Patricia Cohen's Mix of Truth, Falsehood, and Confusion
In “Why It Seems Everything We Knew About the Global Economy is No Longer True,” New York Times, June 18, 2023, Patricia Cohen, who covers the global economy, serves up a mishmash of truth, falsehood, and confusion.
This won’t be comprehensive but I do want to point out where I think she is wrong, occasionally right, and confused. The highlighted sections are hers. The others, starting with DRH, are mine.
The economic conventions that policymakers had relied on since the Berlin Wall fell more than 30 years ago — the unfailing superiority of open markets, liberalized trade and maximum efficiency — look to be running off the rails.
DRH: Notice that she’s not questioning whether free trade works; rather, she’s saying that we don’t have it. She’s right. Free trade has retreated. But in her piece, she seems to mix that fact in with a claim, sometimes explicit but usually implicit, that there’s good reason to question free trade.
During the Covid-19 pandemic, the ceaseless drive to integrate the global economy and reduce costs left health care workers without face masks and medical gloves, carmakers without semiconductors, sawmills without lumber and sneaker buyers without Nikes.
DRH: Does she think that lockdowns had nothing to do with this? Is she aware of how many industries were shut down or at least hobbled by central planning by U.S. governors and, in other countries, central planning by the heads of those countries’ governments? I wrote a piece early in the lockdowns titled “Covid V. Capitalism,” Defining Ideas, April 8, 2023 that answers some of her points.
We saw before the pandemic began that the wealthiest countries were getting frustrated by international trade, believing — whether correctly or not — that somehow this was hurting them, their jobs and standards of living,” said Betsey Stevenson, a member of the Council of Economic Advisers during the Obama administration.
DRH: Notice how Stevenson hedges, leaving open the possibility that people who had that belief might have been mistaken.
Associated economic theories about the ineluctable rise of worldwide free market capitalism took on a similar sheen of invincibility and inevitability. Open markets, hands-off government and the relentless pursuit of efficiency would offer the best route to prosperity.
DRH: I believed that second sentence. Is Cohen really saying that that was the dominant consensus? I don’t remember having that much company.
The favored economic road map helped produce fabulous wealth, lift hundreds of millions of people out of poverty and spur wondrous technological advances.
But there were stunning failures as well. Globalization hastened climate change and deepened inequalities.
DRH: I’m not sure whether it hastened climate change, but it certainly reduced global inequality. Is she unaware of that? If she is unaware, she should read the first paragraph in the above quote. That’s the main reason that global inequality has fallen.
It turned out that markets on their own weren’t able to automatically distribute gains fairly or spur developing countries to grow or establish democratic institutions.
DRH: Why would one expect markets to “distribute” gains in line with her concept of fairness, which, by the way, she doesn’t bother to state.
“Capitalist tools in socialist hands,” the Chinese leader Deng Xiaoping said in 1992, when his country was developing into the world’s factory floor. China’s astonishing growth transformed it into the world’s second largest economy and a major engine of global growth. All along, though, Beijing maintained a tight grip on its raw materials, land, capital, energy, credit and labor, as well as the movements and speech of its people.
DRH: Score one for Cohen. Note, though, that this tightening grip has reduced the growth rate and will continue to keep the growth rate lower than otherwise.
The new reality is reflected in American policy. The United States — the central architect of the liberalized economic order and the World Trade Organization — has turned away from more comprehensive free trade agreements and repeatedly refused to abide by W.T.O. decisions.
Security concerns have led the Biden administration to block Chinese investment in American businesses and limit China’s access to private data on citizens and to new technologies.
And it has embraced Chinese-style industrial policy, offering gargantuan subsidies for electric vehicles, batteries, wind farms, solar plants and more to secure supply chains and speed the transition to renewable energy.
“Ignoring the economic dependencies that had built up over the decades of liberalization had become really perilous,” Mr. Sullivan, the U.S. national security adviser, said. Adherence to “oversimplified market efficiency,” he added, proved to be a mistake.
DRH: Blinken doesn’t understand that economic dependency, all else equal, creates less peril, if by peril we mean war. And, by the way, what’s Blinken’s economic training?
HT2 Cyril Morong for alerting me to the NYT item.
Note: After I wrote this, I noticed that John Cochrane covered some of the same ground.