Left Flank

I have a small problem with foreign policy analysis of the sort Mathew Yglesias and Reihan Salam are doing in this fast-talking, book-plugging bhTV diavlog—old school! Instead of taking American capabilities and interests first, both go through a shopping list of «problems». It's a recipe for over-extension. There might be this underhanded attempt to backdoor multilateralism, by saying, «Hey, we can't do it all!» But, there's already a principled argument for that, since multilateralism eases burdens and undercuts foreign criticism that the US is too unilateral, and thus fosters American interests. Also, America thrives when trade thrives, too, and security fosters business. I prefer to examine American military assets—air, sea, land, and near-earth orbit—and ask, «What can America do, and in the most efficient and cost-effective way?»

If nothing else, Paul Krugman has sparked some of the best (from the perspective of my IR comps next year) the most useful arguments on economic liberalization. Simon Lester points out other issues with Krugman's essay, and links to two other contributions to this debate. The Economist and Angry Bear seem to be talking to each other.

I agree with Stormy at Angry Bear about "...the lack of rules underpinning globalization.". However, I think those include more than just labor, although collective bargaining is important. The international dimension is something Yglesias, Cowen, et al have minimized. Yglesias is downright mercantilist. Lester also discusses the effect of second-best domestic policies, like tariffs and subsidies, on trade.

But, The Economist has the clearest exposition:

If a very small and very rich group of Americans are enjoying most of the benefits of trade, then we should determine how best to capture a portion of those gains for redistribution. Are increased income tax rates an appropriate means to that end, or are there more efficient ways to go about sharing the surplus? It's all well and good to propose a stronger safety net, but one must also discuss how to pay for it, and what effects a payment scheme may have on the incentives of investors and innovators in the economy.

Next, we must determine the best methods for downward redistribution, with a keen eye to incentive structures. Wage subsidies and unemployment insurance are attractive policy options, but the ultimate goal must be to increase the size of the skilled workforce relative to unskilled workers. As Mr Krugman states, "[H]ighly educated workers in the United States benefit from higher wages and expanded job opportunities because of trade." Investing in policies to enlarge the proportion of highly educated workers in America must become a high priority.

(...)

Where trade is troublesome, it's also important to understand that concerns about wage-effects miss the point entirely. If Chinese manufacturing is far more environmentally damaging than first-world production, then we ought to attempt to address those externalities, regardless of trade's impact on incomes. In fact, Chinese goods are cheap in large part because the costs of pollution and carbon (and unhealthy labour conditions) are not included in the shelf price. These problems are just as pressing as inequality concerns, and their solutions may have the effect of killing several birds with one stone.

Again, the reason we're having this debate has to do with translating economics into political policy, via the democratic process. So, I'll take full-bore clarity over disguised protectionism, from Krugman or Yglesias, anyday.

Matthew "New Deal" Yglesias and Tyler "SWF" Cowen are still talking about Paul Krugman's "protectionist" about-face. Both oppose Krugman's call for social safety nets to help the losers from free trade.

The Economist points out two problems with SWFs, or sovereign wealth funds: transparency and knowledge. "The last time governments were this involved in sinking money into private assets, the process tended to be called nationalisation. Now the funds are invested both abroad and domestically. A new term will have to be coined: internationalisation, perhaps." An American SWF could hide its decision-making in a blizzard of paper and regulations. Moreover, it is mostly likely an SWF would invest less efficiently than a private investor. That goes for Yglesias' and Cowen's arguments.

Both Cowen's and Yglesias' proposals would create more problems than they solve. Foreign governments would certainly take Washington's creation of SWFs as a cue, that multilateral trade reform is dead. Also, individual governments might oppose American SWF-led investment just as America does. As many have commented on both sites' boards, an SWF wuld be prone to corruption caused by lobbying. SWfs would likely exacerbate already existing market distortions, like tariffs and subsidies. The first-best solution is reducing these barriers; the second-best involves the right combination of domestic employment insurance, domestic healthcare reform, domestic pensions reform, multilateral immigration reform, multilateral financial reforms, private investment, and education needed to maintain an increasing rate of global and domestic economic growth.

Krugman is right.

MR's Tyler Cowen rightly emphasizes a quote from two Matthew Yglesias posts to which I linked before. Here's the whole quote:

I don't know whether or not it's "our business" but the point is that we're unlikely to be able to do this effectively. The US, being rich and strong, has a good deal of influence to throw around in Pakistan. But it's much easier for Pakistani actors to manipulate US policy than the reverse. We don't have the know-how, we don't have the expertise, and we never will. What we need to do is focus on what we can know -- what are our key interests in Pakistan -- and articulate them clearly and consistently combined with the proviso that we're willing to work with whatever kind of leadership Pakistan has on ways to advance our interests. Trying to pick the "best" faction and then shift things around so they wind up in power seems like a doomed mission. In general, the idea that the correct response to 9/11 was for the United States to start engaging more vigorously in efforts to micromanage political outcomes in Muslim countries seems badly mistaken. We need to make our policies more robust against internal political disagreements in the Islamic world, not do a better job of picking sides.

I'm certain I wrapped Yglesias up in Brzezinski's quote and implied he supported it, so I want to correct that mistake.