What would life be without Dan Drezner? Dan is an ever-flowing cornucopia of ideas, most of them irritating, but not a few thoughtful and worthy of consideration. Let’s start with the good, a double surprise, really, because not only is Dan’s column from a few months back, Free Trade With Benefits a good one, for the most part, but it links to an even better one in Foreign Affairs, a magazine I usually despise, Adam Posen’s The Price of Nostalgia, describing in excellent detail how the U.S. has spent the last 20 years retreating from free trade rather than embracing it, to our great detriment. As Adam explains
Every step of this syllogism [the populist critique of free trade], however, is wrong. Populist anger is the result not of economic anxiety but of perceived declines in relative status. The U.S. government has not been pursuing openness and integration over the last two decades. To the contrary, it has increasingly insulated the economy from foreign competition, while the rest of the world has continued to open up and integrate. Protecting manufacturing jobs benefits only a small percentage of the workforce, while imposing substantial costs on the rest. Nor will there be any political payoff from trying to do so: after all, even as the United States has stepped back from global commerce, anger and extremism have mounted.
Posen does a wonderful job of explaining how far short of the ideal of free trade we have fallen—“fallen”, of course, on purpose—and how much it has cost us. Naturally, Posen also attempts to explain how the U.S. can address the domestic outrage over “the Chinese eating our lunch”, but here it seems to me that he falls short, failing to emphasize, surprisingly enough, the free market prescriptions for economic growth that would, it seems, come “naturally” to an economist in favor of greatly expanded social welfare policies on the part of the federal government, so that, in effect, we can “be like Europe”, as liberals like Paul Krugman and Jonathan Chait so often dream—dreams that I have criticized here. I can go half way with Posen on this, but not all the way. I am deeply skeptical of government bureaucracies to “save” us. Furthermore, I think that some of his proposals, like forcing employers like Lyft and Uber to provide full benefits to their “gig” employees, would do more harm than good. Moreover, the viability of the whole “European model” was largely a function of a variety of “unique” historical factors—a large and homogeneous working class, a largely young and growing population, and expanding economies that finally had the chance to use a near half-century of technological innovation for peaceful pursuits rather than war—factors that no longer exist, which is why Europe is suffering from so many of the same social stresses as the U.S.
Where Adam does shine, and Dan falls woefully short (this is the “bad Dan Drezner” part), is in his criticism of any and all proposals to “revive” both our rural and manufacturing areas. As Posen points out, all the myriad of such programs in the past have been costly failures. This truth, unfortunately, is too much for Dan to handle, explaining the subhead for his piece, “Never send an economist to do a political scientist’s job”, though if Dan means to imply that he, rather than Adam, has all the answers, but he comes up pretty short. In fact, Dan can do nothing more than argue, accurately, that this message is political poison, and point vaguely to such ideas as moving federal agencies out into the sticks, which is both unfeasible and would not create jobs for the people living there. As even Paul Krugman—yes, that Paul Krugman—has acknowledged:
Sad to say, however, that preserving coal country will be hard. The historical record of place-based policies is, let’s face it, pretty dismal. And sustaining Appalachia will be especially difficult given the realities of the 21st-century economy, which seems to want to concentrate wealth generation in big metropolitan areas with highly educated work forces.
As Paul tells us, what we should really be doing is making it easier for people to relocate to where the jobs are, getting rid of the myriad of NIMBY restrictions and regulations, not to mention rent control, height restrictions, environmental “protections”, and all the other tricks big-city “progressives” use to enhance their “quality of life” (and property values) at the expense of everyone else. It’s very true, as Dan says, that people, unlike capital, are “sticky”. Many of the people who left New Orleans because of Hurricane Katrina never came back, because they discovered that “home” really had little to offer them. But they almost assuredly would never have moved as part of a government program, to matter what the incentive. It would all be a trick. It would have to be. The fear of the unknown, particularly among those who have never traveled, can be all pervasive, and all persuasive, and there are many parts of the U.S. that are “overpopulated” for just this reason. It is “right” to subsidize such people through such measures as the Employment Income Tax Credit, which are, of course, explicitly tied to employment, but permanently subsidizing the unemployed for decades is another matter entirely.
Afterwords
To save myself, and you, a little effort, I’ll simply quote my pet recipes for economic growth from an earlier post:
What we should be doing is ending the war on drugs and other “victimless” crimes—e.g., prostitution—which simply guarantee monopoly profits for the ruthless and jail records for thousands and thousands of black and Hispanic young people, giving significant financial incentives to kids in their early teens to drop out of school—why study business math when you can make $50 a day serving as a lookout for a pusher.
What we should also be doing is eliminating extensive “occupational licensing” requirements for a variety of professions—from hair dressing to nursing—which are simply designed to reduce competition.
Most of all, of course, what we should be doing is drastically reducing exclusionary zoning and other forms of NIMBYism, such as rent control, height restrictions (city wide in DC), along with California’s infamous property tax freeze, all of which enrich existing property owners and rip off everyone else. Lower housing prices, which would make it easer for jobless workers to move to where the jobs are, would be much more efficient than trying to create jobs where there is no longer any reason for them to exist and would have an immensely beneficial impact on the economy as a whole.
A famous paper, Housing Constraints and Spatial Misallocation, by Chang-Tai Hsieh and Enrico Moretti, estimated that if three of the most over-NIMBYFIED urban areas in the U.S.—New York, San Francisco, and San Jose—were as open to development as the average American city during the years 1964-2009, U.S. Gross Domestic Product in 2009 would have been at least 3.7% higher than in fact it was, and as much as 8.7% higher. But in fact, Hsieh and Moretti were much too “conservative”. A recent review of their work by Bryan Caplan found that the true figures were far more dramatic: an increase in GDP of between 14% and 36%, which would be enormous—resulting in an increase in wages alone of between $1.3 and $3.4 trillion. Ilya Somin at the “Volokh Conspiracy” provides additional background. It is much to Biden’s credit that the infrastructure proposal contains some—though, unsurprisingly—only some provisions to attack exclusionary zoning.
