… economics lost communication with policymakers and practitioners leaving room for all sorts of “charlatans and cranks” to fill the void. In doing so, academics ceded important ground to think tanks aligned with one party or the other, to self-appointed economic experts, to business economists maximizing profit rather than public knowledge, and to a media that doesn’t always comprehend the economics that underlie a particular issue. Even in cases where there actually was fairly wide agreement among academic economists about a particular policy proposal, the public debate in the media did not convey that economists were largely united on the issue.
On the more particular topic of free trade agreements, Matthew Yglesias posts today on how US free trade agreements aren’t so much about free trade any more.
The trade deal was supposed to be a political vehicle for overcoming special interest politics, but it’s really just become another venue for interest group politics. … The pharmaceutical industry has a lot of clout in the U.S., because we’re a major pharma producer. Most foreign countries aren’t like that, so they’re only willing to pay relatively low amounts for drugs. Since the marginal cost of producing pills is low, drug companies generally agree to sell at these low prices. But now pharma can leverage its political clout into the United States into turning the USTR’s office into an extension of its lobbying operations.
Layna Mosley, at UNC, argues yes in today’s New York Times.
Research I conducted over the last several years with the political scientists Brian Greenhill and Aseem Prakash suggests that trade with developed nations helps developing countries expand labor rights themselves. Why? International trade gives producers incentives to meet the standards of their export markets. When developing nations export more to countries with better labor standards, their labor rights laws and practices tend to improve. Our findings, which are based on newly collected measures of labor rights around the world, demonstrate a “California effect” on workers’ rights, in which exporting nations are influenced by the labor rights conditions that prevail in their main trading partners. … Our research demonstrates that when a developing country with low labor standards trades with higher-standards countries like the United States and those in Europe, it comes under influences from the market itself that improve its labor standards. And this has a greater impact on developing nations than including labor conditions in trade agreements.
Matt Yglesias and Tyler Cowen argue that Italy’s economic problems have a lot to do with the country’s reliance on small businesses.
Jared Bernstein cautions against the over-lionization of small businesses in the New York Times. I agree. The best evidence for skepticism continues, I think, to me the fact that if small firms were so fantastic Italy and Greece would be the economic superstars of the western world … you can have an economy like Italy’s with lots of barriers to competition so that poorly managed firms stay in business with low productivity