Tuesday, February 10, 2004


You know, back in my college days I went to see CEA head Greg Mankiw speak. He gave a talk in which he was extolling the virtues of teaching economics. His reasoning was that knowing a bit of economics was necessary to be an informed citizen, and it was necessary to have informed citizens in order to have an electorate which would support reasonable policy decisions. Fair enough. Then he went on to argue that there were a few policy issues - I remember rent control and free trade as being a couple of them (though this was years ago so my memory could be faulty) - that voters would have the "right" opinion about if only they were educated. Okay, more debatable but still fair enough - a little bit of Econ 101 goes a long way on such things. But, then he took the argument to the next level, and argued that voters would have the "right opinion" (and therefore the right vote) on such issues even if supporting them went against their own self-interest. In other words, people would vote to remove Rent Control for aesthetic reasons even if it meant giving up their $400 per month apartment. This is where he transcended free market fundamentalism and moved into free market Talibanism. Few policy changes benefit all citizens - generally there are winners and losers and the strongest claim that can be made is that in principle when policy changes increase the overall level of income/output, then the losers can be compensated by the winners with an appropriate amount of redistribution. These people fall into the trap of perceiving the level of GDP or average income as value-free metrics of the health of the economy. They aren't value free. Saying improvements in GDP are "always good," and voters should always support policies which in theory do so, embraces the idea that, say, this is the case even if it will make life worse for 90% of the population, while improving things for 10% on the basis that the "average" will be higher. It's simply a fetishizing of GDP, and embracing the belief that we all should. It's reducing "the greater good" down to one number.

Anyway, I was reminded of that when reading this:

WASHINGTON - The movement of American factory jobs and white-collar work to other countries is part of a positive transformation that will enrich the U.S. economy over time, even if it causes short-term pain and dislocation, the Bush administration said Monday.

The embrace of foreign "outsourcing," a trend that has contributed to U.S. job losses and become a campaign issue, is contained in the president's annual report to Congress on the health of the U.S. economy.

"Outsourcing is just a new way of doing international trade," said N. Gregory Mankiw, chairman of Bush's Council of Economic Advisors, which prepared the report. "More things are tradable than were tradable in the past. And that's a good thing."

Look, most economic theory (And most economists) will say that free trade is a rising tide, but no one does or should claim that it's a rising tide which lifts all boats. It doesn't. And, asking people to support policies which go against their own self-interest on the grounds that it's going to increase the value of some economic statistic is ludicrous.

...just wanted to add that it isn't as if I don't think people are capable of supporting policies which go against their own narrow self-interests - either by truly making charitable sacrifices or simply pursuing some notion of "enlightened self-interest" which recognizes an overall personal net benefit from some action of collective choice which, say, raises their taxes. I just reject that the simple metric of per capita GDP, or some abstract notion of "economic efficiency," does or should embody this notion of the "greater good." There's a sense that per capita GDP is a valueless measure of an economy's wellbeing, but it isn't. If policies which lead to higher per capita GDP also have huge distributional consequences, then ignoring those consequences isn't eschewing value judgments - it's simply sticking your head in the sand and pretending the consequences don't exist.