CEPR, ,
Ben Casselman has an interesting piece in the New York Times about how economists have lost standing with both politicians and the public at large. While he attributes the profession’s problem to flawed forecasts and arcane language, I would argue the problems go much deeper.
There has been a major lack of honesty in important areas that have had a huge impact on people’s lives. The two areas I would highlight are trade and the bailouts in the financial crisis.
The story with trade runs deep. As Casselman tells us, economists all like to claim that they are proponents of “free trade.” But there are two points here that economists tend to give short-shrift or no shrift.
The first is that trade has losers. That is not left-wing jargon, that is basic economic theory. Paul Samuelson, arguably the country’s most influential economist ever, co-authored a famous piece on trade theory making this point more than eighty years ago.
In this piece, Samuelson made the case that in a country with a large amount of skilled labor (e.g. college-educated) relative to the rest of the world, and a small amount of less-skilled labor (non-college educated), less-skilled workers would be hurt by an opening of trade with developing countries. In other words, the loss of jobs and the downward pressure on the wages of manufacturing workers was not an unfortunate side-effect of recent trade deals, it was the point.
While economists will occasionally acknowledge the fact that there are losers, they usually imply that this group is a small number of people who can easily be made whole with a limited amount of adjustment assistance. In reality, we are talking about millions of workers who actually lost their jobs and tens of millions more who saw lower wages.
There are two simple graphs that display this handwaving by economists beautifully. The first is a graph showing the share of manufacturing workers in total employment. As can be seen there is a downward trend in the whole period from 1970, nothing special to see as the trade deficit exploded in the first decade of this century.