofjoblossisforothers Arelatedaspectofthisargumentisthatthe respondentswerenotconvincedbyarguments ratherthanforthemselves. thatforcinghigherstandardsforworkingcondi- Theconcernforworkersappearstogobeyond tionsinforeigncountriesmightcauseelimination U.S.borders.BasedonaJune2002surveycon- ofjobsofextremelypoorpeopleabroadwho ductedbytheChicagoCouncilonForeign desperatelyneedjobs. Relations,itisclearthatthemajorityofrespon- Strongsupportexistsforincludingstandards dents—93percenttobeexact—thinkthatmember dealingwithworkplacehealthandsafety,limita- countriesininternationaltradeagreementsshould tionsonchildlabor,therighttostrike,theright berequiredtomaintainminimumstandardsfor tobargaincollectively,andminimumwagesin workingconditions.Bothmoralconcernsforthe tradeagreements.Inaddition,contrarytoWorld foreignworkersandeconomicconcernsforU.S. TradeOrganizationprinciples,Americanssupport workersappeartoaffecttherespondents’views. unilateraldecisionstobartheimportofproducts Roughlythree-quartersoftherespondentsto madeundersubstandardworkingconditions. anOctober1999surveybytheProgramonInter- Besidestheeffectsofincreasedtradeon nationalPolicyAttitudesfeltthattheUnited workers,manyAmericansareconcernedthat Stateshasamoralobligationtoattempttoensure tradeadverselyaffectstheenvironmentandthat thatworkersinforeigncountriesmakinggoods environmentalstandardsshouldbeincorporated fortheUnitedStatesdonotworkinharshor intotradeagreements.InaJune2002pollbythe unsafeconditions.Only23percentoftherespon- ChicagoCouncilonForeignRelations,94percent dentsfeltthattheUnitedStatesshouldnotjudge oftherespondentsfeltthatmembercountriesin whatworkingconditionsshouldbeinanother internationaltradeagreementsshouldberequired country.Acountry’snationalsovereigntywasnot tomaintainminimumstandardsforprotecting viewedasacompellingreasontoremainsilent. theenvironment.7Supportalsoexistsforrestrict- Moreover,thepossibilitythattradeexpansion ingtheimportationofgoodswhoseproduction mightimproveworkingconditionsabroad,even damagestheenvironment.8 ifnottothepointofmatchingconditionsinthe Onalltheseissuesofprotectingtheenviron- UnitedStates,waseithernotconsideredor ment,healthandsafety,wagesandhours,work- ignored. ingconditions,andsoforth,Isuspectthatpoll 7 AdditionalevidencesupportingenvironmentalstandardsinthecontextoftradecanbefoundintheresultsofaNovember2000pollby TarranceGroupandGreenbergQuinlanResearch.Respondentswereaskedtochoosewhichofthefollowingtwostatementswerecloserto theirviews.First:“FuturetradeagreementsshouldcontainsafeguardsthatrequiretheUnitedStatesandothercountriestoenforcestrong environmentalprotections,evenifitlimitstrade.”Second:“ExpandingtradeiscriticaltotheU.S.economyandtradeagreementsaregood foroureconomy,eveniftheydonotcontainstrongenvironmentalprotections.”Themajorityofrespondents,62percent,chosethefirst statementasmorecloselyreflectingtheirviews,whileonly22percentsupportednotlinkingtradeandtheenvironmentintradeagreements. 8 AnOctober1999ProgramonInternationalPolicyAttitudessurveyaskedrespondentswhichofthefollowingstatementstheyagreedwith themost.First:“Countriesshouldbeabletorestricttheimportofproductsiftheyareproducedinawaythatdamagestheenvironment, becauseprotectingtheenvironmentisatleastasimportantastrade.”Second:“Ifcountriescanputuptradebarriersagainstaproductany timetheycancomeupwithsomethingtheydonotlikeabouthowitisproduced,prettysoontheywillbeputtingupbarriersrightandleft. Thiswillhurttheglobaleconomyandcostjobs.”Overwhelmingsupportwasfoundforthefirststatement,with74percentoftherespondents preferringthefirststatement,while22percentsupportedthesecondstatement. 3 INTERNATIONALTRADEANDFINANCE resultsreflectgeneralconcernsmorethantrade effectforatimeareductionintotalemployment, concernsperse.Intheabsenceofaspecificset- withthepreciseoutcomedependingonthenature tingthatmakesthecostsclear,respondentsare ofmonetarypolicyandthedegreeofpriceflexi- notlikelytofavoracceptingweakerprotections bility.Manyotherexercisesexplaincounterintu- fortheenvironment,forexample.FewAmericans itiveoutcomes—counterintuitive,thatis,until favoraworldtradingsysteminwhichU.S.poli- youhaveworkedwiththemodellongenoughto ciesonenvironmentalandotherconditions changeyourintuition.Itissimplyafactthatthe couldbecontrolledbyforeigngovernments outcomescanbecomplicatedtoexplainwhen throughtheirwillingnesstoacceptgoodsexported everythingintheeconomydependsonevery- bytheUnitedStates.Nevertheless,thesefre- thingelse.Indeed,inlargemodelswithscoresof quentlyexpressedsentimentsindicatingadesire equationsitcanbedifficultevenforeconomists toapplyU.S.standardstoforeignproducersdo toidentifyremoteandindirecteffects.Elaborate affectU.S.positionsintradedisputes. simulationinvestigationsaretypicallyrequired whenthemodelsarelargeandcomplex. Theeconomist’scaseforfreetraderestspri- WHY THE GAP? marilyonthefactthatimposingorremovingtrade restrictionsinvariablyhelpssomefirmsand THE SIMULTANEITY PRINCIPLE peopleandhurtsothersbutwithapositivenet Twoprinciples,Ibelieve,explainthegap benefitforthecountryasawholefrommoving betweentheeconomist’sviewandthepublic’s towardfreertrade.AsIemphasizedinaspeech viewontrade.ThesearewhatIwillcallthe inNovember2003,akeyreasonwhythegeneral “simultaneityprinciple”andthe“political-favors publicisreluctanttoembracefreetradeisthat principle.”I’lldiscussthefirstofthesenowand manydonotunderstandthebenefits.9Andthe thesecondshortly. reasonpeopledonotunderstandthebenefitsis Thenotveryinsightfulorartfulterm“simul- thattheydonotunderstandtheinteractionsand taneityprinciple”encompassestheeconomist’s connectionsacrossmarkets.Foroneexample, caseforfreetrade.I’musingthetermbecause peoplemayseethegenuinecostsimposedon economiststhinkabouttheeconomythrougha workerswholosetheirjobstoimports,butfail modelinwhichoutcomesinmarketsaredeter- toseethebenefitstoconsumersoflower-priced minedtogetherasaconsequenceoftheinterac- goodsfromabroad. tionsamongmarkets.Suchinteractionsare Economistsaretrainedfromtheirfirstcourse representedabstractlyinamathematicalmodel inthesubjecttounderstandtheinteractions withmanyequationsthatmustbesolved acrossmarkets.Theinteractionsarenumerous simultaneously. andsometimesremotefromtheinitialdistur- “Simultaneityprinciple”soundscomplicated, bancethatsetsoffachainofsuchinteractions.It andismeantto.Iusedtoteachtheintroductory isusuallypossibletoexplainthenatureofthese macrocoursetoeconomicsmajorsandremember effectstonon-economists,andformalstatistical wellmystruggletoexplainthecharacteristicsof studiescanoftenyieldestimatesofthemagnitude thebasicKeynesianmacromodelwith10equa- ofeffects. tionsthathadtobesolvedsimultaneously. Sometimes,aninteractionisprettyobvious Teachingthismaterialrequiredmanyhoursof anditmaynotbedifficulttoconveythepoint. classroomtime.Icouldusethemodeltoexplain Forexample,restrictingimportsofarawmaterial why,forexample,aneffortbyhouseholdsto willhavepositiveeffectsondomesticproducers increasetheirsavingmighthaveastheprimary oftherawmaterial,andtheiremployees,butwill 9 ThespeechwaspresentedtotheLouisvilleSocietyofFinancialAnalystsinLouisville,Kentucky,onNovember19,2003.Itwaspublished intheFederalReserveBankofSt.LouisReview,March/April2004,86(2),pp.1-7. 4 FreeTrade:WhyAreEconomistsandNoneconomistsSoFarApart? hurtdomesticusersoftherawmaterial.Indeed, arenotlicensed.Anotherisregulationoftaxis, byforcingupthepriceoftherawmaterial,domes- whichmaypreventtaxislicensedinonejurisdic- ticproducersofthefinishedproductmayfind tionfrompickinguppassengersatairportsin themselvesatacompetitivedisadvantagetofor- otherjurisdictions.Thisrestrictioncreatesthe eigncompanieswithacheapersourceoftheraw inefficiencyofataxicabgoingonewayempty, material.Thus,savingjobsintheindustrypro- evenwhenpotentialpassengersarewaitingina ducingtherawmaterialcomesatthecostof longlineforataxi.Suchexamplescanbemulti- reducedjobsinindustriesusingtherawmaterial pliedmanytimesover,andareoftenusefulin andhighercoststoconsumersofthefinished explainingthenatureofinefficienciescreatedby product. traderestrictions. Mostjournalistswanttosmokeoutallsides Oneofthemostdifficultinteractionsto ofastory.Inthecaseofastoryinvolvingatrade explainistheconnectionbetweenimportsand dispute,smokingouttheindirecteffectsiscritical exports.Eventhoughacountrycanattractcapital toexplainingallsidesofthestory.Understanding foratime—perhapsforaperiodmeasuredin thesimultaneityprincipleleadsimmediatelyto decades—inthelongrun,importsmustbepaid questionsaboutpossibleindirectandremote forbyexports.Mostpeopleunderstandthispoint, effectsoftraderestrictions.Thosequestions butnotthesamepointputtheotherway—exports needtobeaddressedtoeconomistsandindus- requireimports.Restrictionsoncertainimports tryexpertswhocanuncovertheconnections lead,quicklyoreventually,eithertoincreasesin acrossmarketsandtheindirecteffectsoftrade otherimportsordecreasesinexports.Thispoint restrictions. isextremelyimportant,foritmeansthat“saving Itisimportanttorecognizethatthecasefor jobs”byrestrictingimportssavesonlyjobsinthe freeinternationaltradeisreallypartofamore particularprotectedindustry.Savingsuchjobs generalcaseforfreemarkets.Theanalysisof necessarilymeanslosingjobsinotherimport- interregionaltradewithinacountryisinmost competingindustriesorinexportindustries. respectsexactlythesameastheanalysisofinter- Consequently,oneofthepointseconomists nationaltrade.Internationaltradeisaseparate emphasizeoverandoveristhatsavingjobsin subjectwithineconomicsprimarilybecauseit particularindustriesdoesnotsaveemployment dealswithrestrictionsontradethatdonotordi- fortheeconomyasawhole.Economistsaresome- narilyexistbetweenregionsofacountry. timeschargedwithinsensitivityoverjoblosses, Economicrestrictionsareoftwosorts— wheninfactmostofusareextremelysensitive restrictionsontradeingoodsandservicesand tosuchlosses.Whatgoodeconomicstellsusis restrictionsonmovementoffactorsofproduction. thatsavingjobsinoneindustrydoesnotsave Intoday’sworld,themostsevereoftheserestric- jobsintheeconomyasawhole.Weurgepeople tionsisonthemovementoflabor.Migration tobeassensitivetothejobsindirectlylostasa acrossnationalbordersiscontrolledalmostevery- consequenceoftraderestrictionastothoselost where,andcapitalmobilityisinmanycasessub- asaconsequenceofchangingtradepatterns. jecttosomedegreeofrestriction. Indirectjoblossispartofthestoryoftraderestric- Althoughtradeisgenerallyfreeacrossstate tionandcanbesmokedoutifjournalistswill borderswithintheUnitedStates,somerestric- consultknowledgeableexperts. tionsdoexist.Inmakingthecaseforfreeinter- I’vealreadyemphasizedthatthecaseforfree nationaltrade,itissometimeshelpfultoreferto tradeisreallypartofthecaseforfree,competi- analogiescreatedbyrestrictionswithintheUnited tivemarketsmoregenerally.Thisfactopensup States.Oneexampleisstateprofessionallicens- anotheravenueforinformativecoverageoftrade ingrequirementsthatpreventdoctors,lawyers, issues.Whyshouldwebemoreconcernedabout andbarbersfrompracticinginstateswherethey joblossesfrominternationaltradethanweare 5 INTERNATIONALTRADEANDFINANCE aboutjoblossesfromdomesticcompetitionor plete.Ialsoknowthatlosersfromrestrictionoften changingtechnology?Outsourcinghasbeenan donotrealizethey’vebeenhurt.I’mremindedof issuerecently.Somefirmshavereplacedstaff thestorysomeyearsagoofabankemployeewho handlingphoneinquirieswithstaffabroad;other foundawaytoskimfractionalinterestpayments firmshavereplacedcall-centerstaffwithauto- intohisownaccount.Thedepositordidn’trealize matedmessagesystems.Isitbetterforthecaller thathisaccounthadbeenroundedoffto$308.27 tobeabletotalkwithaperson,whomaybe whereashisaccountreallyhad$308.274.The abroad,ortogothroughendlessmenusofthe extra4tenthsofacent,ifleftintheaccount,would form,“press1ifyouarearetailcustomer,press2 haveearnedinterestandhaveledtoalarger ifyouareawholesalecustomer,press3if…”? accountbalanceinthefuture.Theaccountant WhenIgothroughthesemenus,I’musuallylook- whoskimmedafewtenthsofacentfromthou- ingfor“press4totransfertoourcompetitor.” sandsofaccountsputalotintohisownaccount, untilhegotcaught.Manytraderestrictionswork thisway—theycostconsumersjustalittle,but WHY THE GAP? THE POLITICAL- adduptoalotfortheprotectedindustry. Perhapsthereisnoreasontofeelmuchout- FAVORS PRINCIPLE rageaboutsuchtraderestriction,butinmostcases Traderestrictionrequireslegislativeinterven- legislatorswouldnotbeabletoimposeasmall tion,orregulatoryinterventionauthorizedby salestaxonthegoodandfunneltherevenuesto legislation.Thatmeansthattraderestrictionis thefavoredindustry.Thestratagemworkswhen inherentlypolitical.Idonotmeantouse“politi- itishidden.Tellingthefullstoryofanyparticular cal”inapejorativesense,forpoliticsisanessen- traderestrictionmayrequireaddinguplotsof tialpartofdemocracyanddemocracyisan penniesextractedfromthosewhodonotrealize essentialpartofliberty. theyarepaying. Legislationinvolvingeconomicissuestypi- callycreatesgainsforsomeandlossesforothers. Everylegislatorisawareofthisfact.Legislation CLOSING THE GAP istypicallydrawninsuchawaytominimizethe visibilityofthelosses,toavoidcreatingresistance Oncethereasonsforthegapbetweenecon- tothelegislationandlostvotes.Legislationis omistsandnoneconomistsareunderstood, oftendrawntoincreasethevisibilityofthegains approachestoclosingthegapbecomeclear.I’ve tothosewhobenefit,toattractvotes.However, alreadyemphasizedtheimportantroleofjour- sometimeslegislationhidesthebenefits,toreduce nalists.Inthisarea,aswithallotherpublicpolicy thepossibilitythatpublicitywillleadtoopposi- areasinademocracy,afreeandenterprising tion.Thosewhobenefit,ofcourse,maybewell pressisessentialtoeffectivegovernmentinthe awareofthebenefit.Itisperfectlynaturalthat interestofthenationatlarge. legislatorsshouldwritelegislationthisway. Asaformeruniversityprofessor,itisnatural YouandIwoulddothesamethingifwewere formetobelievethatformaleducationplaysan legislators. importantrole.Nevertheless,everyeducatoris Becausetheyunderstandtheimportanceof awareoftheshorthalf-lifeofmuchofthematerial thepolitical-favorsprinciple,journalistsknow taught.Students’knowledgeusuallypeaksat immediatelywhatsortsofquestionstoask.When examtime,andthenstartstodecay.WhatIhope evaluatingaparticulartraderestriction,whogains mystudentsretainedissomeverybasicprinciples, andwholoses?Whatisthenetfortheeconomy suchasthegainsfromvoluntaryexchange,and asawholeofthegainsandlosses? respectforeconomicsasadiscipline.Yearsafter WhenIreadastorythatreportsonlythebene- formalstudy,peopleneedtoberemindedofthe fitsoftraderestriction,Iknowthestoryisincom- analysisandhowitappliestoreal-lifepolicy 6 FreeTrade:WhyAreEconomistsandNoneconomistsSoFarApart? issues.Educatorscanplayacontinuingrole,by UnitedStatesareessentiallysentimental,the writingandspeakingfornoneconomistaudiences. casebeingessentiallythesameasthatforavoid- ButIbeganthisspeechbyexpressingdisap- ingtakinglandthathasbeenthefamilyfarmfor pointmentovertheeffectivenessofeconomists’ generations. speeches,andthatiswhyI’memphasizingthe Weliveinasocietythatonthewholeaccepts importanceoftheroleofthepresstoday.I’ve aneconomicsystemthatletsthechipsfallwhere suggestedthateverystoryontradeissues,tobe theymay.Somedecrythenatureofthissystem, complete,mustexplorewhogains,wholoses, butitsgeneralsupportrestsontheprogressand andthenetofgainsandlossesforthenationasa thehigherstandardoflivingitaffords.Weshould whole. notunderestimatetheindividualprotections Wheneverfacedwithapolicychoicethat builtintothissystem.Oursophisticatedmarket createswinnersandlosers,wefacethedifficult systemincludesinsurancemarketsthatpermit problemofsomehowweightingoneperson’s individualsandfirmstoprotectthemselves benefitagainstanother’sloss.Theissueappears constantly,andwetaketwogeneralapproaches. againstmanyformsofrisk.Moreimportantly, Thefirstisthatthegovernmentdoesnottake thevitalityofourmarketscreatesopportunities propertywithoutcompensation.Thesecondis fornewfirmsandnewemploymenttoabsorb thatthegovernmentstandsasidefromthecom- thosedisplacedbychangingcompetitivecondi- petitivemarketsystemandletsthechipsfallas tions.Ourdynamiceconomicsystem,andnot theymay. restrictivetradelegislation,providesthebest Governmentprovidescompensationwhenit protectionforourcitizens. takeslandforahighway.Itisimportanttonote, however,thatthecompensationisanestimateof fairmarketvalue.Weunderstandthelosstoa THE BOTTOM LINE familywhengovernmenttakeslandthathasbeen inthefamilyforgenerations,butwedonottry Weallknowthatavigorousandjustdemoc- tocompensateforthesentimentalvalueofthe racydependsonafreeandenterprisingpress.I land.Itissimplynotpossibletomaintainavig- urgeyoutokeepmytwoprinciples—thesimul- orous,growingeconomywhilegivinggreatweight taneityprincipleandthepolitical-favorsprinci- andactualcompensationforlossofsentimental ple—inmindwhenreportingontradeissues. value. Thefirstrequiresthatyouidentifythecompli- Governmentprovidesgeneralizedcompen- catedandindirecteffectsoftraderestrictions, sation,oradjustmentassistance,throughunem- andthesecondrequiresthatyouunderstandthe ploymentinsurance.TheUnitedStatesdoesnot winnersandlosersfromrestrictions.Ibelieve haveageneralprogramtocompensateownersof thatthegeneralvotingpublicwillbemorelikely capital.Unemploymentassistanceisrelatively tofavorfreetradepoliciesifitunderstandsthe limited,asitmustbetoretainincentivestoreturn issuesatadeeperlevel. towork.Existinglegislationalsoprovidessome Soremember:Everytradestoryrequiresat extrabenefitsforadjustmenttolossesarisingfrom leastthreesections.Onereportswhogains,one internationaltrade.Myviewofthislegislationis reportswholoses,andonereportsthenetofthe thatintheabstractthereisnoparticularreason gainsandlossesforthecountryasawhole.There toprovidemoreassistanceforjoblossdueto isanenormousopportunityhere:Soundand internationaltradethanforanyotherreason,but asapracticalmattersuchassistanceiswarranted impartialreportingcasebycasebycasewilldo ifithelpstogainacceptancefortradeliberaliza- more,Ibelieve,topromotefreetradepolicies tion.Weshouldrecognizethatmanyoftheargu- thanalltheeconomists’speechesextollingthe mentsformaintainingcertainindustriesinthe benefitsoftradelaidendtoend. 7 INTERNATIONALTRADEANDFINANCE REFERENCES Alston,RichardM.;Kearl,J.R.andVaughan,MichaelB. “IsThereaConsensusamongEconomistsinthe 1990’s?”AmericanEconomicReview,May1992, 82(2),pp.203-29. Coughlin,CletusC.“TheControversyOverFreeTrade: TheGapBetweenEconomistsandtheGeneral Public.”FederalReserveBankofSt.LouisReview, January/February2002,84(1),pp.1-22. Mayda,AnnaMariaandRodrik,Dani.“WhyAre SomePeople(andCountries)MoreProtectionist thanOthers?”WorkingPaperNo.8461,National BureauofEconomicResearch,September2001. Poole,William.“APerspectiveonU.S.International Trade.”FederalReserveBankofSt.LouisReview, March/April2004,86(2),pp.1-7. 8

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APA

William Poole (2004, June 14). Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/speech_20040615_poole

BibTeX

@misc{wtfs_speech_20040615_poole,
  author = {William Poole},
  title = {Speech},
  year = {2004},
  month = {Jun},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/speech_20040615_poole},
  note = {Retrieved via When the Fed Speaks corpus}
}