William Polley on free trade among the 50 states
I’ve been hung up (unfortunately not hung over) for the last few days, and I’ve pent up a list of short comments I can’t wait to get of my chest. Here’s the first one…
William Polley understands that what happens between the 50 United States deviates significantly from an economists ideal of free trade, and that economists who wish to argue for international free trade by virtue of an American success story need to deal with this fact. Polley writes:
…Here in the U.S., the framers of the constitution were smart enough to establish the fledgling country as a customs union and monetary union. This was in order to form a more perfect political union that that Articles of Confederation was unable to deliver.
Unfortunately, this does not stop the states and localities from pursuing other policies (wooing multinational factories, establishing tax-increment financing districts, etc.) that do with a series of knife cuts a bit of what a tariff would do with a hatchet blow.
…Tennessee would not do itself any favors by unilaterally abstaining from offering incentives to companies to locate there. But reducing state level competition of that sort would benefit everyone.
I’m not sure I agree with that last point. States and localities may well gain from the deals they make to encourage development. Overall gains attributed by economists to “undistorted” free trade still involve winners and losers, and it is perfectly rational for localities likely to lose (and unlikely, in the usual dodge, to be “compensated by winners”) to try to change the game. Taking Don Boudreaux‘s original point to heart, I do think the sausage factory of trade among the 50 US states has worked reasonably well. So rather than arguing from a model that the system of subsidy-by-locality should be dismantled, I’m inclined to keep an open mind about whether politicians responsible for quality of place might not know something missed by economists, whose models often lack recognizable notions of place entirely.