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Author Discusses Adam Smith and Globalization

February 21, 2007 at 1:50 PM EST
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PAUL SOLMAN, NewsHour Economics Correspondent: Adam Smith, the first name in economics. Here’s how he famously put its key premise in his book, “The Wealth of Nations,” published the same year as the declaration of independence, and this piece by Mozart.

“Give me that which I want and you shall have this which you want. It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner but from their regard to their own interest.”

“Self-interest leads to honing your skills, the better to trade with,” says P.J. O’Rourke, author of a new book about Smith’s oft-quoted, but let’s face it, rarely read tome, O’Rourke’s called, fittingly enough, “On the Wealth of Nations.”

At his home in New Hampshire recently, we talked to O’Rourke. So ardent a Smith fan, he wore a tie with the author’s profile.

P.J. O’Rourke, welcome.

P.J. O’ROURKE, Author: Thank you.

PAUL SOLMAN: The classic case for free trade made by Adam Smith, as articulated by you, what is it?

P.J. O’ROURKE: It’s merely size of market. Adam Smith pointed out that there were three things that make us more prosperous, in a general sort of way: freedom to pursue our own self-interest; specialization, which he called division of labor; and freedom of trade.

PAUL SOLMAN: And so globalization is nothing more than the free market across national boundaries?

P.J. O’ROURKE: Exactly. Globalization is simply opening the free marketplace to encompass the entire world.

The current globalization debate

PAUL SOLMAN: Well, what, though, would Adam Smith make of the current globalization debate?

P.J. O'ROURKE: Well, there are two things that he would immediately say about current globalization debate, is that some of it is morally reasonable and some of it is practically ridiculous.

The practically ridiculous part would be about balancing trade. Any trade that is voluntarily made is mutually beneficial, by definition, and, indeed, is balanced, by definition.

It doesn't matter how many televisions and computers and pieces of stereo equipment the Chinese send to us, even if they're sending them to us only in return for some funny, little, green pieces of paper. That is a balanced trade. They got what they wanted: the green pieces of paper. We got what we wanted: the plush toys, the computers, the stereo components.

PAUL SOLMAN: But wait a second. But we're running a trade deficit.

P.J. O'ROURKE: No, there is no such thing. There's no such thing as a trade deficit. We've merely traded our currency, which is a sort of government IOU, for their goods.

I've never been able to get it straight about what these people who are worried about the trade deficit are worried about. When they say that we're buying too much from overseas, that we're sending too many dollars overseas to get all these goods and services they got, they're saying that the American dollar is too strong and that is hurting our economy. And the result of this will be that the American dollar will get too weak, and that will hurt our economy.

Well, make up your mind! What are you worried about? Are you worried that the dollar is too strong? Or are you worried that the dollar is too weak?

Because if the dollar weakens, then presumably all the things that we make in the United States -- Buicks, for instance -- can be sold cheap all over the world, and everyone will be buying our goods, and we'll get all sorts of yen-denominated, or yuan-denominated, or euro-denominated securities, and then everybody else will be worried. Leave it alone.

Globalization's effect in the U.S.

PAUL SOLMAN: People who are worried about globalization are not, primarily, even I don't think, worried about the trade deficit.

P.J. O'ROURKE: No, I don't think they are, either, no.

PAUL SOLMAN: They're worried about the loss of American jobs.

P.J. O'ROURKE: Nothing about economic growth in the United States over the course of the past 40, 50 years, during which time this has been continually happening, would indicate that we are being harmed in an overall sense by this.

Certain individuals, say a car worker in Detroit, may have been harmed. A coal miner in West Virginia may have been harmed. But, overall, there's nothing to indicate that we are being harmed.

I come from Toledo, Ohio, a town that has been hurt badly by the shift of the automobile business towards Japan. And yet I remember how the car workers lived in the neighborhood that I grew up in. My father was a car salesman, and I remember how we lived. I remember how modestly we lived.

I remember how people's bath -- had one bathroom in their house. They had one phone in their house. They had one car. Some of them didn't have a car at all. They carried their lunches to work. They didn't go out to eat.

If they went on a vacation, it was to some crummy, rented cottage at a crummy, rented lake, you know, in a crummy part of Michigan, you know, for a week. It was a very modest life, much more modest life than we lead today.

PAUL SOLMAN: But it's not the last 40 or 50 years that people who worry about globalization are referring to. It's the last 20 years, say. It's Toledo today versus Toledo in '85, I guess. It's the stagnation that has occurred as globalization has speeded up.

P.J. O'ROURKE: I don't see evidence of America being a poorer country than it was 20 years ago. I've seen impoverished devastation. I've seen places where things had been good and now they were very bad. I covered the Lebanese civil war, for instance. I could see a place that had once been prosperous and now was impoverished. I'm not seeing that in America.

Moral side of globalization

PAUL SOLMAN: But what's wrong with trying to protect the people who do get hurt? If, for example, you have rules that, say, that there be child labor laws or pollution standards that somehow approximate, not the same as, but somehow approximate the ones we have here.

P.J. O'ROURKE: As long as we are on firm moral ground, as long as we're caring about other people, these are legitimate worries. The minute that we start protecting our own interests in the name of these worries and saying, "Oh, we have to make sure that only Ford Motor Company manufactures cars, because we can't be sure that the cars in other countries are being made quite up to our point of view," we're economically off base, and, of course, we're moral hypocrites, too.

PAUL SOLMAN: O'Rourke is getting at another side to Adam Smith: the moral side, articulated at length in Smith's first book, "The Theory of Moral Sentiments."

Its basic idea is that we're all endowed with the natural "sentiment" of sympathy, which allows us to feel, and therefore to mitigate, the suffering of our fellow humans.

So you mean that the opposition to globalization is something that Adam Smith, for example, would have had a lot of sympathy with, using that term specifically?

P.J. O'ROURKE: Absolutely. Something that comes to us, some gym shoe that comes to us as a result of child labor from a brutal dictatorship, where people do not have basic freedoms, it wouldn't bug me to tax the living Dickens out of that thing or even to forbid its importation whatsoever. But that's a moral question, not an economic question.

PAUL SOLMAN: Where the moral and economic come together, though, is in a line of thought that also influenced Smith, what came to be called "utilitarianism."

Did Adam Smith not think that, at the end of the day, if you're going to have more wealth, then some people are going to get hurt in the process, but, hey, kind of greatest good for the greatest number. I mean, he's in that, the beginning of that era of thinking, no?

P.J. O'ROURKE: It is important to remember when reading Smith or even when just thinking about Smith that the era that he lived in, we're not talking about poverty in a day when it meant not enough bedrooms for the kids, an old car, a black and white television.

We're talking about a whole world where poverty meant not enough to eat. And Adam Smith was intensely interested in raising the baseline of economic production.

Government regulation

PAUL SOLMAN: But if we're doing real well in the world today compared to the 18th century, and people will get hurt due to dislocations from more globalization, why shouldn't we slow globalization down? Who cares?

P.J. O'ROURKE: Adam Smith would be worried about the, well, more than half of the world that isn't doing very well. He'd be very discouraged about what's going on in Africa, and in certain parts of the Middle East, and certain parts of the old Soviet Union, for that matter. And the economic stagnation of Latin America would, I think, you know, worry him, also.

PAUL SOLMAN: What are you worried about, with respect to how we might over-mitigate or wrongly mitigate the bad effects of globalization?

P.J. O'ROURKE: One of the things that makes me a conservative, or a libertarian, or whatever the heck it is that I am -- a person who doesn't much like big government -- is that I do not like the concentration of the power.

Adam Smith pointed out simply this about government. He said that, whenever government proposes to get involved in the regulation of trade, just be very, very careful about who's behind this proposal, what their motives are.

It was Ronald Reagan who used to say that the 10 most frightening words in the English language are, "I'm from the federal government, and I'm here to help."

PAUL SOLMAN: P.J. O'Rourke, thanks very much.

P.J. O'ROURKE: You're very welcome.