Free trade and protectionism

Paul Krugman makes an excellent point in his column on trade today. He says something I've been trying to articulate for a while in conversations with friends.

Economists often present trade as better for the whole economy, so get with the program (See radek's comments in this Brad DeLong thread on outsourcing). Clinton-esque politicians turned that into "trade is better for everyone". But as Krugman says today, trade is clearly not better for everyone. Some people are winners and some are losers. The fact that there are more winners than losers doesn't mean there aren't losers. The boom of the 1990s covered up these losers, because for the most part, they could easily find a new job. But now, we have a weak job market, and protectionism is rising, both with the Republicans and Democrats.

Free trade advocates sometimes accuse those who oppose free trade (like, say, programmers fearful of losing their jobs to outsourcing) as seeking their own "personal socialism": low prices for me, but not for thee.

This is funny, because economics assumes that humans are rational actors who try to maximize their own benefit. Isn't trying to keep your wages high a function of that? These free trade advocates say trade works because of self-interested entities maximizing their own benefit, but demand that workers become utilitarian aultrists, sacrificing their wages for the good of All.

Krugman has it right: to get widespread support for free trade, someone must prove to the losers that they will not be harmed. Part of that comes from the lower prices they'll enjoy, but that doesn't make up for lost wages. Universal health insurance, not tied to employers, better unemployment insurance, job retraining (programmers can't get this currently, because programming is a "service"), and a higher minimum wage would do wonders here. So would extracting concessions from trading partners about improving working conditions and environmental protections.

All this said, I agree with something Krugman said in another setting: "Let's get some return to fiscal and environmental and general governmental sanity in this country, and then we can talk about we manage globalization." The trade debate is irrelevant until the grownups are back in charge.