A Place for Politics by Jeffry Frieden
Source details
- Canonical URL
- A Place for Politics by Jeffry Frieden
Other formats
Bibliographic details
- Authors: Jeffry Frieden
- Published: February 27, 2024
Main thesis
- Politics is the mechanism by which societies place value on goods and harms that economics cannot measure precisely.
- Even economically optimal policies (for aggregate social welfare) create winners and losers, and politics determines how those trade-offs are weighed in practice.
- Date: March 2024.
- Read time: Less than a minute(0 words) Read.
Distributional effects and compensation
- Free trade is identified as a policy that typically raises aggregate social welfare but generates losers (for example, firms and industries that cannot compete with imports).
- Economic solution in theory:
- Compensate those harmed using gains from those advantaged (for example, tax exporters and consumers to help displaced autoworkers).
- If compensation is implemented, society remains better-off overall while being more equitable.
- Practical obstacles to compensation:
- Political resistance: beneficiaries are rarely enthusiastic about having gains taxed away.
- Timing and intergenerational issues: appropriate compensation may require one generation to compensate another; borrowing to shift costs to the future risks unsustainable debt burdens.
- Uncertainty about who will be helped or harmed: complex economies create prediction uncertainty, making legislators wary.
- Lack of credibility: promises to compensate may not be kept by future governments; newly elected officials often reverse predecessors’ commitments.
Nonpecuniary costs and community impacts
- Economic measures understate noneconomic harms that are hard to price:
- Deindustrialization example: US Northeast and Midwest manufacturing decline left rusting steel mills and scarred communities despite aggregate gains from new industries.
- Distressed regions may suffer declines in incomes, property values, tax revenue, local services, and social fabric.
- Associated social outcomes include an epidemic of “deaths of despair” by alcoholism, drug abuse, and suicide (Case and Deaton 2020).
- Coal-region case:
- Coal industry decline (for environmental reasons, technological change, and climate policies) devastated many communities; many coal counties were isolated and undiversified.
- One World Bank study found that of 222 Appalachian coal counties, only four had managed to remain “economically viable” (Lobao and others 2021).
- Migration and social ties:
- Moving unemployed workers to job-rich areas is often difficult due to falling home values and nonpecuniary attachments (family, traditions, community).
- Individual migration decisions depend on others’ decisions: “Why stay if everyone is leaving? Why leave if everyone is staying?”
Politics as a measure of hard-to-price values
- Political processes reveal how societies weigh consumer benefits (cheaper goods) against community costs (loss of livelihoods, cohesion, culture).
- Empirical pattern: elected officials are more likely to protect industries with low-wage workers than industries dominated by high-wage workers, reflecting political sympathy for displaced low-wage workers.
- Political choices reflect intensity of preference: intensely held local attachments can outweigh diffuse consumer gains in political balancing.
- Politics thus functions as the arena where values that are difficult to monetize—community, culture, family—are balanced against economic gains.
Implications for policy
- Recognize that economic optimality alone is insufficient for politically sustainable policy; policies must gain acceptance among important social and political actors.
- Design compensation or adjustment mechanisms with attention to:
- Political feasibility and credibility across election cycles.
- Timing and intergenerational fairness without creating unsustainable public debt.
- Nonpecuniary losses to communities (social fabric, cultural ties) that may not be addressable by monetary compensation alone.
- Accept that democratic politics will produce contested, imperfect trade-offs but provides information about how society values priceless or hard-to-measure goods.
Source: F&D Magazine article “A Place for Politics” by JEFFRY FRIEDEN, March 2024. References cited in the article include Blonz, Tran, and Troland 2023 (NBER Working Paper 31072); Broz, Frieden, and Weymouth 2021 (International Organization 75 (2): 464–94); Case and Deaton 2020; Lobao and others 2021.
Content in this bundle
- Rethinking Economics: A PLACE FOR POLITICS