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Finance and Development, June 2017

Abstract

Finance and Development, June 2017

Free Trade, Closed Doors

In margaret peters’ Trading Barriers: Immigration and the Remaking of Globalization the author documents and investigates several new facts regarding the relationship between international trade policy and immigration policy. Her primary argument is that over long periods of time and across a diverse set of countries freer trade leads to tighter immigration policy, a message that Peters supports with an intuitive story and an impressive collection of data.

Peters’ main argument is novel and straightforward: in the United States and other relatively well-off countries, international trade may reduce the demand for low-skilled workers, including low-skilled immigrant workers, and this will therefore make firms less likely to lobby for less-restrictive immigration policies. Thus, freer international trade directly reduces the demand for low-skilled immigrants while also indirectly turning domestic policy against them.

Margaret E. Peters

Trading Barriers: Immigration and the Remaking of Globalization

Princeton University Press, Princeton, NJ, 2017, 352 pp., $95

Peters, a University of California, Los Angeles, political science professor, begins by examining the trade-offs that have shaped politicians’ and firms’ views on immigration and trade policy around the world over two centuries. To do this, she gives an impressive descriptive account of government policies across 19 diverse countries (some OECD members, some in the Persian Gulf, and some in east Asia). She combines this account with data on advances in transportation technologies that have eased international trade. She first presents graphic evidence that immigration and trade policy have diverged over the long run in many of these countries and then shows that as immigration policies tighten, trade policies relax, even in the short run.

Peters then lays out the intermediate steps of her argument, showing that the intensity of industry lobbying on immigration legislation is systematically related to the exposure of the industry to freer trade. Focusing on the United States, she exploits differences in the degree to which firms in a US state are exposed to trade and asks whether these differences can explain voting patterns in the US Senate. In line with her thesis, she concludes that they can.

While Peters sometimes exaggerates the strength of her empirical results, the consistency of the findings across different contexts should be deeply informative for those who negotiate trade and immigration policy. If we cannot have both freer trade and freer immigration, we should choose carefully between the two.

Finally, let me offer a quibble with the economic theory that is intended to provide a framework for the book’s narrative. In short, I feel that Peters could have gotten more quickly to her findings rather than describing in so many words, and in such detail, the various possible mechanisms through which trade, immigration, foreign investment, and technology may be related. This is ultimately an unsatisfying middle ground—a detailed exposition that neither rises to the status of a formal model nor serves as a quick overview—that leaves an academic audience questioning the claims and assumptions being made, while likely providing far too much detail for the casual reader.

But all in all, the book is well worth reading and should bring a new and influential perspective to the ongoing debate over trade and immigration policy.

GREG C. WRIGHT, assistant professor, University of California at Merced

The Crusty Professor

IAN KUMEKAWA HAS written a useful guide to the thinking on welfare economics of the British economist Arthur Cecil Pigou, who held the Cambridge chair in political economy—preceded by Alfred Marshall and followed by John Maynard Keynes.

Part exposition, part biography the book illuminates economic thinking in the 20th century, and the role of Cambridge in particular. In pre–World War I Cambridge intellectual circles, as in Keynes’s own thinking, there was an interest in applying ethics and ethical judgments to the study of economics, which drew on a strong tradition of liberal paternalist reformism. Kumekawa neatly traces the trajectory of that thought from optimism about solving social problems through knowledge and science in the pre-1914 world to increasing doubt and pessimism following the first world war and profound bitterness after the second.

Like Keynes, Pigou was a pacifist, but he experienced the horrors of war while working for the field ambulance service and when conscripted he seems not to have wanted to register as a conscientious objector. The Great War transformed him from a gregarious and convivial bachelor don into an increasingly lonely figure. By the 1930s, he felt that the new Cambridge of Keynes was overtaking, deriding, and ignoring him, and he never really recovered from Keynes’s unfair portrayal of him in the 1936 General Theory as a straw man for outdated classical economics.

Pigou believed in the consensus of the great and the good.

Pigou believed in the consensus of the great and the good, and sometimes even sacrificed his strong views on issues such as free trade in the interest of harmony. Keynes’s position as a combative public intellectual appalled him. He thought that dissenting reports were “ungentlemanly.”

Kumekawa rightly presents Pigou’s analysis of taxes as the best way to deal with externalities as relevant for today’s environmental issues.

Ian Kumekawa

The First Serious Optimist: A. C. Pigou and the Birth of Welfare Economics

Princeton University Press, Princeton, NJ, 2017, 344 pp., $35

Carbon taxes are a fine example of a Pigovian tax, which matches producer costs, for instance through pollution.

The book does not present a sympathetic portrait of Pigou the man. Kumekawa explains that “though Pigou set out to help the poor, he did not respect them,” and he “saw broad segments of the population as totally unfit to make even minor decisions.” It was high 19th century paternalism at its worst (and misogyny too—there is a chilling account Pigou’s attempt to freeze Joan Robinson out of a Cambridge lectureship).

Surprisingly, Kumekawa misses the strand of Pigou’s thought that is most relevant today and that anchored his thinking about damage control and the protection of resources. More than his contemporaries, and perhaps surprisingly for a childless bachelor, Pigou cared deeply about intergenerational fairness. Current generations’ strong incentive to pass along costs to their successors drove much of his thinking in welfare economics. He argued in his 1932 Economics of Welfare for intervention by the state, which is the guardian of those who are not present. “(…)the State should protect the interests of the future in some degree against the effects of our irrational discounting and of our preference for ourselves over our descendants.” That surely is a modern message, even if delivered by a crusty Edwardian professor.

HAROLD JAMES, historian, Princeton University and IMF

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Finance and Development, June 2017
Author:
International Monetary Fund. External Relations Dept.