Presidential vs. Congressional Parties

Felix Salmon writes:

RGE - Are Republicans better on trade?: since it's such a politically-fraught day, I'll concede one post to political matters, and give the floor to Greg Mankiw, who reckons the Republicans are much better than the Democrats on free trade:

The 1993 roll call vote in the House found 132 Republicans in favor of NAFTA, 43 against. Among House Democrats, there were 102 in favor, 156 against. In the Senate, the same story. Among Republican senators, there were 34 in favor of NAFTA, 10 against. Among Democratic senators, 27 were in favor, 28 against.

Since NAFTA, the difference between the two parties has, if anything, grown larger. When the Central America Free Trade Agreement came up for a vote in 2005, the House produced 202 Republicans in favor, 27 against. The Democrats had only 15 in favor, 187 against.

Of course, Mankiw's commenters (who seem to be a pretty Dem-leaning bunch) aren't taking this lying down. Some concede his point, but others contest it.... twicebitten:

Clinton was also much more successful at culminating the Uruguay round that coincided with his Presidency (which included important agreements and led to the creation of the WTO). Under Bush and with Republican leadership of both houses of Congress the Republicans have absolutely squandered the Doha round.

The difference seems to me to be that Mankiw's talking about the legislature and not the executive. The Bush White House has achieved very little on the free-trade front, in contrast to the Clinton White House. But if you put it to a vote, Republican legislators are more likely to support free-trade initiatives than Democratic ones.

Free trade appears to be a priority for the types of Democratic politicians who get elected president and for a solid majority of the types of Democratic apparatchiks who staff their administrations--this is, I think, because Democratic presidents and administrations understand not just the economic but the foreign policy political "soft power" arguments for free trade. Free trade hasn't been a priority for the types of Democrats who get elected to congress since the Reagan deficits of the 1980s and their side-effect creation of the "rust belt."

By contrast, free trade appears to be a priority for the types of Republican politicians who get elected to congress--or is it? The George W. Bush administration's apology for its trade restrictions was that the Republican congresscreatures were neanderthals, and that trade restrictions were the price of getting CAFTA and negotiating authority. But free trade does not appear to be a priority for the types of Republicans who get elected president--and definitely not for their staffs, a solid majority of whom understand neither the economic nor the foreign policy arguments for free trade.

Comments

[cn]

"a solid majority of whom understand neither the economic nor the foreign policy arguments for free trade."

Or much of anything else.

[Ken Houghton]

If you really think of CAFTA as a "free trade" agreement in anything but name, you need to rewrite your econ textbooks. (Mankiw is already beyond hope.)

[BillCross]

isn't the correct name, investor rights agreement. Free trade is just a branding device to put lipstick on the sow that are these agreements.

[jerry]

Of course, being good on free trade is a lot like being good on phlogiston.

[Zathras]

Let's not project too much our domestic political differences into this field. Whether or not a multilateral round of trade liberalization gets concluded is not entirely up to us. It might not get concluded if the United States surrendered on every major point in dispute by this time.

Clinton deserved censure for not moving fast-track negotiating authority through Congress, but praise for his administration support for trade liberalization otherwise. Bush conversely was successful in getting fast-track authority, but sent terrible signals by imposing steel tariffs and approving a very bad -- from the trade and budget perspectives -- farm bill in 2002.

Were these signals decisive in stalling out the Doha round? Almost certainly not. And the bilateral and regional trade pacts the administration has pursued for the last several years can be fairly defended as the next best thing to a Doha agreement that has been looking pretty unlikely for some time. It should also be pointed out that in both the Clinton and Bush administrations the USTR's office has been filled by people of unusual ability, certainly compared to some of the people appointed to run some large departments. Maybe that suggests only that USTR isn't a high profile enough job to demand a former politician, Presidential crony or someone with a particularly "inspirational" personal history.

In any event, one can certainly disagree with aspects of recent American trade policy and fairly point out that it hasn't been able to achieve all the things those of us who believe in trade liberalization would like. Neither Clinton or Bush, though, can truly be said to have handled this issue badly. There are plenty of things in the world that have gotten screwed up because the American government has screwed up. Trade isn't one of them.

[Matthew Saroff]

Ezra Kline and Steve Benin nail this. (http://ezraklein.typepad.com/blog/2006/11/trenchant_comme.html and http://www.thecarpetbaggerreport.com/archives/8984.html).

These policies are fudamentally unpopular except among most people. To quote Mr. Kline, "but there's an elite consensus on an array of issues that tricks members into vastly overestimating the popularity of various proposals"

[Barkley Rosser]

A longstanding view, although this may not have played out in this administration, has been that in both parties the executive tends to be more pro-free trade than the legislative parties. This is because looking at the national and international perspective the executive is better able to take account of the broad costs and benefits. The benefits of free trade are spread widely but thinly, while the costs are concentrated in particular areas (those with import competing industries).

So, the legislators speak for those feeling the pain of the costs, because a legislator representing an area that is heavy with import competing industries will be strongly motivated to get protection for them. One finds few free traders out of either party in Michigan or South Carolina.

[Mike]

It's the Medium of Exchange, Stupid

Given our huge trade AND federal budget deficits, AND for so long as world currency markets are rigged by central governments and central banks (as they demonstrably are), an American economist (ANY American economist) pimping for 'free trade' is MY nominee for "Stupidest (and/or Most Mendacious) Man Alive"....

--------

America's Truth Deficit

by William Greider
July 18, 2005
(NY Times)

http://www.commondreams.org/views05/0718-26.htm

----

US dollar hegemony has got to go

By Henry C K Liu
April 11, 2002
(Asia Times)

http://www.atimes.com/global-econ/DD11Dj01.html

----

Power to the people

Kevin Danaher
April 29, 2001
(The Observer)

http://observer.guardian.co.uk/global/story/0,10786,524245,00.html

----

James K. Galbraith
on Global Keynesianism
(ca. 1995)

http://www.jobsletter.org.nz/art/artg0002.htm
--------

[factory rat]

This is another one where in the professional economists just don't realize how far their shadow world is from what most folks experience. The current trade regime is a bad actor in most folks lives, no matter how cheap everything is at WalMart.

As for trade-impacted politics, change the agricultural subsidies and import protections to match those afforded to manufactured goods, and much of the support for the investor protection agreements goes up in smoke. The combine communists and sorghum socialists in the Congress will only support free trade that is a one-way street for their constituents.

[Jon Fernquest]

"This is another one where in the professional economists just don't realize how far their shadow world is from what most folks experience. The current trade regime is a bad actor in most folks lives, no matter how cheap everything is at WalMart."

Stiglitz sure does. He has pointed out the negative effects of Walmartisation.

I agree, Economists should tie theory to reality better, with history and ethnography perhaps.

The French retailer Carrefour has been quite a positive force in Thailand. Actively involved in hilltribe education, finding markets for Thai products overseas, providing stable employment and working conditions, aesthetically pleasing and air conditioned restaurant and eating areas. The impact of large retailers in rural areas that I know of has basically been redistributive in favor of poor people to the detriment of shopkeepers. Of course all this should be backed up by stats.

[Yuck]

It bothers me whenever there's talk of free trade without any discussion of the problems involved.

[YankinOz]

Having been exposed to Republican congressional staff on the trade-related committees, I have to say that they have no idea whatsoever that the economists' case for free trade becomes ambiguous (at best) when you move to preferential trade agreements. Zoellick's "competitive liberalization" strategy has been a disaster; it has brought on the nightmare of Bhagwati's spaghetti bowl. Mankiw should be saying his mea culpas for being in an influential position in the administration when this amazingly stupid and shortsighted strategy was conceived.

[kharris]

Remind me. What's the name of that two-guy notion of trade which holds that free movement of inputs to production is the equivalent of free trade in the goods produced? Democrats are more immigration freindly. Right now, anyhow.

If Mankiw got a paper from one of his students so simplistic as to equate "free trade" with votes for a single piece of legislation, he'd hand it back with red ink all over it. For his blog, though, any issue on which he can imply that there is a substantial divide between the good and great GOP and self-serving, small-minded Democrats is an issue on which he is willing to dumb down his own commentary, attack his opponents (especially if they get more space in the NYT than he does) and generally say whatever is necessary to make his masters feel warm toward him.

Yes, Democrats have voted against some trade pacts. Republicans have voted for farm subsidies, which are a huge distortion to world trade in farm products. The former fits his argument, while the latter does not. Real scholarship there. The man is a hack.

[jm]

How could there be any such thing as "free trade" in a world in which China and Japan actively manipulate their exchange rates so as to ensure that there is no possibility whatsoever of trade flows coming into balance??????

"Trade" means the exchange of goods and services. Money is only the medium of exchange. For a state of free trade to exist, the flows of goods and services would need to be of essentially equal value (net of investment expected to produce future flows of properly discounted value). When exchange rates are so massively distorted by active direct and indirect government intervention in the financial markets so as to produce ludicrously imbalanced flows of goodds and services, how can anyone start to speak of "free trade"?

[bakho]

Free trade is an imprecise term. Free trade may be an ideal, but implementation always requires more restrictions than the "free trade" ideal.

The GOP version of "trade reform" unfetters global corporations from oversight and imposes few correctives to the extrinsic costs and few remedies for dislocation. Democrats are lukewarm about trade but are far more concerned with oversight of global corporations and providing remedies for dislocations.

The shorthand is "free trade versus fair trade". There is tension between the ideals. How and where lines are drawn is important. To polarize the debate into warring camps is not helpful.

[Ponzi Q. Globalization]

So-called free trade is all about global labor arbitrage.

In the more affluent countries, such as the U.S, why would a single global labor market help those who cannot live off of their existing wealth? What would prevent a decline in living standards for this majority? All things being equal, why would a company -- existing or new -- hire more costly labor? With investment in production moving away from the more affluent nations, why won't all things become much more equal in a disturbingly wide variety of areas?

[save_the_rustbelt]

Protectionist Democrats in Ohio and Michigan did very well last night.

Having promised to protect existing jobs and provide new jobs, we will see what they can accomplish.

The middle class will not take a beating indefinitely.

[DRR]

"Republicans have voted for farm subsidies, which are a huge distortion to world trade in farm products."

From what I understand, this is mostly a myth, as most developing countries are generally net importers of the goods produced by the subsidized agribusinesses. Basically, with the exception of Cotton, government subsidized agribusiness is good for the developing world and cutting the subsidies would mean higher prices for consumers in least developed nations. I don't know if that's an argument for corporate welfare, just pointing out that business subsidies in the first world aren't as pernicious and distorting as some make them out to be.

[Barkley Rosser]

Well, it is clear from these comments that we will be seeing a major push by newly elected Dems and others to impose a new partly line on trade. The highly intelligent comment of Mike above is a sign of the level of discourse I fear we shall be seeing on this. "If you are for free trade, then you are the stupidest person alive." Well, duh.

Just to bring the discussion back to NAFTA, while the more optimistic forecasts of its supporters in terms of job and income growth did not come to pass, neither did the most pessimistic forecasts of its critics either. Al Gore was completely correct to ridicule Ross Perot's huffing about a "giant sucking sound of jobs going south." And, much as I do not like aspects of WalMart, the gains from lower prices are large and do go mostly to lower income folks.

[Mike]

Dear Barkley Rosser:

I didn't invent the "Stupidest Person Alive" contest.

I believe some professional student of markets is responsible for THAT 'meme' too...

[golddog]

"Well, it is clear from these comments that we will be seeing a major push by newly elected Dems and others to impose a new partly line on trade."

There are still many Democrats who are pro free trade. I understand that there are problems associated with it, but protectionism is not the answer. I did not vote for a Democratic majority so that the Democrats could implement protectionism. Hopefully, the fiscally moderate Democrats (Clinton Democrats) will be the ascendant wing on trade issues.

[Mike]

"Protectionism" is the straw man in this pseudo-debate, golddog.

[wjd123]

Democratic presidential candidates that support free trade don't get elected. When Clinton ran in 1992 he ran against NAFTA. Bush won in 2000 because of disaffected democrats voting Green Party. And in 2004 presidential candidate Dennis Kosinich made the other candidates talk about free trade--without him, commentators wouldn't have. All the candidates except Lieberman ran away from free trade. Next time around, economist who claim to understand free trade are going to have to explain the fiasco NAFTA has become.

George Bush is no friend of labor but give him his due on steel tariffs. Even if he levied them for crass political reasons, he levied them. They worked, perhaps largely due to good fortune, but they worked. Free trade economists who say otherwise are covering up for the inadequacies of their position.

After the Asian financial crisis of 1998 and before Bush's steel tariffs there were 31 American steel companies that had filed for bankruptcy with many soon to follow. A desperate industry was claiming that imported steel was being subsidized and being dumped on the American market.

Whether there was dumping or not free trade economists had no reason to care, that is, if they remained consistent to the final logic of comparative advantage. By its logic subsidies are a boon to the receiving country. As long as one country is willing to subsidize another more money is available for other investments in the subsidized country. Dumpers only hurt themselves. The proper response according to free trade theorists is to accept the largess of subsidies and use those dollars freed up by subsidies on other investments.

This theory presides in the land where all things are equal. But in the real world all things are not equal. American steel has higher health care cost than the single payer cost of EU producers. And, thanks to our luck in escaping WWII with our industries in tact, our steel industry was awarded its market share as much by luck as by competition. The contingencies of history also meant that decimated European industries got rebuilt with post-war technology and government subsidies. The finger pointing that broke out over EU steel being subsidizing and America steel not reorganizing had a lot of historical necessity attached to it.

By 2002 American steel workers were rapidly losing their decent paying jobs, their health care, and there pensions. Fortunately for them, 2002 was an election year. Bush, looking for rustbelt support, imposed tariffs six months before the election. The Clinton wing of the Democratic party promised a hand out.

Unlike Clinton's broken political promises to protect worker rights and the environment before he would ever sign NAFTA, Bush delivered to the steel industry a 30% tariff on non-essential steel products. This lasted for 20 months until pressure from steel users, threats of retaliation from the EU, and good economic fortune--steel demand escalated beyond world capacity--brought tariffs to an end.

The fact that Bush's tariffs saved some of our capacity just before the huge turnaround in world demand lead to lower prices after the tariffs were removed because more supply was available. This boon is never computed when summing up the losses and gains of the steel tariffs. Tariffs allowed for investments in the right industry at the right time.

Viewed this way Bush's tariffs, albeit due to some good fortune, were a success. Bush acted at the right time to save American companies from going out of business, American workers from losing their jobs, and American tax payers from the consequences that would have followed.

How much American consumers and taxpayers saved because of Bush's timely tariffs and the timely turnaround in demand is something free trade economist ignore. They are more interested in condemning Bush for violating the principles of free trade--behind which lurks their theory of comparative advantage.

Importing countries that receive the boon of subsidies, whether it be through through farm supports, tax breaks, or currency manipulation are increasingly ungrateful. Ungrateful enough to accept the boon of lower prices and rail against the provider.

This is encouraging in that it strikes at the cynicism of Greenspan's 2% solution: if an industry makes up only 2% of the economy, like steel, consumers won't care politically if you flush it down the toilet as long as they're getting lower prices. It's a Machiavellian view that politicians increasingly can't get away with.

Free traders who put theory first in the face of real world contingency remind me of the French classical economist who during the French Revolution had their government pass laws forbidding the free association of labor and business in the belief that this would insure that all things would remain equal for their economic theories to work.

I suspect that free traders don't want to admit to Bush's success because every time there is an exception to their theory, their theory is weakened. Admitting that Bush's tariffs worked means an easier road for tariffs next time. And it will be easier next time because politically the Democrats have the Green Party nipping at their heals and the Republicans have a growing voter disgust with corporations nipping at theirs. Neither party wants to get bitten for supporting free trade as practiced today.

My guess is that if we don't change our approach to free trade a world financial crisis will once again destroy it. The global growth of the financial industries is a phenomenon that had gone ahead largely undisciplined by the oversight of rules and regulations. Add to this open invitation to cut corners, speculate, and cheat, a free trade system that doesn't work for most people, and the mix is toxic.

[Barkley Rosser]

Protectionism may or may not be a straw man, but it is certainly no salvation from financial crisis. Anyone who believes this is seriously deluded. I am sorry that this kind of nonsense is coming to be widely believed among Dems. That it is, is no argument for it. This is the Dem equivalent of the GOP fantasy that Saddam had something to do with 9/11.