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The Free Trade Magic Act: In Dubious Study, First You See the Benefits of Globalization, Then You Don't

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Abstract:

In a recent paper, three economists -- Drusilla Brown, Alan Deardoff, and Robert Stern -- attempt to calculate the benefits of trade liberalization. They estimate that complete elimination of all trade barriers in the world would add $1.9 trillion (about 5%) to the world's gross economic product by 2005 (Brown, Deardoff, and Stern 2001). Brown-Deardoff-Stern's numbers look convincing, leaving the casual reader with the sense that free trade benefits are pretty much in the bank -- ready to be claimed if only we would adopt the correct trade policies. But a closer look reveals that the underlying assumptions are unreliable. In fact, if one compares the standard criticisms of free trade to the assumptions made by Brown-Deardoff-Stern when measuring its benefits, an odd symmetry appears: the problems identified by critics are identical to the factors discounted in the Brown-Deardoff-Stern model. In other words, Brown- Deardoff-Stern never rebut a single criticism of global liberalization; instead, they simply assume that each criticism is false or irrelevant to begin with. Thus, as a contribution to the debate on trade policy, the Brown-Deardoff-Stern estimate is useless.

In spite of this, supporters of the Bush Administration's fasttrack proposal (which would require Congress to vote trade agreements up or down without altering them) cite the Brown-Deardoff-Stern estimate to justify the rapid trade liberalization that fast track would promote. Brown-Deardoff-Stern's buoyant predictions for free trade are like the rabbit pulled out of a hat: the trick works only because the rabbit was put into the hat to begin with. What follows is a visit backstage to see how the trick is put together step by step.