Monday, May 29, 2017


What Exactly is 'Openness'?

A friend of mine posted a riposte of Angela Merkel to Trump which went like this: “It is not isolation and the building of walls that make us successful, but open societies.” I think we need to step back for a minute and ask what exactly is this "openness"? Surely open-mindedness is something that is emulated in liberal societies and we all probably agree that to have an open mind is desirable. Close-minded individuals, on the other hand, are to be avoided along with the attribute. That said, I think something is hidden here. "Openness" is sometimes uttered by politicians in the same breath as "free trade" (open trade or globalization), but they aren't the same thing. If they were synonymous, why does free trade or "globalization" also produce losers? Open-mindedness seems to us unequivocally positive while globalization obviously isn't (or at least not under certain circumstances). Someone, as we say in Spanish, might be trying to sell us "gato por liebre". As economists, we teach the so-called "virtues" of free trade (globalization), but with a very important caveat that is so easily forgotten. In my graduate international economics class, I teach the virtues of free trade, quantifying out of a very simple model what are called the "gains to trade". The principle "virtue", I tell my students, is precisely the enlargement of the "economic pie" resulting from specialization according to the comparative advantage of nations. It all seems simple, logical and quite reasonable when I demonstrate the concept on the board with numbers. However, I am also obliged to explain the caveat, which is that *free trade* produces both losers and winners. So while on the one hand, the economic pie is made greater by free trade, the latter must be followed by a redistribution of the pie in order to compensate the losers for their dire predicament which resulted directly from te implementation of said *free trade*. This is then depicted as a "win-win" for everybody because people are thereby able to partake in said enlarged pie. All good and well, right? Well, it so happens that things sometimes don't seem to turn out that way in the real world. President Bill Clinton explained the virtues of this free-trade induced *pie enlargement* when he sold NAFTA to the US public. The problem was that the losers were never compensated or compensated inadequately! We know that the Republicans do not believe in re-distributive policies, and Democrats seem as of late to lean more and more toward Republican policies, so there doesn't seem to be much prospect for re-distribution among the main political choices in America. Hence the losers were left to fester. The garment workers whose jobs "departed" for Mexico and China were not only never compensated, but the much heralded "retraining" of laid off workers from such "sunset" industries to enable adaption and subsequent employment in the "sunrise" industries which were to replace them was inadequate. ...And the politicians of both parties went their merry ways and forgot all about the "losers". The latter, to make a long story short, became bitter and elected Trump! So my point with this little ditty is that Trump is as much the fault of Liberals as it is the fault of those "Tea Partiers" who Hillary so disparagingly called "deplorables". Food for thought which I am uniquely capable of providing instruction on since it is my profession. Further reading on the subject is provided in the following PDF.

Originally published at LinkedIn.

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