Tuesday, February 28, 2017

New Deal Demoncrat bitch-slaps Larry Summers

New Deal Demoncrat - Summers fails at psych 101. Oh you didn't!:

One such failure to take into account elementary psychology was on display in an article a few days ago, wherein Larry Summers, in the course of lambasting the rubes for trying to undermine global trade, concluded:

A strategy of returning to the protectionism of the past and seeking to thwart the growth of other nations is untenable and would likely lead to a downward spiral in the global economy. The right approach is to maintain openness while finding ways to help workers at home who are displaced by technical progress, trade or other challenges.

To which the appropriate response is something like: "Well, you f*****g genius, how many decades have you had to study the problem??? What have you ever proposed?"

To be fair, NDD, every single fucking competent trade economist already knows that trade liberalization creates winners and losers. But liberalization also creates enough new aggregate wealth that the government can compensate the losers for the entirety of their losses by taxing some of the winnings of the winners, and the aggregate economy still comes out ahead. This is 3rd year undergrad stuff, everyone already knows it.

FFS there's a whole chapter in Rodrik's The Globalization Paradox that goes into this. Read that book.

It gets complicated when you incorporate the positive feedbacks (and costs of institution rebuilding) of economic geography, but the argument still maybe holds. Dunno for sure because mainstream economists don't like studying the complexity of the real world.

The problem is that conservatives (and you can include Clinton in this, and also Summers who was on his CEA) are anti-tax and anti-redistribution. So they intentionally implement trade liberalization without bothering to tie in the required compensation.

It worked in their favour, because now they have created a mass of angry underemployed through the rustbelt.

You need to study political economy, not psychology.

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