Egotistical bias

Alex Tabarrok nails the problem with Dani Rodrik's post on why people oppose globalization. Rodrik says:

Suppose that I am an experimental psychologist instead of an economist and the person Harvard hires in my place is someone who has accumulated a long vita by virtue of not having to abide by human subjects review standards. (You can find out a lot about human behavior through torture.) Would I not feel treated unfairly? You bet I would.

The international trade counterpart of this hypothetical is the worker who loses his job because his company decides to move to a country where, say, labor rights are routinely violated. So the "us" and "them" characterization that Tyler attributes to irrational nativism perhaps has more to do with the absence of a common set of international rules on labor standards, environment, consumer safety, and so on.

By overlooking the problems created by trade in instances where regulatory arbitrage does play an important role, we miss the opportunity to celebrate the kind of globalization where such arbitrage doesn't play a role. The latter type of trade probably constitutes the bulk of world trade. But because economists do not make this important distinction, they have no language or ability with which they can respond appropriately to the uneasiness out there--except for calling it irrational.

Alex responds:

Rodrik has a very Ivory-tower view of what people care about. Rodrik may be upset that people in other countries have poor on-the-job safety but (for the most part) workers who lose their jobs to foreigners really don't give a damn. What U.S. workers are upset about is losing their job and if asked to name the problem the U.S. worker will almost certainly say it's the low wages of foreigners not their poor working conditions. Moreover, the worker's diagnosis of the problem (problem to him or her that is) is correct and Rodrik's diagnosis is wrong. Why? Because higher safety standards in foreign countries would cause foreign wages to fall and thus would not much reduce competition from abroad, which is what the worker cares about. I assume that Rodrik knows this even if the worker does not.

Rodrik's deeper argument is also peculiar, especially for a liberal economist. A liberal economist should understand that for the most part labor, environmental and consumer safety standards are chosen not imposed (not always, of course, but for the most part in the long run). In the United States we have a lot of job safety because we are wealthy and are willing to pay for job safety with a reduction in our (already high) wages. In other words, Americans buy a lot of on-the-job safety for the same reasons we buy a lot of smoke alarms and DVD players. (OSHA has very little effect on job safety.) Job-safety is thus a choice Americans make about what to consume - we use some of our wealth to buy safety both at home and at work and some of our wealth to buy DVD players. Thus, to argue that we shouldn't trade with foreigners because they don't have the same job safety as Americans makes about as much sense as arguing that we shouldn't trade with foreigners because foreigners don't buy as many DVD players as Americans.

It is a vast, and pervasive, cognitive mistake to assume that people who agree with you (or disagree) do so on the same criteria that you care about. I have flirted with the idea that the World Bank should be abolished. But if so, I want it abolished because its institutional ossification has made it incapable of carrying out its mission, not because I believe, along with a certain class of right-wing extremists, that it is some sort of tool for the vast global conspiracy to destroy America. As Tyler points out, Americans were just as paranoid about Japanese competition. The problem is competition from foreigners, not embeddedness in an unfair system. Moreover, paranoia about globalization is growing, even though labor and environmental standards are getting better in most of those countries.

It is true that many people, especially labor unions, adopt the language of unfairness. But at least in my experience, they are more likely to complain about low wages than lack of union representation or local pollution. If the foreign workers got unions, OSHA, and stricter environmental standards, but wages fell to keep their work product competitive, how many people complaining about globalization would stop? Indeed, in the Rust Belt one does hear a fair amount of muttering about unfair competition from Alabama.