Globalization Was Wrong
Trade Experts Admit They Were Wrong About Globalization
Paul Krugman and other mainstream trade experts are now admitting that they were wrong about globalization.
The Nobel Prize-winning Krugman
branded just about everybody who questioned the rapid pace of globalization a
fool who didn’t understand economics very well. “Silly” was a word Krugman used
a lot to describe pundits who raised fears of economic competition from other
nations, especially China. Don’t worry about it, he said: Free trade will have
only minor impact on your prosperity.
Now Krugman has come out and admitted, offhandedly, that his own
understanding of economics has been seriously deficient as well. In a recent essay titled “What Economists
(Including Me) Got Wrong About Globalization,” adapted from a forthcoming book
on inequality, Krugman writes that he and other mainstream economists “missed a
crucial part of the story” in failing to realize that globalization would lead
to “hyperglobalization” and huge economic and social upheaval, particularly of
the industrial middle class in America. And many of these working-class
communities have been hit hard by Chinese competition, which economists made a
“major mistake” in underestimating, Krugman says.
He has also become a leading and sometimes harsh critic of his own
profession, especially in the aftermath of the financial crisis and Great
Recession, when he declared that much of the past 30 years of macroeconomics
was “spectacularly useless at best, and positively harmful at worst.”
Yet it has taken an awful long time for economists to admit that
their profession has been far too sure of itself
As the journalist Binyamin Appelbaum writes in his book, The
Economists’ Hour: False Prophets, Free Markets, and the Fracture of Society,
economists came to dominate policymaking in Washington in a way they never had
before and, starting in the late 1960s, seriously misled the nation, helping to
disrupt and divide it socially with a false sense
of scientific certainty about the wonders of free markets. The economists pushed
efficiency at all costs at the expense of social welfare and “subsumed the
interests of countrymen (Americans) as producers to
the interests of countymen (Americans) as consumers, trading well-paid jobs for
low-cost electronics.
Part of the problem is that, back in the ’90s, when the post-Cold
War consensus was just emerging, economists tended to take a simplistic
either-or view of trade—either you were a free trader or a protectionist—and
forced people to choose sides.
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.