Greg Mankiw Argues that Protectionism Is Likely to Become Increasingly Dominant As More People Take His Economics Classes

July 30, 2016

CEPR

The elite types have noticed that the masses are not happy about the economic agenda that they have crafted. Since the elites can’t imagine that the problem has anything to with the fact that their agenda is designed to redistribute income from the masses to the elites, they turn to psychological explanations.

In this vein, Greg Mankiw, a Harvard professor and former chief economist to George W. Bush, used his NYT column to discuss voters’ attitudes toward trade agreements like NAFTA and the Trans-Pacific Partnership (TPP). The research he highlights finds that attitudes towards trade don’t seem to depend on a person’s direct economic stake in trade but rather their perception of how trade affects the economy.

It turns out that the latter is highly correlated with education. Those with college degrees generally believe that trade agreements have been good for the economy and support them, while those with less than college degrees generally believe trade has been harmful and therefore oppose them. Mankiw sees this as good news for the long-term, since as more people graduate college a higher percentage will support trade deals.

Remarkably, the analysis Mankiw relies upon never asked about the location of the respondents, or at least this is not reported. That might have mattered, since a factory worker in an area that has lost a large number of jobs to imports, like Pennsylvania, may be expected to have a more negative attitude toward trade than a factory worker in an area where the economy is relatively healthy, like California. This is likely to be the case even if we controlled for more narrow industries.

The claim that a person’s direct economic stakes don’t matter also seems dubious, given that a standard prediction in trade theory is that in a rich country like the United States, more educated workers will benefit at the expense of less-educated workers. There has been considerable empirical work in recent years that support this theoretical prediction. That would suggest that people without college degrees being opposed to trade deals is entirely consistent with their economic interests.

However, there is an even more important point at issue, trade deals like the TPP have very little to do with “free trade.” The trade barriers between the United States and the other countries in the pact are already low or non-existent in most areas. (We already have trade pacts with six of the eleven other countries.)

These deals are not about free trade, but rather about putting in place a regulatory structure that is friendly to the corporate interests that designed it. (The TPP was largely crafted by 21 different working groups, each of which was dominated by representatives from the relevant industries. For example, the working group on intellectual property had representatives from the drug companies and the entertainment industry.) The regulatory structure put in place will override laws at the national, state, and local levels.

This could mean, for example, that a decision by a county or state to restrict fracking would result in large payments to a foreign company (which could be a foreign subsidiary of a U.S. company) to compensate for lost profits. The same would be true of any other environmental, consumer, or safety regulation.

In some cases the TPP is directly protectionist. It would strengthen copyright and patent protections, even requiring that member countries have criminal sanctions for copyright protection. The New Zealand government estimated that just one narrow provision in the TPP, the extension of copyright protection from 50 years to 70 years, would cost it 0.024 percent of GDP, the equivalent of $ 4.4 billion a year in the U.S. economy in 2016. It also requires that web intermediaries act as copyright cops, removing material that copyrights holders claim to be in violation of their copyrights.

There is no obvious reason that anyone who is not a high up employee or major stockholder in a drug, software, or entertainment company should support these sorts of protectionist measures. It is possible that if enough people are exposed to college economic courses taught by industry propagandists it will increase support for trade agreements like the TPP, but the dynamics are somewhat different than Mankiw implies.