Category Archives: Books

Alfred Marshall on Free Trade

Here is a gem of a quotation by Alfred Marshall on free trade, unearthed by Doug Irwin on p. 221 of his 1996 book Against the Tide: An Intellectual History of Free Trade: 

“[Free trade] is not a device, but the absence of any device. A device contrived to deal with any set of conditions must become obsolete when they change. The simplicity and naturalness of Free Trade–that is, the absence of any device–may continue to outweigh the series of different small gains which could be obtained by any manipulation of tariffs, however scientific and astute.”

Fred P. Hochberg – Trade Is Not a Four-Letter Word: How Six Everyday Products Make the Case for Trade

Review of Fred P. Hochberg, Trade Is Not a Four-Letter Word: How Six Everyday Products Make the Case for Trade (New York: Avid Reader Press / Simon & Schuster, 2020)

Hochberg, who headed the Export-Import Bank from 2009-2017, has written a surprisingly good book on trade. Few economists have favorable views of Ex-Im. The agency’s longstanding corruption problems, cozy relationships with Boeing and other large companies, and its mercantilist economics make it almost indefensible on the merits (see my papers here and here). As with many ex-government officials, Hochberg is a much better economist when he doesn’t have to play politics.

Unfortunately, Hochberg says little in the book about his eight years at Ex-Im. This would have made for fascinating reading. It would have been useful to learn, in extended form, about Hochberg’s views on how Ex-Im works in practice, how he would defend the agency, and where he would criticize it.

Hochberg also presided over the most eventful chapter in Ex-Im’s 85-year history, which included its authorization lapse in 2014-15, when the agency practically shut down. Even after its eventual reauthorization, Ex-Im operated at a severely limited capacity for the remainder of Hochberg’s tenure. The Senate refused to confirm the new board members needed to approve large transactions. Ex-Im did not return to full capacity until 2019.

While Hochberg does refer to his old job several times, it is usually in passing, and never in detail. He does not once mention the great post-2014 Ex-Im political controversy.

By sticking instead to broader-brush trade policy and avoiding anything too controversial, Trade Is Not a Four-Letter Word comes across as a subtle job application for a higher-level position in the next Democratic administration, such as Commerce Secretary or U.S. Trade Representative. If the Ex-Im version of Fred Hochberg took such a job, trade policy would likely continue to be ridden with special-interest handouts and trade-unrelated inititatives. If, instead, the Fred Hochberg who wrote this book took office, trade policy would be not perfect, but it would be pretty good, and certainly an improvement over the last few administrations.

Unfortunately, I have a hunch which side of Hochberg would prevail if he re-entered politics.

Like many politicians who also know better, Hochberg almost bends over backward trying to argue that the American middle and lower-middle classes are net losers from trade. These are America’s largest voting blocs, and many of them live in swing states.

This is a difficult long-term case to make when living standards by almost every measure, from life expectancy to average height to access to air-conditioning, internet, and other technologies, have been improving for both rich and poor for more than a century. In terms of hours of work needed to afford everything from a refrigerator to a new car, goods are becoming more affordable and higher-quality over time, which benefits the poor most of all. This has been happening for decades, and the process is not slowing down. Trade, as Hochberg persuasively argues elsewhere throughout the book, is a major reason why. This doesn’t stop him from trying to appeal to likely voters, though his biggest successes come from reasoning through anecdote, and by omission.

Still, Hochberg gets the big picture right, and he paints it well. The six chapters on the six products he chooses as examples are the strongest part of the book. Trade makes modern life possible, he argues. Whether it’s taco salads, minivans, bananas, smartphones, college degrees (an odd choice, but think of it as a stand-in for human capital), or Game of Thrones, just about everything we enjoy today is a product of international trade. Moreover, this is a good thing. What we have today is far better than what we would have under closed borders. As other thinkers from Hans Rosling to Matt Ridley to Julian Simon have argued for a long time, living standards today are higher, health care is better, ideas are more rigorously tested, and technology improves faster. This is what happens when there is a relatively open global market for both supply and demand.

Narrowing down to policy specifics, Hochberg is strongly anti-tariff. One hopes he would maintain this stance in a cabinet role or in elected office. His long section on why trade deficits don’t matter—in short, because people get something in return for their money—is similarly excellent. It is also inconsistent with his Export-Import Bank tenure. Ex-Im is intended, at least in part, to reduce the U.S. trade deficit by increasing exports. But at least Hochberg knows better now, and is willing to say so publicly now that he is out of office, though he doesn’t mention Ex-Im’s role in the capacity.

His defense of some other policies is weak, such as his case for defending trade adjustment assistance. He does not favor similar measures for workers displaced due to non-trade factors, such as technology or changing fashions. His way of resolving this inconsistent stance is unconvincing. Essentially, he argues that trade-related job displacements are due to government policy, while other job displacements are not. Therefore, the government owes them something to soften the blow of trade-related job displacements. But trade decisions are made by private individuals, and the role of policy in those decisions is indeterminate; how does one calculate how many job losses, or which ones, is policy-related? In jobs that are cut for more than one reason, which is most cases, what proportion is policy-related?

Moreover, many non-trade government policies cost jobs. These range from barriers to entry to environmental requirements to minimum wages to cumulative paperwork burdens. By Hochberg’s criteria, these displaced workers deserve compensation, yet he doesn’t favor it. I would argue that rather that treating symptoms with compensation, it would be better to treat the root problem by getting rid of the bad policies in the first place. But that’s for another time.

Taken as a whole, Hochberg is neither a brave nor an adventurous thinker, but he gets the big picture. As a bonus, Hochberg’s prose style is informal and easy to read, though the Game of Thrones references get to be a little much at times. Trade has costs and benefits. Add them up on a ledger, and the benefits are greater, by far. However, Hochberg’s interventionist streak is almost reflexive and seemingly unthinking. Markets fail all the time, including in international trade. That does not mean policymakers can improve matters. Given knowledge and incentive problems, this is rarely the case. The view that market failures can be fixed by an idealized government is known as the Nirvana fallacy, and Hochberg would do well to take it into account.

Just as a fish doesn’t think of the water it swims through, so do Washington types rarely think about the complicated web of policy they make others swim through. It’s just there, and always has been. It’s nothing to question or give careful thought to in a big-picture sense. Trade Is Not a Four-Letter Word definitely has that Washington vibe to it. But if Hochberg moves more Washington types to favor freer trade at the margin, his book will have done more good than he has, or will, in office.

Charles Davenant on the Need for Humility in Policymaking

Douglas Irwin, on page 53 of his 1996 book Against the Tide: An Intellectual History of Free Trade, quotes from page 32 of Charles Davenant’s 1696 Essay on the East India Trade:

“Wisdom is most commonly in the wrong, when it pretends to direct nature.”

This wisdom applies to much more than trade restrictions and government-granted monopolies.

Immanuel Wallerstein – The Modern World-System I: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century

Immanuel Wallerstein – The Modern World-System I: Capitalist Agriculture and the Origins of the European World-Economy in the Sixteenth Century

Wallerstein was the primary creator of the core-periphery framework that many historians use to view world economic history. This 1974 book started it all. Several publishers rejected his initial manuscript, but when he did finally get it published, it caught on quickly. Wallerstein eventually completed four volumes in the series before he passed away in 2019.

In the context of the 16th century, the first major core country was Spain, though the Netherlands and England eventually overtook it as silver-induced inflation and the costs of empire caused Spanish decline. The two periods of Spanish dominance and Dutch-English dominance make up what Wallerstein calls the long 16th century. The periphery economies were the somewhat nearby countries that traded with these core economies throughout the long 16th century, and on through later periods.

Typically, periphery economies provide raw materials and food, which the core countries either consume or turn into more finished products. At this stage of the world economy, there were still countries outside of the European core-periphery network. For Wallerstein, these are simply separate economic systems. The boundaries are fluid, and Wallerstein was quick to point out that his categories are not categorical. Countries such as Poland and the Ukraine were nearly always periphery countries in this period. Russia went in and out of the periphery over the years. Farther-off countries such as India and China had their own independent core-periphery networks.

By the 20th century, with industrialization, mass media, and air travel, the entire world was unified into a single core-periphery system. In this book’s focus, the two-part “long 16th century,” this had not yet happened. But this was also the period when that process began in earnest, which is why Wallerstein’s larger project began there.

Wallerstein was a Marxist, and it shows in his hyper-materialist view of history, and his neglect of individuals in favor of focusing on aggregates such as nations, regions, and classes. It also causes him to ignore non-material factors such as culture, art, social norms about openness and progress, and more. Though he favorably cites Douglass North a few times, proving at least some engagement with the economic history literature, he also is not the most astute economic analyst, especially in matters of monetary policy. He seems not to grasp the concepts of equilibrium, the neutrality of money, or the law of one price. These shortcomings are not fatal to his core-periphery thesis, but they don’t help his case.

As the world becomes ever more prosperous in the 21st century, Wallerstein’s core-periphery framework is quickly becoming obsolete. It’s not the worst way to view the history of empires of colonialism, which are based on exploitation and hierarchy. But the world of the post-1800 Great Enrichment is based increasingly on equal exchange and cross-cultural tolerance and respect. There is a long way to go, obviously, and there will be stutters and reversal. But if the process continues, Wallerstein’s thesis will age as poorly as his Marxism already has.

William Dalrymple – The Anarchy: The East India Company, Corporate Violence, and the Pillage of an Empire

William Dalrymple – The Anarchy: The East India Company, Corporate Violence, and the Pillage of an Empire

The East India Company (EIC) was one of history’s largest monopolies. Its story is relevant to today’s antitrust debate, and the larger question of where the private sector ends and the public sector begins. Dalrymple seems eager to paint a portrait of capitalist and corporate greed, but the facts won’t quite allow it. He grudgingly allows that the EIC was not a free-market institution, but he often insists on treating it that way just the same.

The EIC was a public-private partnership from the start, and received government bailouts. It had de facto taxing authority in India, a power no fully private company enjoys. The EIC had its own 200,000-strong army, twice the size of the British army. The East India Company was a government in everything but name, and it acted like it, to the point of toppling India’s existing government in 1765 and replacing it with itself.

Contemporary economists and philosophers such as Adam Smith and even the conservative Edmund Burke opposed empire and its accoutrements not just on moral grounds, but on fiscal grounds. Ventures such as the EIC cost the government more than they made from it.

Dalrymple doesn’t go into this as much as he should, but the EIC’s story shows that there is no bright line where the private sector ends and government begins. This kind of philosophical discussion would have been very useful for clarifying his message.

The lessons from the East India Company’s story apply to today’s climate of too-big-to-fail, bailouts for politically connected industries, and subsidy programs for businesses big and small. All of these nearly always come with political strings attached, and mix together the public and private in ways few outside of the economics profession expected. Beneficiary companies become executors of government policy, rather than engines of value creation.

In the EIC’s case, this meant corruption, coups, atrocities, war crimes, and racially motivated mass murders. Today’s rent-seekers’ interests are mostly limited to greed, fortunately. But they are still worth fighting about, and EIC’s cautionary tale is useful for that fight.

Kimberly Clausing – Open: The Progressive Case for Free Trade, Immigration, and Global Capital

Kimberly Clausing – Open: The Progressive Case for Free Trade, Immigration, and Global Capital

This is a book that needed to be written. Progressives have long had a complicated relationship with trade and immigration. On one side, there is a free-trade tradition including progressive heroes such as Cordell Hull, FDR’s Secretary of State; President John F. Kennedy, who passed the 1962 Trade Expansion Act and after whom a major round of liberalizing GATT negotiations was named; and Bill Clinton, who signed NAFTA in to law.

On the other side, the progressive movement’s labor and environmental wings often have at best a transactional relationship with free trade, and at worst an outright hostility to it. Many younger people with social democratic leanings, as well as the older generation of presidential candidates, such as Elizabeth Warren and Bernie Sanders, have views on trade that are almost identical to President Trump’s. This is a problem Clausing seeks to address.

She mostly makes the usual economists’ arguments in favor of free trade and immigration. This is fine; trade scholars are not her intended audience, progressives are. Clausing’s progressive credentials help to open the ears of an audience that is often closed to similar messages from different messengers. One particular reason that should resonate more than it does is that free trade and liberal immigration are extremely effective anti-poverty policies. And here, Clausing does a good job of explaining why. But she encounters two problems in her book, one of which is not her doing.

Part of the problem in getting more progressives to support pro-poor trade and immigration policies ties into a political realignment that is currently happening, as the historian Stephen Davies and my colleague Iain Murray have been arguing. For most of the post-war period, the dominant political debate was capitalism vs. socialism. Most people and political parties placed themselves somewhere on that spectrum, and thought of themselves in those terms. That dynamic is largely gone now. Just as conservatives under Trump are no longer a free-market-lite party, progressives are no longer a socialism-lite party, younger social democrats’ pretensions to the contrary. Their fight is on different grounds now.

People are beginning to realign themselves on a different axis—nationalism vs. globalism. Conservatives are rapidly taking over the nationalist side. But progressives haven’t quite chosen their path yet—this complicate’s Clausing’s job. Part of the problem is personality. Trump provides a strongly nationalist figure for conservatives to rally around. As of this writing the progressive side lacks such a figure, whether also a nationalist or more cosmopolitan. There is not likely room for two nationalist parties, but Democrats still haven’t made their choice. If Clausing pushes them in the cosmopolitan direction, she will have done a major service.

These political realignments happen every few generations. The current realignment is neither the first nor last time something like this will happen. But it does explain an awful lot of strange political bedfellows in recent years. Bernie Sanders and Donald Trump essentially have the same immigration beliefs, and for similar reasons. Fox News host Tucker Carlson was surprised to find himself very much agreeing with Democratic Senator and presidential candidate Elizabeth Warren’s economic patriotism plan.

Large parts of Open also have little to with trade and immigration. I am unsure of whether this is a good thing or a bad thing. Her digressions on taxes, regulations, and inequality are standard-issue, and progressives will find little to object to. On the plus side, this can make her market-liberal trade and immigration stances more palatable, especially to progressives still unsure about their place on the nationalism-cosmopolitanism divide. On the other hand, her proposed regulatory policies would reduce the benefits of open trade and immigration. And her views on inequality focus on ratios, rather than people, precisely opposite the liberal approach that would help the poor. For more on this, see Iain Murray’s and my papers on the subject, “People, Not Ratios” and “The Rising Tide.”

Flaws and all, Clausing has written an important book that has the potential to do a lot of good. Ideally, she will not only nudge progressives in a more free-market direction on trade and immigration policy, she will encourage them to take a more cosmopolitan stance in order to provide an effective opposition to an increasingly nationalist conservative movement.

Mark Forsyth – The Elements of Eloquence: Secrets of the Perfect Turn of Phrase

Mark Forsyth – The Elements of Eloquence: Secrets of the Perfect Turn of Phrase

Just as German seems to have a word for just about every feeling or situation, English and Latin seem to have a word for just about every way to use words. Forsyth knows not just how to use English’s many figures of speech, from metonomy to assonance, but he knows their names—most of which this reader has already forgotten again.

He is also very funny. This book is less about improving one’s writing, and more about having fun with language while admiring how crafty some of its best practitioners can be. Forsyth has a way of making fun of Shakespeare while showing how truly talented he was. He also doesn’t confine himself to stuffy classics in his examples, and uses references to popular music and recent movies even younger readers would be familiar with. This book is short, reads easily, and Forsyth’s sly, ever-present humor makes for an entertaining read. Hopefully the reader also gets a sense of how to avoid writing the kind of purple prose Forsyth might mock.