Amitai Etzioni Notes

The Economists’ Dirty Little Secret

My colleagues in economics (and many others, including quite a few liberal ones) tend to scoff at the majority of the public that is troubled by globalization.  Never mind the false medications, poisoned toys, and pirated goods, you just don’t understand—these economists say—free trade is good for you, me, and the man behind the tree. Economists are quick to argue that free trade reduces the costs to consumers and thus ensures an ever higher standard of living. Citizens of nations like the United States that are losing jobs to India and China (and scores of other nations) are told to not fret, that these are menial jobs, that off-shoring allows more Americans to specialize in high tech, well-paying, “clean” work. Often disregarded is that neither God nor anyone else set aside these choice jobs for Americans, and that Indians, Chinese, Finns, and Israelis—among others—can do these jobs too, and often for a fraction of what Americans charge. (One economist, Alan Blinder, suggests that hence Americans should specialize in those jobs that are hard to ship overseas—cutting hair, policing the streets, and flipping hamburgers. How many such service jobs there are, and how well they pay, remains to be determined).

Two market failures

If you are a renter, home buyer or potential seller, or merely an investor—be sure to read this Sunday’s New York Times front page story about the unraveling of the mortgage bubble. The New York Times points out that despite soothing reassurances from those who formed the bubble, the major shake-up in the housing market is yet to come. In the past, in such situations, the free market advocates -- rushed to the government to bail them out. This is what happened during the Savings and Loan debacle, to framers who are still heavily subsidized, and to Chrysler among others. Most recently various airlines tried to stick the public with their under-funded pension plans. If the banks and builders succeed, taxpayers will cover the losses caused by wild speculation in the real estate market.

The Sunday Washington Post front page features a report about a fight between free market ideologues at the Department of Commerce and the military and State Department realists in Baghdad. Ever since the U.S. occupation of Iraq in 2003, the occupation authority has maintained the monthly handout every Iraqi had been getting under the Saddam Hussein regime. These handouts include a staple supplies such as wheat, sugar, salt, and soap and detergent. They cost the public about $4 billion a year. Commerce ideologues, most of whom have never been to Iraq, hold that only the poor should get such handouts, and even they should best be given cash instead. Many economists would agree with them. However those familiar with Iraq hold that the result would be major social unrest—about the last thing the country needs. Just another example where the free market theory falls down.

Update: Rarely have my predictions come true so quickly (those that come true). Senator Christopher Dodd (D-CT) just announced that he would seek billions of taxpayers’ dollars to bail out irresponsible borrowers and reckless lenders.