Sunday, February 3, 2008

Doubts about Free Trade?

According to Business Week, many economists are second guessing free trade:

Many ordinary Americans have long been suspicious of free trade, seeing it as a destroyer of good-paying jobs. American economists, though, have told a different story. For them, free trade has been the great unmitigated good, the force that drives a country to shed unproductive industries, focus on what it does best, and create new, higher-skilled jobs that offer better pay than those that are lost. This support of free trade by the academic Establishment is a big reason why Presidents, be they Democrat or Republican, have for years pursued a free-trade agenda. The experts they consult have always told them that free trade was the best route to ever higher living standards.

But something momentous is happening inside the church of free trade: Doubts are creeping in. We're not talking wholesale, dramatic repudiation of the theory. Economists are, however, noting that their ideas can't explain the disturbing stagnation in income that much of the middle class is experiencing. They also fear a protectionist backlash unless more is done to help those who are losing out. "Previously, you just had extremists making extravagant claims against trade," says Gary C. Hufbauer, a senior fellow at the Peterson Institute for International Economics. "Now there are broader questions being raised that would not have been asked 10 or 15 years ago."

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