## A Place for Politics by Jeffry Frieden

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**Canonical URL:** [A Place for Politics by Jeffry Frieden](https://www.imf.org/en/publications/fandd/issues/2024/03/a-place-for-politics-jeffry-frieden)

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## Bibliographic details
- Authors: Jeffry Frieden
- Published: February 27, 2024

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### 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.*

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## Content in this bundle

- **Rethinking Economics: A PLACE FOR POLITICS**
  - [Rethinking Economics: A PLACE FOR POLITICS (Markdown version)](/-/media/files/publications/fandd/article/2024/03/frieden.pdf.md){rel="alternate" type="text/markdown"}
  - [Rethinking Economics: A PLACE FOR POLITICS (PDF)](/-/media/files/publications/fandd/article/2024/03/frieden.pdf){rel="external" type="application/pdf"}

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_Source: https://www.imf.org/en/publications/fandd/issues/2024/03/a-place-for-politics-jeffry-frieden_