This is P.S.Babcock filling in for Dr. Edgeworth Boks again. (Dr. Boks is busy trying to figure out how to program his DVD player. Also, he has been busy preparing for an upcoming conference called : "Is the 'Pig-in-a-poke' model dead, or paralyzed, or just very, very sick?").
There have been a lot of economic gurglings in the press lately. Joseph Stiglitz criticized Nafta in the NY Times on Tuesday. This was an informative article, a fine article. I learned some things about Nafta that I hadn't known. That much being said, I noticed a peculiar Stiglitz trademark in the concluding paragraph:
In the long run, while particular special-interest groups may benefit from such an unfair trade treaty, America's national interests — in having stable and prosperous neighbors — are not well served." [Emphasis mine].
Why is the proposed Free Trade Area of the Americas "such an unfair" treaty? Apparently, businesses will be able to appeal for compensation if regulations harm them, whereas you and I will not be able to appeal to an international tribunal for damages done to the environment by foreign firms. This may be a reason to dislike the treaty. But what exactly does "unfair" mean, in this context? Presumably, the treaty would have to have provisions for a special international tribunal for environmental grievances in order to be fair. But what about other grievances? What about tribunals for people who just don't like globalization? Does fairness require special provisions for every conceivable grievance group? Policies are not constructed in this way, nor should they be.
Fairness is not the issue here. The issue is whether the environmental harm outweighs other possible benefits. Perhaps it does, and perhaps the treaty is a bad idea. But it is hardly "unfair."
Unfair is a word Stiglitz uses a lot. Last time I saw him on a talk show, he spoke of "unfair" tax cuts. This is a word one seldom hears in economics seminars. "That's unfair!" It is something my niece or nephew would say if one of them got a bigger cookie than the other. Sophisticated ethical arguments describe the values that are being served by a policy. The moral imperative is explicit, carefully articulated, and the moral trade-off weighed. Unfair is a weak word because it is so vague. Virtually every policy involves tradeoffs, and as such, is unfair to whomever gains the least and loses the most. What would fairness entail? Should we imagine a celestial parent with two cookies, one for businesses and one for environmentally conscious citizens? Must the treaty give each party a cookie of identical size (and with the same number of chocolate chips?) That would satisfy my niece and nephew (unless the number of nuts was uneven, or one of the cookies was frosted, or thicker, or shaped like a Santa Claus). And what's an "unfair" tax cut, anyway? How much more tax should wealthy persons pay than middle-class persons before we are allowed to call the taxes "fair"?
Stiglitz also seems to overstate his indictment of capital liberalization:
"In fact, the United States has been demanding that countries fully liberalize their capital markets just as the International Monetary Fund has finally found that such liberalization promotes neither growth nor stability in developing countries. Unfortunately, many of the smaller and weaker countries will probably agree in the quixotic hope that by linking themselves to America, they will partake of America's prosperity."
Does he mean to suggest this is the unfairness? While a consensus appears to have formed that capital liberalization does not automatically lead to growth, there is little solid evidence that anything accomplishes that. As William Easterly discusses in his recent book, corruption, culture, and dysfunctional institutions in the developing world render many basket-case nations immune to well-intentioned policies. The biggest lesson from development economics is that there are no easy answers. In a nutshell: Nothing works. So Stiglitz could criticize any policy the treaty recommended with the same rationale he uses above: it has not been shown to promote growth.
Interestingly, Stiglitz, himself, was in favor of Nafta, but for political or symbolic reasons. His area of (considerable!) expertise is economics. One might be less comfortable, however, placing one's faith in him--or any economist--based on their alleged gifts for symbolism. (I wouldn't pay an avante garde sculpter to manage my stock portfolio, either).
Throwing in a word like unfair is a way to appeal to moral indignation without doing the hard work of constructing a moral argument. This is more than a quibble. My larger point is that economists, by and large, don't know how to talk about moral values. The typical article in an economics journal does its best to disguise and ignore the underlying normative values that fueled its construction. The goal is to shove the moral content in an innocuous-looking assumption about the model's parameters. One must never bring the normative content front and center. It is the elephant in the living room. One pretends that the field is scientific. Is there any moral content in a petrie dish? No! Of course not! This is science! Eventually, one stops seeing the moral content altogether, even in one's own work.
When you do not use a muscle, the muscle atrophies. I took fencing, some years back. It's a sport in which one leg (the left one) does almost all the work. My left thigh grew bigger than my right thigh. I limped around campus until I decided I was a lousy fencer anyway and dropped out. The economics profession, I believe, teaches its practitioners to use one leg and pretend the other one doesn't exist. It produces thinkers with a limp. They have one big muscled leg and a dead one they drag behind them like a dinosaur tail. They stumble around on that one overdeveloped leg, falling all over themselves, never realizing they're lame, and all the while criticizing any normal person who can run, dance, or play soccer.
This, I would argue, is why Stiglitz carries on about "unfairness," and why Krugman's pieces are so strident. Economists simply do not use this muscle. When they express themselves in the popular press, they tend to shriek, cluck, and hit all the wrong notes. They sound silly, partisan, and self-righteous. There is a way to think clearly about ethical matters--about how we ought to live and how we ought to treat others. And there is a way to write eloquently, concincingly, and reasonably about these things. There is a way to order one's thoughts. But to do that, one must admit that one has such thoughts. At its best, economics is not a dismal science. It is a moral science.
But we need both legs.
Fairly or Not,