A Squeal in the Dark
When I was growing up on the farm in Alberta, our family had a saying:
“If you throw something out into the dark and hear a squeal, it means you hit the pig.”
(OK, I didn’t really grow up on a farm in Alberta. But I visited one once.)
That’s how I feel about the Department of Foreign Affairs and International Trade’s over-the-top response to a recent study I wrote with Daniel Poon (smart young econ grad from Carleton’s Public Admin program) on the likely effects of a FTA with Korea. We definitely hit the pig.
The Department assigned top economists to “assess” our study. They deconstructed our report line by line, recalculated several of our formulas using alternate methodologies, and posted a 4000-word critique on their web site. We’re pleased with the attention (although less happy about the taxpayers’ money it consumed).
The original CAW study is here:
http://www.caw.ca/campaigns&issues/ongoingcampaigns/korea/pdfs/KoreaTradeStudy1.pdf
The federal response is here:
http://www.international.gc.ca/eet/pdf/Analytical_Report_CAW-en.pdf
The response covers familiar ground, some of which we have traversed earlier on this blog:
* Trade balances don’t matter, efficiency gains from reallocation of resources matter.
* Job losses don’t matter, and they aren’t permanent anyway.
* Don’t worry about a post-FTA flood of imports from Korea because it will only displace imports from other countries (this particular line of argument is both curious and dangerous — it implies the FTA is valuable for its TRADE-DIVERTING effects, which runs afoul both of welfare economics and of the WTO’s rules regarding the acceptability of regional trade preferences).
But the federal report is also full of self-righteous invocations of the findings of “traditional” economic theory. I am always glad for a debate, but can do without this nonsense about who is a “real” or “credible” or “genuine” economist, and who isn’t. That’s exactly the sort of neoclassical arrogance we formed the PEF to combat.
Dan and I are working up a detailed response, and a punchier one for more popular distribution. I’ll post both of them here as soon as they are ready.
Gotta go out to feed the pigs now. Later, Jim.
Unfortunately Jim you are not going to get anywhere because only real economists accept unquestioned the theory of comparative advantage and the dogma of the positive gains from trade that flow there from. You are being maneuvered into a corner. Either you are going to have to attack the theory of comparative advantage head-on in which case you are not an economist or you are going to have to remain tethered to it in which case you will stand accused of being inconsistent. So the question is do you want to be an economist even if an inconsistent one?
The fix came in the second paragraph of their executive summary:
“The study uses bilateral trade balance and sectoral job impacts to measure the benefits of an FTA. Bilateral trade balances are not meaningful in a context in which Canada trade with over 200 partners. Sectoral job impacts represent adjustment costs as labour and capital shift from declining to gaining sectors, not permanent losses. At the same time, the study ignores the usual measures of the benefits of trade liberalization, namely efficiency gains from increased specialization in areas of a country’s comparative advantage and consumer benefits in the form of lower prices and increased competition in the market.”
Perhaps the real issue here is that the Canadian state refuses to have a real development strategy and that is as canadian capital, on the whole, wants it.
Congratulations, Jim and Daniel! It is very rare for the federal government to publicly respond to academic critiques of its policies.
I worked for an online radio and this topic is of extreme interest to me, is there a way to conduct a phone interview with Mr Daniel Poon, or is there a phone number I can reach him at?