Cheerleaders Gone Wild

(OK--this is about globalization, which some of you may find less exciting than the title would suggest, but it's still important.)

Two guaranteed ways to make people unwilling to embrace further opening of the US market to foreign trade on any terms are: 1) deny that anybody is harmed by it, and 2) make wildly distorted claims about its benefits.

In this way, the most enthusiastic cheerleaders for globalization-as-currently-practiced are doing more than Lou Dobbs ever could to make the American public suspicious about seeing any benefits from trade. After all, genuinely good policies don't need a lot of exaggerations told on their behalf.

Sebastian Mallaby of the Washington Post and Fred Bergsten of the Petersen Institute of International Economics (IIE) are big-time offenders in this regard, and both have been going around lately touting a ridiculously large number regarding the prospective benefits to signing ever-more trade agreements : $500 billion per year.

That number isn't just off by a little. It's about $480 billion above the high end of most conventional estimates. To get there you have to cook the books--broil them, really--in a very unsavory manner. At the heart of the number is the assumption that the US market, despite a relatively tiny number of actually-identifiable tariffs, quotas, or other explicit legal restraints, is in reality hugely protectionist, blocking imports and foreign investment with insurmountable,yet invisible, barriers. The method assumes particularly high trade barriers in our service sector.

Now, we're also skeptical of claims of how across-the-board wonderful Wal-Mart is for the US economy, but, even we don't think it thrives mostly because it's protected from foreign competitors by government policy.

There are real gains from trade liberalization. Reasonable estimates range from $4 to $20 billion; the back of our own envelope is closer to the lower end of this range.

That's not nothing, and there are also gains to our trading partners from greater access to the US market. However, globalization's current rules (the ones inspiring all the pom-pom waving), make this access inordinately costly to the world's developing nations. Essentially, the current rules grant access contingent upon these nation's adopting a range of economic policies that map awfully conveniently onto the preferences of the corporate class both here and abroad. The cheerleaders' advocacy campaign to ramp up this model of globalization isn't doing the world's poorest any favors.

And then there's the problem that no one in their right mind believes these hyperbolic claims. Even if they did, it would only leave them more convinced than ever that these benefits (like almost all others in the economy of late) were eluding them and accumulating exclusively at the top of the income scale.

Recent polling data suggests that Americans actually have a fairly nuanced view of trade, one that we think reflects the reality. According to a February NYT/CBS poll, a solid majority--65%--said trade is good for the US economy. But when asked whether we've gained or lost from globalization, only 36% answered "gained," while 51% thought we'd lost more (12% answered "don't know").

We believe this reflects the fact that increased trade, just as economic theory predicts, has slightly boosted growth, but has also generated greater inequality. It's the obvious outcome of expanding trade with countries whose wages are a lot lower than our own. Further, as technology and the huge expansion of the global labor pool makes a much wider range of jobs contestable by workers much poorer than those in the US, trade's negative influence on wage growth here could balloon in the near future.

There are good, ambitious, policy ideas for pushing back against these trends: stronger social insurance and safety net programs that reach higher up the wage scale, comprehensive reform of the rules governing globalization, and undertaking the public investments needed to introduce more efficient and environmentally benign production in the US economy.

But we'll never be able to craft a rational response that matches the scale of the dislocations of globalization if irrationalities and downside denials are rampant. After all, who needs to "solve" the problem of $500 billion magically created with merely "transitional" and trivial downsides?

Lastly, when did good public policy grow out of dishonest debates and trumped up numbers? In the interest of moving towards a more equitable system of global trade, could somebody please take the pom-poms away from these cheerleaders gone wild?

The authors are economists at the Economic Policy Institute.