We live in the best of all possible worlds….

A vulture stalks a girl in the Sudan

Jeff Madrick observes:

Why are mainstream economists, right and left, so determined to push back any attempt to subsidize manufacturing in America? The question will arise anew tonight when President Obama presents his budget, complete with tax provisions to support manufacturing. After the president addressed the issue as his first topic in the State of the Union a couple of weeks ago, many esteemed economists seemed to rush to the offense. Obama proposed using tax carrots and sticks to encourage manufacturers to stay here, return here, or get out of those low-wage emerging markets. Some mainstreamers, seeming to represent the conventional wisdom among them, openly scorned the idea. At least one, Laura Tyson, has stood her ground in favor of a policy focus on manufacturing.

I understand the mainstream economic reflex. After working so hard to get world nations to reduce trade barriers for the last 40 to 50 years, they and their successors view subsidizing manufacturing in the U.S. as a retreat. It could provoke retaliation as well. And moving the world toward free trade makes eminently good theoretical sense — to a degree. The anti-manufacturing subsidy bias is really a subset of the firm, almost unshakable allegiance to free trade theory among the American mainstream.

I also understand the mainstream neoclassical reflex, having taken a few of those courses. Indeed, sometimes I am a neoclassical myself. When you fundamentally believe that economies adjust efficiently, and that the markets will decide, if left unimpeded, which industries should naturally rise and fall, it is profoundly difficult to accept tinkering with matters unless very much warranted. If manufacturing is declining in America, the conventional thinkers say it is largely because first, the same business can be done more efficiently elsewhere, or second, American business has better places to put its money, usually by investing in services-oriented industries, some of them highly sophisticated. There may be manufacturing “market failures” to compensate for, but probably not many.

The relevant phrase in the above: “fundamentally believe.” Market fundamentalists in the United States have long-supported the partial destruction of the American manufacturing sector. Unfortunately, market fundamentalism now defines the orthodox position in the economics profession as a whole. Free trade is, fundamentalists believe, intrinsically rational. The world economic system, one which mostly reflects market fundamentalist orthodoxy, is now in such a state that popular contestation and overt rebellion are normal, and the opposition is motivated to a greater or lesser degree by austerity regimes informed by market fundamentalist principles. Presumably, these protests are irrational since they oppose in some way free trade policies.

One may reasonably doubt the rationality of a economic system that necessarily produces such suffering.

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