March 5, 2008
O tempora, o mores
If Jagdish Bhagwati’s purpose in writing his FT column on March 3, Obama’s free-trade credentials top Clinton’s, was to cheer up those who support multilateral free trade and had become dismayed at the avalanche of protectionist drivel from both the Obama and the Clinton camps, he failed.
Professor Bhagwati writes: “… no Democratic candidate during the primaries can be anything but a protectionist. The only question is: of the two, which is likely to be friendlier as president to the cause of multilateral free trade? Careful scrutiny suggests that the odds are in favour of Mr Obama….”
This means the following:
First, the median voter in the Democratic primaries is now so protectionist, that only a candidate professing to be a rabid protectionist has any hope of gaining the Democratic nomination.
Second, protectionist labour unions in the US have, through the financial and other support they offer the candidates, disproportionate influence on the positions taken by the candidates.
Third, Obama is willing to lie about and to deceive the voters about his true views on trade policy and about his future policy intentions, should he be elected president. You can only become the Democratic candidate for the US presidency if you are prepared to act in a dishonest and unprincipled manner. Obama is willing to pay that price. While Obama plays tough cop on NAFTA in Ohio, his chief economic advisor Austan Goolsbee (whom I knew when he was an undergraduate at Yale University and one of the bright young lights guided by Jim Tobin) plays nice cop at the Canadian consulate in Chicago. There’s a useful lesson here for young Austan, one that anyone interested in becoming active in hands-on politics should heed: there is no such things as ‘off the record’.
Fourth, the voters in the Democratic primaries are stupid enough to be deceived by this charade.
The only bit of good news is that there is a chance that at least my fourth point may not be entirely correct. Barack Obama’s losses in Ohio and Texas may have been due to the fact that the American electorate does not like its presidential candidates to speak with a too obviously forked tongue. So Hilary Clinton lives to fight another day - proof, like the House of Lords, of life after death. If such is indeed the case, I remain depressed on the substance of what the Democratic constituency now stands for : protectionism. I am, however, more upbeat about the form the Democratic constituency insists on: honesty.
Not so much honesty, as the appearance of frankness. Cue Groucho Marx.
Posted by: dearieme | March 5th, 2008 at 9:01 pm | Report this comment[…] are prepared to act in a dishonest and unprincipled manner. Obama is willing to pay that price. Source: ft.com Finally an European who gets it! __________________ JC:"Australia is where you go when […]
Posted by: Let's see how the world would vote - Page 4 - FinalGear.com Forums | March 5th, 2008 at 9:27 pm | Report this commentDemocrats know less about economics than Republicans know about the Fluxus movement.
Posted by: Thomas | March 6th, 2008 at 5:51 am | Report this commentThe arrogant pronouncements about the unquestionable superiority of free trade hide the facts. And the facts are not pretty: considerable consolidation of wealth for global corporations, decreasing job security, increasing trade imbalances and forex distortion all around. These are not assertions, they are facts, and even you, Mr. Buiter, will one day admit that.
Posted by: Observer | March 6th, 2008 at 11:44 am | Report this commentTuesday night I watched the results of the primaries come in on MSNBC. I wanted to see if Tim Russert or anyone would mention that if we wanted to withdraw from NAFTA we could within six months. That the candidates would opt-out is the leverage Hillary and Obama need to renegotiate the agreement. It’s renegotiate or else and not renegotiate or nothing. The latter makes no sense.
So every time Russert mentioned the fact that both democratic candidates “wanted to renegotiate NAFTA” he should have added “or they will opt-out of it.” That never happened. In fact I never heard anyone mention the results of not renegotiating.
I don’t think that this is accidental. Corporate America doesn’t want to hear anything about opt-outs. Perhaps, Russert has been promised greater access to the candidates if he doesn’t press them on the opt-out leverage part of their promise? After all, that was the point of his question Tuesday night.
I think that Obama’s “Downing Street Memo” to the Canadian Embassy helped Hillary win so decisively in Ohio. His economic adviser made it sound as if the decision not to opt-out of NAFTA has already been made. All the fuss is just for show.
Hillary pressed this advantage weakly. She hasn’t mentioned the word opt-out since the last debate. Obama has the “understanding” hung around his neck and Hillary won’t mention the opt-out part of the renegotiating equation. She is as bad as Russert. She is either going to have to make the connection or lose her advantage by the time she reaches Pennsylvania.
NAFTA haters,like me, need reassured that the opt-out is on the table and is a real option. Without that assurance they’ll both be seen as blowing smoke.
She can make the connection before Obama does and win Pennsylvania big, or she can be suspected of just not getting caught with her own Downing Street Memo and settle for not exceeding expectations.
Oh, one other thing. Will someone in the press core tell John McCain that NAFTA is an agreement and not a treaty.
Posted by: wjd123 | March 6th, 2008 at 11:49 am | Report this commentThat’s press “corp.”
Posted by: wjd123 | March 6th, 2008 at 1:10 pm | Report this commentThis is totally off-topic, but does anyone else think Willem Buiter looks ever-so-slightly like John Cleese?
Posted by: Mr. Noah | March 6th, 2008 at 3:44 pm | Report this commentNothing like John Cleese…
…but possibly Clive Anderson or David McCallum (of Man from UNCLE fame) - he can be as acerbicly funny as the first and as calm and deadly in his character assassinations as the second.
I also note that the excellent Mr McCallum now plays the pathologist in TV’s NCIS, famed for his careful dissections and probing autopsies - again, so like Mr Buiter.
Posted by: Huw Sayer | March 6th, 2008 at 3:57 pm | Report this commentThose who support the recent statements by the Democratic candidates that NAFTA should be subject to renegotiation should be careful what they wish for. Apart from simplistic and overheated rhetoric, sound, reasoned analyses of the net gains or losses to the U.S. from the adoption of NAFTA have been conspicuously absent. Is it really true that industrial and manufacturing jobs been moved from Ohio to Mexico or Canada, or it is more accurate to say that employers in Ohio have been outperformed/underpriced by foreign producers in Asia, particularly China and India?
And who is to say that only the U.S. has the desire - or the right - to unilaterally demand a reexamination of NAFTA’s provisions? Recent comments by Canadian and Mexican government officials suggest that, if parts of the treaty are to be re-written, then there are a number of issues that they’d like to raise with us, as well. Strident demands to alter the provisions of the NAFTA agreement in our favour would damage our relationships with many of our allies, and call into question the reliability of our other international trade and treaty obligations. It is ironc that, in order to gain some slight electoral advantage, Mrs. Clinton and Mr. Obama are willing to espouse the kind of blinkered, solipsistic arrogance that they have heretofore attributed to the Bush administration!
Posted by: Terence Burns | March 6th, 2008 at 4:14 pm | Report this comment“…Fourth, the voters in the Democratic primaries are stupid enough to be deceived by this charade…”
Unfortunately you are right about this. An article by Gerard Seib in the WSJ today asserts that the results from the Ohio primary in particular indicate that Sen. Clinton’s talking (note talking rather than proposing anything of much value) regarding healthcare was instrumental in her primary victory. Healthcare “reform” more than protectionism, although that has realistic appeal to blue-collar workers - they see the consequences of free trade. Too many voters make no effort whatsoever to look beyond the phoney rhetoric of politicians even relatively honest and responsible ones such as Sens. Cinton and Obama - as opposed to utter phonies such as most Republican Congressmen and -women and such Democratic luminaries as Sen. Schumer whose protection of hedge fund managers from income taxes is reprehensible.
The flip side is that protectionism has its merits for those who lose jobs. Minimally those who gain from agreements such as NAFTA (primarily executives is large companies and the shareholders in those companies) must be taxed in some way to compensate the workers who lose their jobs. Those workers have reason to be angry and resentful. I have personally seen several large manufacturing plants of medical devices in the northern New York State USA quite literally pack up all the equipment from the plants and ship it to plants just across the Mexican border. All the workers, including many white-collar workers were left with nothing. That area of the USA is similar to “decaying” old industrial areas in Britain where once manufacturing leaves, it never returns and meaningful employment with it.
I have not read Prof. Buiter’s academic work so I do not know how an extreme adherent to neoclassical theory he is, but the reality is that there are specific losers and specific gainers from free trade agreements. Workers are not brainless Luddites in advocating protection. In fact the Luddites were not brainless either.
Posted by: Wendell Murray | March 6th, 2008 at 5:17 pm | Report this commentI think Mr Buiter is missing the point about this. Neither Obama nor Clinton is really anti-trade. But they are, in my view correctly, aware that this election like most elections, but unlike that of 2004 (which was historically speaking a freak one) will be about the economy. And I’m sure the academics might disagree, but the political strategists are spot on: when people lose their homes (that’ll be a few millions households), people start losing their jobs (ADP numbers were bad - and job report tomorrow probably wont be pretty) then in my view the Democrats are right to focus on this. Talks of fiscal conservatism and grand free trade deals simply are irrelevant in that context.
Posted by: fxtrader | March 6th, 2008 at 5:28 pm | Report this commentThe state of the economy (things like sky rocketing food price and pretol inflation) and healthcare are more important to most americans than foreign policy - and as this recession takes hold, it will be even more so.
I wish your forked tongue assessment were true, but I don’t think it is. Rather, it seems to me Hillary threw a spanner (or wrench) in the works for Obama with her “multi-pronged” attack in the days leading up to the primary. Never underestimate the Clintons’ ability to perform a good hatchet job at the last minute.
However, I don’t think this means the American electorate is “stupid” or any more protectionist than, say the British Electorate, or certainly the French or German electorates (and probably less, on the whole).
Joe Six Pack in Ohio has long been protectionist. Joe Oilman / Entrepreneur in Texas and California nearly always breaks for more trade–often even if he is a Democrat. Everyone in America knows that Democrats and Republicans try to play to the gallery in the primaries and that the tone becomes more centrist in the general election, and the show varies from state to state. (Romney in Michigan is an example of a rather blatant episode.) It has always been thus. Far from proving the electorate is stupid, this shows that individual constituencies in various states use the primaries to influence candidates’ policy platforms.
Posted by: Dave the American | March 6th, 2008 at 5:37 pm | Report this commentI do not believe protectionist sentiment is uniformly as strong throughout the US or the democratic party electorate as it is in places like Ohio, in the so-called rust belt, where so many manufacturing jobs have been lost.
Posted by: Hank in California | March 6th, 2008 at 8:30 pm | Report this commentNAFTA is a symbol for globalization. Here is a recent post I wrote when the suggestion was made that we should protect workers rather than workers’ jobs.
I can agree with the idea that we should use social insurance programs to protect workers, but I can’t agree with the idea that social insurance programs should be used as a reason not to protect workers’ jobs. And I don’t agree that the criterion we use to evaluate trade agreements should be neutral when it comes to whether a worker will lose her or his job because of technology or globalization.
I’m not a Luddite, railing against new technology. I might not like losing my job because of it but down deep I believe that ultimately it will be a benefit to everyone. And even if I feel that in my life time I’m going to suffer from it more than I benefit, I just don’t see how I can hold it back in order to protect my job. However that is not how I feel about losing my job to globalization. I don’t want it traded away, I want it protected. If that means tariffs then I want my government to impose tariffs.
I’ll compete with the workers of Canada because their political economy is similar to mine. We both have the right to association, we both have rules and regulations protecting us in the workplace. Where we are not competitive, I generally want what they have–getting my health care through my government and not my employer–and having to compete with them will get it for me that much quicker.
I don’t want to compete with the workers of Mexico because their political economy is so different than mine. I feel having to compete with them will jeopardize every advance made to our political economy over the last century. I feel that competing with Mexican workers will drag me as a worker back to my place at the beginning of the Industrial Revolution. I’ll be asked to fight for every advancement to my predicament all over again.
No trade agreements should be protecting my job if what is being traded with it are my rights as a worker. Trade agreements should be helping the Mexican worker advance his or her rights and not undermining mine. That can’t be done through NAFTA. The differences in our political economies are simply to great. If we don’t protect our jobs in a global economy worker rights will become meaningless.
Economist are asking workers to trade their rights for state protection. They are asking workers to believe that ultimately factor-price equalization will make most of them better off. Well if that is true why did workers have to fight so hard for the last hundred years to enjoy a political economy in which they have rights. There is no global political economy within which worker rights are protected. How am I protected as a worker if my job is thrown into the global economy because I exercised my rights?
Economist tell us that our economy will produce new and better jobs. They can’t tell us where the jobs will come from, but they can tell us that they will only be better is they are safe from globalization. So it does make a difference how workers are displaced.
No, it makes a difference to me what phenomenon is responsible for my job loss. Find ways to take the anarchy our of globalism, give me an system I want to be part of and not a process to believe in, and then talk to me about not protecting my job.
Posted by: wjd123 | March 7th, 2008 at 1:06 am | Report this commentNAFTA is just a diversion for the candidates. There is a much juicier prize, which both Democratic candidates are not even mentioning: WTO. So they let everyone speculate about NAFTA. However, NAFTA is probably just a distraction, so that no one thinks of WTO. WTO would really be a juicy prize, if the voters can ever be made to focus on it. Trust me, politician will never let this happen, not if they can help it.
Posted by: Semion | March 7th, 2008 at 3:42 am | Report this commentHis assessment of the Democratic Party may be right. When are the Democrats going to realize Obama has been AWOL in the state Senate and U.S. Senate regarding these and other issues. We just heard about an interview he had regarding Latin America. He did not know one Latin American president. The journalist shook his head and told us, “he’s an empty suit.”
Posted by: AFellow | March 9th, 2008 at 9:12 pm | Report this comment