Do you see a resurgence of economic nationalism in the U.S., or elsewhere?
Protectionist pressures are breaking out in several different areas. It does seem to me there is an outbreak of, if not quite xenophobia, then a me-first kind of attitude. Trade is not the only issue; it’s workers, multinational investment, and openness in general.
Look at the Buy American provisions in the stimulus bill. Some people say that this is not a beggar-thy-neighbor policy, that the U.S. is just trying to prevent others being enriched by our own stimulus. But there are real dangers to this. Justifiably or not, many people see the U.S. as the country that brought about this economic crisis; if we start trying to keep the stimulus effect to ourselves, we are going to be hit hard in terms of retaliation.
How well is the global economic system holding up under the current stress?
I’d say it is fraying at the margins, but holding together. There have been some antidumping actions, but these have been going on forever. There have also been some higher tariffs. But countries are allowed to raise tariffs without consultation or constraints as long as they do not raise them above permissible levels — what the World Trade Organization (WTO) calls “bound” levels. There are legal and illegal actions under trade rules, and there have been few illegal actions so far. U.S. assistance to the car industry, though, might be one of them.
How would you characterize the Obama administration’s performance so far on questions of trade and openness?
No Democratic candidate could win the election unless they made protectionist noises. You can’t be a Democratic candidate and say you are a free trader. So Obama had to throw some bone to the protectionists and he chose NAFTA as way to do it, saying he would try to reopen negotiations. But that didn’t mean anything substantive.
I predicted that he would just go down to Mexico with Canadian Prime Minister Harper; and with his host, President Calderon, over margaritas and enchiladas, talk about rewriting the treaty, and come back. That is what he basically did, except that he did it sequentially, and when neither President Calderon nor Prime Minister Harper appeared interested at their press conferences, that was that. So, on that front, he has been OK.
Where President Obama has shown real weakness is in not using his rhetoric much more powerfully against protectionism. Look at the G-20 communique — there was little on trade, nothing on immigration, nothing on investment. I’m still waiting for him to rise to the occasion, and to give a really powerful speech, like the one he gave on race, on how an open world economy has led to massive improvements in economic prosperity and in poverty reduction, and that immigration is part of our heritage as Americans.
In what industries does America have the brightest global future?
One lesson we’ve learned, given the history of central planning, is that it is better not to try to answer that question. The best approach is to create the conditions favorable to economic growth — adequate R&D, modern infrastructure, and good tax policies. There is a role for government to play, but that role does not involve selecting winners. Let the private sector work that out.
Are you worried about the continued decline of U.S. manufacturing?
It’s a natural progression, from agriculture to manufacturing and then to services. The deindustrialization worry is really a fetish.
How can the next financial crisis be prevented?
One main problem was that a whole lot of new financial instruments were invented; as we now know, these were little more than a form of casino gambling. But few people knew the odds. They didn’t understand the downside; in fact, they deluded themselves there was never going to be a downside. Unlike, say, the personal computer replacing the typewriter, these financial innovations could drag you down into disaster. The possible result was what I call destructive creation.
You have to understand before you can regulate. So you need someone able to assess the downside of the financial regulation that goes on. I think an independent board of eminent experts — maybe [Federal Reserve head Ben] Bernanke after he retires and others who understand Wall Street but are not part of it.
Talk a little bit about immigration.
Let me talk only about illegal immigration. There are two fundamental principles that we Americans cherish — respect for the laws and welcoming immigrants. This means we are going to be divided on illegal immigration; these immigrants have violated our laws but are still immigrants.
Even so, I think we need to stop the deportation and raids and so on. It’s an impossible situation. Many of these people are employed in occupations that you and I are not going to do; getting rid of them is not a solution. So we really want to deport people who leave wailing families behind? Besides, Americans are not going to move from New York to some chicken factory in the south. If we deport illegal immigrants who work the chicken assembly line at low wages for miserable work, this will raise the cost of production and hurt production and jobs in the plants.
We need to take a close look, and a fresh one, at this issue, and I don’t see the president doing that. I am concerned that we are drifting in the direction of protectionism against immigrants of all kinds, becoming a less-immigration friendly society.
