Look before you leap: Why politicians may have a point to be hesitant about the gains from trade

this was a good point to be made. Speaking as an economist, I am always in favour of trade liberalisation. Same with being a banker. Anything that facilitates trade is something that I love because that helps my clients. But politicians are different and I quote the highlights from this paper.

• economists focus on overall welfare, politicians on the income distribution.

• market liberalization increases welfare and changes the income distribution.

• politicians implement distortionary policies to mitigate the distributional effects.

• with inaccurate information, ambiguous net welfare effects may result.

• politicians may have a point when being hesitant about market liberalization.

the abstract:

Economists emphasize the welfare gains of unrestricted trade, but politicians worry about the income distribution effects of increased competition. We show that the welfare gains of a trade shock become ambiguous if inaccurate information hinders optimal income redistribution with distortionary policy instruments. To be sure about the net welfare outcome of a compensated trade shock, the government must know the size of the trade shock and the corresponding size of the policy instrument that is needed to generate a balanced budget. If this is not the case, politicians may have a point when being hesitant about the gains from trade.

So when making arguments about free trade and trade liberalisation, one has to ensure that economists are speaking the same language..I believe that one of the reasons why the WTO deals are so difficult to achieve (besides needing the approval of all the 190 odd countries) is that the WTO is mainly run by economists while the decision makers are mainly politicians who will need to ratify the deal back home. And they are talking different language.