Commenting on this earlier post, Ronald Bingham recommends that we free traders read Paul Krugman – presumably Krugman’s work in the 1970s and 1980s on “strategic trade policy.” This theory shows that it is possible for a government to employ a certain pattern of tariffs and trade restrictions in ways that raise the wealth of the nation higher than it would be if the government had instead pursued a policy of free trade. (By the way, strategic trade policy has nothing to do with protecting people from job loss for the sake of protecting them from job loss.)
Note to Mr. Bingham: I have read Krugman – including his indispensable book Pop Internationalism. In Chapter 7 of that book, Krugman issues this sound warning about strategic trade policy:
The rhetoric, if not the full intellectual depth, of strategic trade policy has become very popular among politicians and policy entrepreneurs interested in trade. In general, however, we can say that most economists working on international trade have agreed that strategic trade policy can work in principle but have been highly skeptical about its importance and usefulness in practice [p. 110; emphasis added].
When a principal formulator of a theory warns that that theory’s practical importance and usefulness are limited – perhaps even dangerous – I take that warning especially seriously. (And my reaction is doubly strengthened by the fact that, in this case, the issuer of the warning – Krugman – is known for his general optimism in the ability of government officials to act in the public’s best interest.)
