Watching the Economists – Magnetism and Experts

Yesterday I read that Paul Krugman has a lot more time for opponents of free trade than he used to:

It’s no longer safe to assert, as we could a dozen
years ago, that the effects of trade on income distribution in wealthy
countries are fairly minor. There’s now a good case that they are quite
big, and getting bigger.

This doesn’t mean that I’m endorsing
protectionism. It does mean that free-traders need better answers to
the anxieties of those who are likely to end up on the losing side from
globalisation.

This from the man who wrote some of the most persuasive pro-free-trade essays of the 1990s. He describes the change as a change in the world (specifically, China being bigger than Korea) rather than a change in his position, but it made me wonder what’s going on…

Now today I see some responses from other professional economists:

Brad DeLong finds himself skeptical of Krugman’s argument.

Dani Rodrik is moderately pro-Krugman.

Tyler Cowen thinks DeLong is on the right track.

Will Wilkinson of the Cato Institute disagrees with Krugman.

Now all these folks are experts, while I wouldn’t know a Heckscher-Ohlin model if it jumped up and hit me in the nose, but I can’t help notice that they pretty much all adopt the side you’d expect them to. Krugman has been switching away from the kind of pro-free-trade view he used to endorse steadily. Cowen and Wilkinson are pro-free-trade, libertarian enthusiasts. Rodrik is a long-time sceptic (or skeptic, depending on where you come from). DeLong could have gone either way, because he leans leftwards politically but is very committed to standard economics as a way of looking at the world – the economist has won out this time.

Can we believe that these experts have taken a dispassionate look at the situation and have coincidentally come to conclusions that line up  with their politics? It’s just not plausible.Are they just using their economic expertise as a cover for their prejudices? I’ve read enough of most of them (Wilkinson aside) that I don’t think so. So how come their politics and expertise line up so nicely?

Opinions – even expert opinions – are like magnetism, in that they exhibit hysteresis. Here’s a graph:

The X axis is the applied field, and the Y axis is magnetization. Take an unmagnetized needle and apply a magnetic field to it, and sooner or later the needle becomes magnetized (goes up the right-hand curve to the high point on the top right). But take away that field and the needle does not revert to its nonmagnetic state. It stays trapped, with all its dipoles lined up, along the top line. You have to apply a significant field in the other direction to get it to demagnetize (go down to the bottom line at the lower left). The magnetization over-shoots. It switches between two relatively stable states, and the state its in depends on its history.

A lot of things behave like this, and opinions are one of them. We all have pre-formed opinions – imagine the bottom of the graph is "free trade is good". If we accumulate evidence that leads us to change our mind we move to the top "free trade is not so good" line. Now suppose we hear some more evidence that pushes us the other way – do we switch back right away? No, we hang on to our existing beliefs until the weight of evidence becomes unavoidable.  Switching basic views is a big thing, and we can’t be forever changing back and forth.

In the middle of the graph, a free trader and a non-free-trader can both look at new evidence without changing their mind. Neither is being dishonest (well, they might be, but they don’t need to be) but both look at the evidence and says "is this enough to make me change my mind?" and conclude "No."

Krugman’s writing for the New York Times over the last several years have shown, in addition to a consistent and admirable articulation of the million ways the Bush administration has screwed people around, an increasing scepticism that the free market will solve our problems. He’s made the switch from one level to another, and his view is coloured by where he sits now ( public intellectual) just as it used to be coloured by his position in the professional economist culture.

I’ve thought of this graph a lot in the last few years. It applies to trust, our opinion of others (who do you give a break to, and who don’t you) our political views, and so on.  I think it explains why experts disagree – and why those of us watching experts debate from the sidelines won’t often change our minds either.