Like many these past two weeks, I have been enjoying the 21st Winter Olympic Games in Vancouver, British Columbia. It is unfortunate the 83 nations competing this winter are not cooperating as well economically.
The director of the World Trade Organization announced this week that global trade contracted by about 12 percent in 2009 and that real-world gross domestic product declined by 2.2 percent. Director-General Pascal Lamy said, “The adverse impact of the recent financial crisis on the world economy in terms of output and employment is undeniable.”
Throughout the financial crisis, economists have been competing in an Olympic-size game over what kind of government policy is needed to respond to the problem.
The questions of what, if any, government actions were necessary to stave off the crisis has dominated both academic circles and the news. The most widely debated issue of late is whether or not the economic stimulus plan enacted by the United States last year has had any real impact on employment or growth.
Many economists agree the plan helped, at the very least keeping employment higher than it would be otherwise. But as all economists know, there is no such thing as a free lunch. The stimulus plan from last year and the jobs bill that passed the Senate this week could be very costly.
Writing in The Wall Street Journal, Harvard economist Robert Barro estimated the total cost in lost future economic output at $900 billion. Because the additional government spending under this bill increases the national debt, higher future taxes that slow growth are inevitable.
What economists can agree on, however, is that more global trade, not less, is necessary. Economic theory has long shown that everyone is better off when we trade.
International trade is not a sports contest where one side has to lose. Countries benefit from trading with one another because it allows them to specialize in products they can produce best.
Unfettered international trade is one of the most widely agreed upon policy initiatives in the economics profession. According to a 2007 survey of American Economic Association members, 83 percent agree that the United States should eliminate all remaining tariffs on imported goods and any other barriers to trade.
Idaho knows the benefits of trade. The Idaho Department of Commerce reported earlier this month that while international trade was lower for the year just as elsewhere, export sales by Idaho companies still grew more than 3 percent in the fourth quarter of 2009.
The destinations for many of our products include Taiwan, China, Singapore and South Korea. The top destination? Canada, home to the Games.
Hopefully, policymakers around the world will spend less time on very debatable spending plans and will enact what economists know will help the economy: lower trade barriers. If they do, every nation will win a gold medal.
Peter R. Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa. He earned his doctorate in international and financial economics from the University of Oregon.