Bryan Caplan  

Economists, Foreign Competition, and Self-Interest: Rodrik's Doubly Wrong

Rodrik Turns Cowen Into Caplan... How Far Back Could You Go?...

Here's how Dani Rodrik closes his defense of popular anxiety about globalization:

And by the way, Harvard cannot fire me because I have tenure (as does Tyler). Which makes any pontification on our part about job anxiety a very poor guide to reality.
Seldom have two sentences been so wrong-headed.

1. Rodrik's insinuation - that economists don't worry about job destruction because they have high job security - was empirically tested years ago in my 2001 JEL and 2002 EJ articles; for a more readable version, see my book. The results: Yes, economists have slightly higher job security than the general public (economists average 2.32 on a 0-3 scale; non-economists average 1.88); and yes, there is a mild tendency for job security to "make people think like economists." But the magnitude of the effect is miniscule.

Consider the two questions in the Survey of Americans and Economists on the Economy most relevant to Rodrik's thesis. Respondents were asked whether the following were major (=2), minor (=1), or non-reasons (=0) for sub-par economic performance:

Q16. "Companies are sending jobs overseas."

Q17. "Companies are downsizing."

On the outsourcing question, economic training reduced the average answer by .87 units. Making the public's job security match economists' would have reduced this gap by .01 units.

On the downsizing question, economic training reduced the average answer by .81 units. Making the public's job security match economists' would have reduced this gap by .03 units.

If you look at the whole survey, raising the public's job security to match economists' would have eliminated about 2.6% of the typical belief gap. That's it.

If these results surprise you, they shouldn't. Contrary to a few economists who torture the facts until they confess, it's well-known in public opinion research that self-interest has little effect on people's political views. (And if Rodrik tells you that education, controlling for income, is a decent measure of self-interest, I have to disagree).

2. While it's true that tenured professors have near-total job security, it's also true that research professors in American universities work in one of the very few American labor markets that is almost completely open to international competition. American-born professors like me and Tyler Cowen have to compete with Turkish-born professors like Dani Rodrik, and even Canadian-born professors like Alex Tabarrok. Just imagine how much my wages would rise - and where I'd be teaching - if American universities could only hire American-born Ph.D.s!

Even if an American professor has tenure, then, foreign competition in his labor market imposes an enormous financial cost. But you know what? I enthusiastically support the right of foreign-born professors to work in the U.S. As far as I can tell, most tenured professors - especially economists - feel the same way.

In sum, not only does self-interest empirically fail to explain economists' support for globalization; but if American-born economists were really self-interested, we'd want to close the massive immigration loophole that has filled our departments with foreigners.

So why don't we? Partly it's our deep appreciation of the social benefits of trade; partly it's our cosmopolitan values; and partly it's the fact that the foreign-born economists who compete with us are also our dear friends.

Comments and Sharing

COMMENTS (9 to date)
Les writes:

As a department chair, I don't think tenured faculty have job security. They can be given minuscule raises, small offices, 8 am classes, undesirable courses to teach, unwanted committee assignments and inconvenient teaching schedules.

So, while they cannot be fired, they can be made sufficiently unhappy to seriously consider leaving.

Steven Bass writes:

Rodrik's argument cuts both ways. If he can claim that tenured professors aren't qualified to discuss trade issues, then I can say that anybody who is subject to international competition is too biased to take an objective look at the facts.

Chris writes:

As an IT professional that is very susceptible to outsourcing and international competition my arguments for free trade and globalization must carry extra weight then - correct?

Or since I am not an academic do they carry no weight?

The threat of competition might explain why the Cathedral has been less inclined to defend open borders than one might expect. The consensus appears to be: Keep the laws on the books but don't enforce them that rigorously. In practice this becomes: Allow in blue-collar workers (in jobs where they're paid cash each day) but make white-collar workers (where some formal approval is necessary) jump through hoops.

Patrick writes:

Les - those poor faculty members with small offcies and....(shock)....8am classes! LOL.

If you accept as a premise that many tenured faculty are happy to be insulated from the real world, then the "pain" of 8am classes is probably outweighed by the comfort of insulation from the free market (provided by tenure).

Chuck writes:

Bryan, I think you illustrate Dani's point when you portray your specialized, highly-skilled, highly social (in the sense that social networks matter alot to getting a job in your field) labor market as more open to international competition than the labor markets for high school graduate's. (Not to put words in your mouth, but your post comes off that way to me.)

Futhermore, I think part of 'vulnerability' to trade is the idea is that the low-skilled laborer has more to lose from the consequences of free trade than you. For exmaple, you could always go teach at a less prestigious institution in a whole other country if need be, and have the money to travel back to the US and a standard of living within what you are accustomed to here. You could take a less wall paying job here in America if it got that bad.

An unskilled laborer from the US can imagine how hard it would be for him if he emigrated to Mexico in terms of the change in his standard of living, the (relative) of returning to visit - in many ways, his old life would be gone forever. Alternatively, even in an America with a minimum wage, low-skilled labor doesn't really make a 'living' in America.

The idea of free trade is benefitting from comparative advantage. I don't think that includes benefitting from labor and environmental standards in other countries that we don't consider to be acceptable here. That's a broad topic, obviously, but I don't want leave the impression that I'm anti-trade, as much as I think there is a lot to be said for basing free trade on some concept of fair trade.

By the way:

Just imagine how much my wages would rise - and where I'd be teaching - if American universities could only hire American-born Ph.D.s!

There's nothing shameful about GMU! ;-)

Chuck writes:
American-born professors like me and Tyler Cowen have to compete with Turkish-born professors like Dani Rodrik, and even Canadian-born professors like Alex Tabarrok.

Seriously, this comes off like a physics major saying, "How am I supposed to make a living in physics when Einstien already discovered all the good stuff!" Not that those guys are Einstien, but you're acting like the only jobs in teaching are at GMU and Harvard, and otherwise it is debtors prison for you.

On the other hand, lots of low skilled laborers can say, "Well, all the shoe factories in town, every single one of them, moved to Malasia." Now, there's other factories around the country, but not a lot of options further down the food chain, and the trend to move stuff out of the country is fairly relentless.

And to further refine my alternative to free trade - it is important to pace things a bit. Give the culture time to change. One doesn't one day free all the slaves and the next day wonder why people are still treating them different. Human beings need time to adapt to radical changes in the way they have lived.

And while we are talking about human nature, there is an element of NIMBY here. Lots of people, until someone wants to put a land fill in their back yard tsk-tsk at the NIMBY crowd very sincerely. But then, when someone wants to put a land fill in their back yard, well, that's different. Sincerely.

wjd123 writes:

Why so much attention to a throw away line in Rodrik's argument and so little to the main line of contention between Rodrik and Cowen?

From reading comments on different blogs it seems that the main argument between Dani Rodrik and Tyler Cowen has been lost.

This is Dani Rodrik's argument:

"Domestic trade takes place within thoroughly embedded markets; there are clear rules and they apply to all transactions equally. International trade, on the other hand, is conducted in only weakly embedded markets: the rules either do not exist or apply unevenly. I believe this is the fundamental reason why their consequences are often perceived so differently."

This is Tyler Cowen's argument:

"What’s really happening [the backlash on trade] is that many people, whether in the United States or abroad, are unduly suspicious about economic relations with foreigners. These complaints stem from basic human nature — namely, our tendency to divide people into “in groups” and “out groups” and to elevate one and to demonize the other. Americans fear that foreigners will rise at their expense or “control” some aspects of the economy.

"ONE approach is to appease these sentiments by backing away from trade just a bit, or by managing it, so as to limit the backlash. Giving up momentum, however, isn’t necessarily the right way forward. If we are too apologetic about globalization, we can feed core irrationalities, instead of taming them. The risk is that we will frame trade as a fundamental source of suffering and losses, which would make voters more nervous, not less."

Dani believes that in matters of international trade workers can understand the concept procedural fairness. Tyler Cowan believes that the concept of procedural fairness escapes most workers when it comes to their feelings about trade and that they are basically xenophobic.

If Dani is right then the way ahead to appease fears about free trade would be address matters of procedural fairness. If Tyler is right then, according to him, the way ahead is not to inflame "irrational fears.

Tyler doesn't want to slow down the momentum of trade so his rational solution is to dumb down the bad stuff such as questions about procedural fairness and play up the good stuff such as savings at Wal-Mart and expanding markets.

We have been on this route before--NAFTA--where economist decided to hide the bad stuff when arguing for free trade so as not to give ammunition to those who opposed it. Tyler has gone a step further he would deny the rational feeling of those Americans who believe that they are being hurt by free trade and tar them with feelings that he sees as irrational.

I think Dani is right on workers feelings about procedural fairness, but even if he isn't, I can't understand Tyler's approach. To assuage American fears about the benefits of free trade by de-emphasizing their rational feelings while playing up their irrational ones is only rational in it's Machiavellian logic. In other words, when it comes to facing problems, it's dishonest. It's not a good faith approach, and it should be rejected.

Marc Resnick writes:

In response to Florida's "low-tax and none on income" - induced budget crisis, the Board of Trustees of FIU yesterday terminated 23 programs, including mine. So despite 15 years of service, 9 of them with tenure, I lost my job. How much of this is due to foreign competition I am not sure, but by pure luck I am teaching free trade next week. I am a strong zero-tariff advocate, but with the minimum amount of regulation to ward off negative externalities and fraud. Do I change my approach for my last class at FIU now that my assumptions about my own job security have been "recalibrated"?

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