Economists Have Moved Leftward
Post Globalisation Economists Have Moved Leftward in America. Others may soon follow.
Paul Krugman the Nobel Prize-winning economist has now come out and admitted,
offhandedly, that his own understanding of economics has been seriously
deficient considering all the ruined American communities and displaced
millions of workers
Krugman now maintains that his economics
of ‘Globalisation’ “was a fairly narrow
one” about how trade would affect lower-wage workers and exacerbate inequality.
Earlier Krugman had said, “Don’t worry so much about what all the other
countries are up to; things will even out thanks to neoclassical concepts such
as comparative advantage, which allows all nations to benefit from open trade.”
Indeed, those who advocated anything resembling government interference in
markets and “fair trade” (more tariffs, unemployment insurance, and worker
protections) over “free trade” were usually branded protectionists and excluded
from the debate.
Now Krugman, in his essay, admits that the economists like him in
favor of the ’90s consensus behind free trade—who thought that the effects on
labor would be minimal—“didn’t turn much to analytic methods that focus on
workers in particular industries and communities, which would have given a
better picture of short-run trends. This was, I now believe, a major
mistake—one in which I shared a hand.”
Another
Nobel-winning economist, Joseph Stiglitz, who
like Rodrik warned back in the ’90s of the disruptive effects of too rapid
lowering of trade and capital barriers. He said that the problem with “standard
neoclassical analysis” was that it “never paid any attention to adjustment. Labor market adjustment miraculously happened
costlessly.” He also argued that “typically
jobs were destroyed far faster than new jobs were created.”
As
Stiglitz put it to Foreign Policy: “Obviously, the costs [of globalization] would be borne by
particular communities, particular places—and manufacturing had located [to]
places where wages were low, suggesting that these were places where adjustment
costs were likely large.” And it’s increasingly clear the detrimental effects
may not be merely short-term trends. The swift opening up of trade with
developing countries, combined with investment agreements, has “dramatically
changed workers’ bargaining power (an effect reinforced by weakening unions and
other changes in labor legislation and regulation).”
That in turn has forced the
rethinking of another major dimension of traditional economics. Economists once
believed that low unemployment led to inflation, but today that relationship,
called the standard Phillips curve, has broken down, the Economist wrote in a recent cover story.
The main loser, again, is the
American worker. Whereas economists used to believe that workers, during boom
times, could drive up their compensation (thus leading to inflation), the
emerging economic wisdom now suggests something different: After a quarter
century in which multinationals have turned the whole globe into their economic
turf (while workers usually have to stay in their home countries), globalized
capital—manifesting itself as multinational supply chains—has the upper hand
over domestic labor.
It was found at 2019’s conference on
inequality to the surprise of the economists the mainstream of their profession
has moved leftward.