BY TOM OZIMEK, October 27, 2019 Updated: October 28, 2019

Paul Krugman, Nobel-prize winning economist and avowed champion of free trade, admits he and his colleagues got a few things seriously wrong about globalization, in particular around its downside impact on local labor markets.

“We missed a crucial part of the story,” Krugman wrote in a Bloomberg article in October, referring to members of the so-called “1990s consensus,” mainstream economists who worshipped at the altar of free trade.

According to his article, the consensus economists failed to measure adequately and properly account for the impact of globalization on specific communities, some of which were disproportionately hit hard. This despite the fact that models predicted, and figures later showed, that free trade was a net gain in terms of both jobs and wages in the broader American economy. Generalized gain but localized pain.

“Opening to trade increases the size of the economic pie by a few percent and yet shrinks some slices by 10 or 20 or 30 percent,” said David Autor, an MIT economics professor who wrote a groundbreaking paper on the disruptive impact of integrating China into the global economy and whom Krugman cites in his article.

“The benefits, in general, will be small and diffuse and broadly shared,” Autor said in an interview for the Institute for Fiscal Studies. “So lower prices of consumer goods, more variety of goods, perhaps a faster rate of product innovation.”

“However, the individuals who are in the sectors that become directly exposed to competition, they’re almost necessarily going to shrink,” he continued. “Those impacts tend to stay localized. Instead of wages falling just a little bit for people who have manual-dextrous skills, we see big job losses for individuals at those plants. Then the whole communities that surround them kind of—I don’t want to say implode, but they go into something of a state of decay.”

‘Hyperglobalization’
Aware of the pain of the working man and distressed by the backlash against globalization, Krugman, who now pens op-eds with tart titles like “The Roots of Regulation Rage,” is on a sojourn of shame.

Pit stops along the route include a February lecture in Australia headlined “What Did We Miss About Globalization?” and the October article mentioned above in Bloomberg titled “What Economists (Including Me) Got Wrong About Globalization.”

Those tuning in to Krugman’s proclamations of penitence will certainly hear mea culpa, but also caveats.

While admitting to errors, Krugman remains fundamentally pro-free trade and is loath to be seen as throwing the baby out with the bathwater.

“I frequently encounter people who have a story they’ve heard,” Krugman said in Australia. “They sorta kinda think they know what happened to economics. The story is ‘Well, economists used to think that trade is good for everybody and now they’ve learned that it actually has downsides and is much more problematic.’ It’s a good story, and it fits people’s desire to see the orthodoxy and the establishment receive its comeuppance. But it’s almost exactly wrong.”

The correct way to think about the issue, Krugman argues, is that the problem was less with globalization as with something far more nefarious that he calls “hyper globalization.”

Krugman says the out-sized downside impact of globalization-turned-hyper globalization is to regard the phenomenon as factors sparking a perfect storm.

The first factor: a paradigm shift of the international trading profile from “intra-industry trade among similar countries” to importing goods from countries with a massive labor-cost advantage.

The second factor was the acceleration of the process via technology, especially containerization. That coupled with an eager embrace of free trade by policymakers egged on by overconfident intellectuals who hadn’t thoroughly done their impact assessment homework.

Factor three, lack of policies in place to help people cope with massive displacement as entire industries disappeared, and whole communities were devastated.

“The hyper globalization is this changing environment that in some ways set the stage for the turmoil we’re now experiencing,” he explained during his lecture in Melbourne.

“Consensus economists didn’t turn much to analytic methods that focus on workers in particular industries and communities, which would have given a better picture of short-run trends,” Krugman wrote.

“This was, I now believe, a major mistake—one in which I shared a hand.”

Former labor secretary Richard Reich praised Krugman’s newfound humility, saying it’s high time the celebrated economist ate some crow.

“I’m glad he’s finally seen the light on trade,” Reich told Michael Hirsh of Foreign Policy.

“How rare is that?!” Autor echoed Reich’s praise of Krugman’s contrition.

big, big snip

https://www.theepochtimes.com/krugman-ad...ng_3128925.html