Paul Blustein on the Misadventures of the Most Favored Nations

"Clashing Egos, Inflated Ambitions, and the Great Shambles of the World Trading System"
That's the subtitle of Paul Blustein's book, Misadventures of the Most Favored Nations. How can one not want to pick up a book with that title/subtitle?!

The Washington Post says, "Blustein has thoroughly mastered the craft of breathing life into intrinsically dull material with compelling thematic narrative and delicious character studies." Delicious, indeed.

Paul Blustein came to Georgetown Law today to talk about his book, and it was so fun! He read some pages from his book and at one point he pretended to be an army guy yelling at trade representatives.
Apparently, Americans attending the Doha round were given the password "paging Mr. Black," which meant that there was a terrorist threat and all Americans had to evacuate so they could be taken to navy ships nearby. (To hell with the reps from other countries, right? Haha.)

Blustein talked about the frustrations of different countries during multilateral trade rounds like Doha, and the challenges that must be overcome when negotiating a deal between parties with disparate views and priorities. Towards the end of his lecture, Blustein said he felt that a moratorium should be placed on bilateral trade agreements because they draw attention away from multilateral processes.
I thought this was an interesting statement for him to make since he had spent so much time talking about the doomed nature of multilateral trade rounds. If multilateral rounds are so ineffective, isn't the opportunity cost of focusing on bilateral trade agreements insignificant? Why not focus on the pareto improvements that could be made through bilateral trade agreements rather than those that will never be made through multilateral agreements?
Blustein clarified: Although the WTO has its flaws, countries need to preserve this organization that has done so much to prevent trade wars (through its dispute settlement system). When countries start shifting toward bilateral agreements, there is less of an incentive for them to pursue/cooperate in multilateral agreements that can lead to more benefits at the margin. (He explained all of this much more eloquently that I have...)

I agree that countries need to start thinking about themselves as part of a global community, and not just the European community, or the East Asian community, etc. Like Lant Pritchett said, we need to stop having these "imaginary communities."

The Washington Post says, "Blustein leaves the book's punch line until its final section: The benefits of free trade have been grossly oversold. By the WTO's own accounting, even the utopian elimination of all tariffs would boost world GDP by less than a half-percent, with most of that benefit going to the wealthiest nations." However, it is difficult to swallow this idea after reading pieces like "Ricardo's Difficult Idea" by Paul Krugman.

A friend of Blustein argued that by claiming that the sky is falling, one is only doing more to catalyze the self-prophesied failure of the WTO. It's kind of like deflation - if people go around saying that there is the threat of deflation, even when there is none, we could end up in a deflationary death spiral like Japan's lost decade...

Related Links:
Blustein mentioned Smoot-Hawley at one point and it reminded me of the '93 debate where Gore gives Perot a framed picture of Smoot and Hawley and says, "I framed this so you can put it on your wall if you want to." Ha!

Professor Johnson used to do Ross Perot imitations. Those were fun. (Sigh, I miss Wellesley.)

Greg Mankiw blogged about VAT not too long ago.

In other news:
I'll be blogging about ridiculous things countries have done to discriminate against certain imports. (Are all cows the same?! Are all sardines the same?! What exactly is a "like good?")

Filling out paperwork for my retirement account and health insurance has made me even more depressed about turning 22 this week...Melky Cabrera is only 3 years older than I am and he plays on the best baseball team EVER, AND he has crater like dimples. How am I supposed to beat that?!

Anyway, time for sleep. Tomorrow's Thursday - my favorite day of the week! (b/c I get to go to International Trade and get out of work knowing that the next day is Friday...but I assure you, Friday is not my favorite day of the week. My favorite day of the week is Thursday.)

Lant Pritchett Responds!

Here.

Labor for Convergence, Big Time.

Just came back from Lant Pritchett's lecture, which was fabulous! The title of this blog post is how he signed my copy of "Divergence, Big Time." [That's right kids. I have a signed copy of his paper!]

Pritchett's lecture sparked a lot of controversy here at Wellesley, which goes to show the degree of sensitivity with which such issues as migration and nationalism must be addressed. Good thing Lant is so engaging and likable.

Quote that I liked: "You find power in silence, not in controversy."
Lant explained it this way: we no longer believe in racism, sexism, sexualism, etc. However, we still believe in nationalism. While people think it is absurd to treat others differently based on race, sex, or sexuality, nobody thinks it is absurd to treat people differently based on nationality. There is silence when it comes to nationalism. Nobody questions the validity of such "imagined communities."

Nayan Chanda makes a similar point in Bound Together. He argues that people have gone from believing in separate towns, to separate states, to separate countries. So why stop there? Isn't it time we made the transition from separate entities to one global community?

Economists always talk about free trade and free movement of goods. However, the gains from free movement of goods are dwarfed by those that are potentially made from free movement of labor. According to Lant's calculations, a lifetime of micro-credit made available to a person in Bangladesh results in gains that are equivalent [in NPV] to those made by a person being allowed to work in the U.S. for 2.4 weeks. 2.4 weeks!
If we allowed 3,000 Bangladeshi workers into the U.S. [the labor force is ~153.1 million in the U.S. including those unemployed], we could help Bangladeshis by as much as Grameen Bank does each year.

Usually people argue that such immigrants would push down wages for U.S. workers. However, a study by Peri found that low-skilled immigrant workers from Mexico actually created more job opportunities for Californians, and added scarcity value to skilled American workers in CA. Why? Because more often than not, low-skilled immigrant workers are imperfect substitutes for high-skilled American workers.

If free migration leads to such pareto improvements, why are people so hung up on the importance of nationalism/borders?

Several friends of mine argued that Lant's idea of a world without borders is a pipe dream. They also argued that culture comes from people being tied to specific places that are not open to everyone. However, the more I talked about this issue with my friends, the more I found myself defending Lant's point of view. I agree that Lant's proposal is somewhat of a pipe dream. However, the more I argue about it with people, the more upset I am that it IS a pipe dream.

One argument that someone made against Lant's idea was that culture is created and preserved because people are tied to a specific place. An example that was presented to me was India. If everyone in India were allowed to move to the U.S., what would happen to the Indian culture? Wouldn't it fade away?

My response to that is as follows. I believe that cultures are preserved not within places, but within people.
This is my over-simplification of the issue: I'm from NYC, and I am very much a New Yorker. I jaywalk all the time, I don't know how to drive, and I am weirded out by strangers who smile or wave to me unnecessarily. However, I attend school in Wellesley, MA. Not because I was tired of NY, or because I wanted to give up being a New Yorker, but because the college that I wanted to attend happened to be in Wellesley, MA. Obviously, I had to make adjustments. However, I still jaywalk [not that it's hard to do in wellesley, ma], I still don't drive, and I am still weirded out by strangers who smile or wave to me unnecessarily. My "New Yorker-ness" has been diluted in the sense that I no longer make a weird face when strangers wave to me. However, I don't think that the people of Wellesley, MA have the right to refuse my entry on the grounds that it is my responsibility to maintain the "New York" culture by staying in NY. Likewise, I don't think one can make the argument that other people should not be allowed to migrate freely b/c their country of origin's culture might fade away. People will preserve their culture no matter where they are if they are so compelled. My parents would rather live in NY than in South Korea any day, but they're certainly not going to tell other South Koreans to stay in S. Korea b/c well, somebody has to preserve the culture. No. Also, if people need to choose between preserving culture, and finding a way to provide food for their families, they are going to choose the latter. It's kind of like the environment. Countries don't give a shit about the environment until after they've developed and have reached a certain level of income.

I feel like one can even argue that victims of various diasporas have been even better about preserving culture than those who have always had a country called home. Maybe people who don't have a country to go back to feel a greater sense of responsibility about preserving culture within themselves. [Just a theory based on comments from Jewish and Armenian friends]

Also, Lant argued that "brain drain" is a concept that has only stuck around for so long b/c it rhymes. He suggested an alternative phrase: "cortex vortex!"

Someone argued that borders should not be open b/c "brain drain" "steals" skilled labor away from developing countries that need it most. Lant argued that the alternative then, is to keep these skilled people out of countries where they will be paid their marginal product and force them to stay in countries where they will be more likely to pursue rent-seeking activities in order to compensate for the fact that they are not paid their marginal product.

Overall, I thought Lant made some very interesting points about migration and development. Another quote that I liked from his lecture was: "We have to think about development in terms of people, not places." When we talk about developing countries, we are really thinking about the people in those countries. So why are we so opposed to labor migration? Why is it such a pipe dream?

Lant talked about so much more, but I'm going to go rest my wrists now. This is one of the longest blog posts I've ever written...and it probably did not do Lant Pritchett's lecture justice. You'll just have to see him for yourself when you get a chance.

Divergence, Big Time.

Lant Pritchett will be speaking on Thursday, April 30th at 4:45 PM in PNW 212! His lecture is titled: "Is Migration Good for Economic Development? How Could You Even Ask?" He will be discussing the benefits of labor migration.

I was going to do background research and blog about labor migration beforehand, but I think I'll wait for Pritchett to give his lecture so I can blog about it in one sitting.
For now, I decided to talk about the Lant Pritchett's paper on income divergence, because that's interesting too. And it's one of the first papers I read for Econ Growth.

Many people have argued that there is an "advantage to backwardness," as poorer countries grow at faster rates than richer ones. However, in his paper, "Divergence, Big Time," Pritchett argues that "convergence" is tautological because when one examines countries that are rich now, they have to have either been historically rich while growing at a relatively steady rate, or historically poor and growing at a faster rate. Thus, the finding of convergence is tautological.

Pritchett finds that there is more evidence to suggest that countries have diverged, rather than converged. He uses a lower bound per capita GDP of $250[purchasing power parity] in order to impute missing 1870 income data for such countries as Ethiopia, Uganda and Tanzania. He justifies his $250 lower bound with a few methods. For example, the lowest level of caloric intake ever recorded is 1,443 calorie/person in Chad in 1984. Bairoch (1993) reported that $291 (@ market exchange rates) was necessary for minimum food intake. Note, Bairoch's estimate is higher than Pritchett's. Pritchett then calculates the income gaps between the rich and poor countries and finds that the average absolute gap in incomes increases from $1,286 to $12,662. Since Pritchett's lower bound of $250 is probably lower than the actual lower bound, his results actually understate the extent to which countries have diverged.

So perhaps there is no "advantage to backwardness." Maybe poorer countries have the potential to grow at faster rates and "catch up" to richer countries, but Pritchett's evidence suggests that the realization of this potential is rare. Twenty-five percent of 60 countries with initial per capita GDP of less than $1000 in 1960 had growth rates less than zero and a third have had growth rates less than 0.5%.

You can find growth rates of real GDP per capita for different countries here.

This is a rather sad blog post.
This, however, is ridiculous!

In other news: I finished my VERY LAST ECON 321 p-set last Friday! I got to make butterflies.

Swine flu scares me.

The Yankees are breaking my heart.

I still need to think of something to buy for Mother's Day. [May 10th, in case you forgot]