Goolsbee (and Obama?) on Free Trade

Josh Wright —  8 October 2007

Here is Senator Obama’s economic advisor Austan Goolsbee on globalization and free trade (as described by George Will in his recent column):

“Globalization” means free trade and various deregulations that supposedly put downward pressure on American wages because of imports from low-wage countries. Goolsbee, however, says globalization is responsible for “a small fraction” of today’s income disparities. He says “60 to 70 percent of the economy faces virtually no international competition.” America’s 18.5 million government employees have little to fear from free trade; neither do auto mechanics, dentists and many others.

Goolsbee’s rough estimate is that technology — meaning all that the phrase “information economy” denotes — accounts for more than 80 percent of the increase in earnings disparities, whereas trade accounts for much less than 20 percent. This is something congressional Democrats need to hear from a Democratic economist as they resist trade agreements with South Korea and such minor economic powers as Peru, Panama and Colombia.

While I was less impressed with Obama’s statement on antitrust policy, and his previous attack on Wal-Mart as competitive problem, this statement from Obama’s top economic advisor seems much more sensible. Of course, one could argue there is not much here to get excited about since this is really Goolsbee talking and not Obama. But while I’m happy to cosign Greg Mankiw’s argument that the economist-as-advisor should not be responsible for all positions that the advised takes, in my view it is also sensible to give credit where it is due to the candidate for any benefits associated with selecting good economic advisors. And yes, I realize I’ve painted myself into a position here where economists are essentially only responsible for the economic policy advice that he or she gives and not much else.

As a side note, and as Jon Adler notes at the Volokh Conspiracy, Goolsbee’s position on free trade is light years ahead of Republican candidate Mike Huckabee’s rather ridiculous statement that a country is not free unless it is able to produce “its own food, its own fuel, and its own fighting apparatus.”

3 responses to Goolsbee (and Obama?) on Free Trade

  1. 
    market failure, right here 10 October 2007 at 8:23 am

    That analysis seems a bit simplistic to me. A general equilibrium theory would posit that pressure applied to the 30% of jobs vulnerable to trade displacement would then exert increased pressure on the supposedly immune sectors. I’d imagine that the pressure is far more pronounced in the skilled trade and semi-skilled sectors.

    I understand the idea of comparative advantage, and am against protectionist trade policies as such, but the gains from trade should be shared equitably, through taxation and redistribution, if necessary.

    Moreover, the US should recognize, and attempt to mitigate, the negative impact that certain policies, such as agricultural subsidies, have on the developing world.

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    […] Goolsbee (and Obama?) on Free Trade …hear from a Democratic economist as they resist trade agreements with South Korea and such minor economic powers as Peru, Panama and Colombia. […]