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Speaker 1: Hello and welcome to another edition of the Ad Thoughts Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe wisntal So, Joe, I'm
Speaker 1: trying to think have we ever had a Nobel Prize
Speaker 1: winner on the show? Can you remember? I don't think so.
Speaker 1: I don't think we have. Yeah, I don't think we
Speaker 1: have either um and not to get your hopes up,
Speaker 1: we don't have one UM for this episode either. Shoot. Yeah,
Speaker 1: very disappointing. We do have someone who has a really
Speaker 1: good shot at eventually, UM getting one. We actually have
Speaker 1: the recent winner of the latest John Bates Clark Metal.
Speaker 1: It's a medal that's given by the American Economics Association
Speaker 1: to economists under forty who make big contributions to the
Speaker 1: field of economics. Isn't it also true that among economists
Speaker 1: the John Bates Clark Medal is actually considered to be
Speaker 1: more impressive and prestigious than the Nobel Prize. You're probably right,
Speaker 1: I mean, statistically, I think the recipients go on to
Speaker 1: win a Nobel and of course the John Bates one
Speaker 1: is confined to young economists, so that's pretty impressive. Another thing, uh,
Speaker 1: that sort of will make today's episode distinct is it's
Speaker 1: kind of timely. So I kind of like the fact
Speaker 1: that on our podcast we usually talk about things that
Speaker 1: aren't really in the news. We sort of give people
Speaker 1: a rest bite from the top stories of the day
Speaker 1: and just let them explore something completely out there. But
Speaker 1: this one might actually be a little bit on the news. Yeah,
Speaker 1: So we are definitely huge fans of financial and markets
Speaker 1: and economic history. And the guy that won this medal,
Speaker 1: I should just go ahead and say his name. It's
Speaker 1: David Donaldson. He's an associate professor of economics at Stanford.
Speaker 1: But Professor Donaldson is basically famous for being a sort
Speaker 1: of trade economic historian. And he's famous for one paper
Speaker 1: in particular. It's called Railroads of the Raj and it
Speaker 1: basically went back and looked at the railway network that
Speaker 1: was built up by the British in the late eighteen
Speaker 1: hundreds early nineteen hundreds in India and he used that
Speaker 1: to check what impact building that infrastructure has on trade
Speaker 1: and general incomes in India. So I mean imagine putting
Speaker 1: that paper together, right, It definitely sounds like it would
Speaker 1: be quite a task. All right, well should we just
Speaker 1: go ahead and ask him. Let's let's bring him in. David,
Speaker 1: thank you so much for joining us today. Hey guys,
Speaker 1: thanks for having me. You know, we just mentioned probably
Speaker 1: your most famous paper on railroads of the raj and
Speaker 1: that was a paper you started, I think when you
Speaker 1: were a grad student. Um, but you worked on it
Speaker 1: for years and years and years, and if I'm right,
Speaker 1: it's it's still actually hasn't been published. It's still forthcoming, right. Yeah,
Speaker 1: I've been I've been very slow in many ways. So um,
Speaker 1: but yeah, it's something that you know, has occupied my
Speaker 1: interest for a long time. It struck me as a
Speaker 1: you know, among other episodes in world history, one of
Speaker 1: one of the great episodes that integrated economy has made
Speaker 1: it easier for one market to trade with another market,
Speaker 1: and that trade, that integration happens obviously internationally, things like
Speaker 1: the Panama Canal or the sewer Is Canal, the invention
Speaker 1: of the steamship did that across oceans, and then you know,
Speaker 1: the railroads sort of did that within countries like India
Speaker 1: and of course famously also the United States. So before
Speaker 1: we even get to what you did to work on
Speaker 1: this paper and or even the conclusions, What originally sparked
Speaker 1: your interest in this particular event from history. Well, actually
Speaker 1: I was. I was a grad student, and I knew
Speaker 1: I was interested in trade, but and I knew I
Speaker 1: was particularly interested in intra national trade, that is, kind
Speaker 1: of trade across regions of the same country, which has
Speaker 1: typically always been hard to study, just for for lack
Speaker 1: of data. Basically, when when goods cross international borders, customs
Speaker 1: agencies have always tax that you know, not always, but
Speaker 1: the most part most countries throughout history of taxed international trade,
Speaker 1: and so they've kept a record of the flow of
Speaker 1: international trades, whereas typically when goods moved within countries they
Speaker 1: don't get either tax or or recorded, and we don't
Speaker 1: know much about it. But I was always interested in India,
Speaker 1: and I got got wind to the fact that at
Speaker 1: the time when I was doing my doctoral work, and
Speaker 1: in fact almost still to this to this day, India
Speaker 1: had had sort of domestic tariffs, tariffs on a movement
Speaker 1: of goods across state boundaries within India, and I wanted
Speaker 1: to know more about that. I wanted to kind of
Speaker 1: scope it out. So I went to India for for
Speaker 1: a couple of weeks one summer and in order to
Speaker 1: meet with people in government, people in academia, and librarians
Speaker 1: in in order to try to sort of find out
Speaker 1: the facts. And actually it was it was in that
Speaker 1: process that I met Hovant. You know, just heard this
Speaker 1: kind of endless refrain. Well, you know, the thing that
Speaker 1: really brought India together is was the railroads opposite of
Speaker 1: about a hundred years ago? And that, I guess pique
Speaker 1: my interest. I assume there would be no data, you
Speaker 1: know that that obviously the further you go back in time,
Speaker 1: that's typically the the less data that survives. And so
Speaker 1: I thought, well, I guess I could at least sort
Speaker 1: of explore what exists in the in the libraries on
Speaker 1: that historical year. And I was just shocked to learn
Speaker 1: what was actually available, you know, um, what they've recorded
Speaker 1: back down back then, what they published, and what still survived.
Speaker 1: So one thing about the British railway system is it's
Speaker 1: famous for being absolutely massive in India, I mean hundreds
Speaker 1: of thousands of miles worth of railway. How how did
Speaker 1: you go about collecting that data and then isolating certain
Speaker 1: effects away from other effects because I imagine, like, if
Speaker 1: you look at the fact that one railway line has
Speaker 1: been built between one county and another town or whatever,
Speaker 1: that's going to have an impact on all sorts of things. Right,
Speaker 1: It's almost like a tree diagram, Like the impact just
Speaker 1: keeps spreading and spreading. So how do you I have
Speaker 1: so many questions, how do you go about kind of
Speaker 1: limiting that impact? There's no easy, easy way to do that,
Speaker 1: and I don't claim to have um necessarily nailed it
Speaker 1: by any means. You know, the the ideal way you
Speaker 1: know that any scientist learns about the world around us
Speaker 1: is by something like an experiment, right, either a formal
Speaker 1: lab experiment or in less controlled settings where you can't
Speaker 1: you know, a lab experiments just advantageous because you know
Speaker 1: that you can control everything except the one treatment that
Speaker 1: you're trying to sort of study the effect of. But
Speaker 1: sometimes you can sort of make sure that the treatment
Speaker 1: is randomly assigned. That way, you know that on average
Speaker 1: across the sort of subjects, if you like in in
Speaker 1: the experiment, those differences will cancel out on average. And
Speaker 1: so social scientists like me are always you know, looking
Speaker 1: for things that that hopefully. You know, we we think
Speaker 1: there's a case to be made for your features of
Speaker 1: the way that the sub program was allocated to the
Speaker 1: world having some quasi sort of random element to them.
Speaker 1: And of course we never know if that's actually the case,
Speaker 1: except in rare, rare instances where social scientists him herself
Speaker 1: or the policymaker actually explicitly decided to randomize. But that's
Speaker 1: of course extremely rare. Much more likely is the case
Speaker 1: like the Indian railroads, where they had a complicated decision
Speaker 1: process about where and when to um to roll out
Speaker 1: the network. And and I should say, all that is
Speaker 1: um it doesn't even really address the heart of your question,
Speaker 1: which is that there will be spillovers. You know. That
Speaker 1: is to say, in a classic lab experiment, you have
Speaker 1: a treatment group that randomly is chosen to get the
Speaker 1: drug or something in the control group is randomly chosen
Speaker 1: not to. But there's a serious problem if you think
Speaker 1: that it's possible that your control group is affected. Sort
Speaker 1: Of one way to think about it is they're the
Speaker 1: very fact that they were the control group means they're affected.
Speaker 1: The other way to think about it as closer to
Speaker 1: what you said, which is that some of the treatment
Speaker 1: spills over onto them. They're sort of partially effected. Even
Speaker 1: they weren't directly affected, they were partially affected. Okay, so
Speaker 1: that's the big backdrop against which we tend to think
Speaker 1: about these things. UM and you know you need you
Speaker 1: need help from the re I think it's fair to
Speaker 1: say that we don't. There's no you know, I I did.
Speaker 1: In principle, you could design an experiment that which is
Speaker 1: kind of completely ideally nail everything. But in the in
Speaker 1: the real world, we don't have enough statistical power to
Speaker 1: to follow all those spillover effects in their kind of
Speaker 1: manifold directions. As you said, this kind of four king
Speaker 1: tree just makes it. It's sort of that basically impossible
Speaker 1: with the kind of data, the kind of world we
Speaker 1: live in. UM, so you need so economists you know
Speaker 1: like me sort of turned to um hopefully fairly uncontroversial
Speaker 1: notions in economic theory to to help structure those you know, what,
Speaker 1: we where we expect to find those spillovers and sort
Speaker 1: of where therefore to sort of shine the light and
Speaker 1: and try to see them. H And another way were
Speaker 1: to say it would be we can sort of structure
Speaker 1: things so that we know the kinds of places that
Speaker 1: are likely to have had a full treatment. Other places
Speaker 1: maybe that we we think they whatever the treatment was,
Speaker 1: we know that some other place had three quarters of that,
Speaker 1: or half of that, or a quarter of that, or
Speaker 1: maybe finally just a place that we're pretty confident would
Speaker 1: have been almost an affected by the event. So we're
Speaker 1: always trying to do that sort of thing. And I
Speaker 1: guess that's a high level overview of how I thought
Speaker 1: about the problem. I want to ask you to talk
Speaker 1: a little bit more about the process, Like how many
Speaker 1: times did you have to travel to India, how many
Speaker 1: libraries did you have to visit? What was it like
Speaker 1: digging up the archives of all this data that you
Speaker 1: discovered about the uh you know what specific data you
Speaker 1: ended up looking at, and then also you know what
Speaker 1: did you discover about the ramifications of the railway build up? Yeah,
Speaker 1: I mean the process was certainly unlike anything I imagine
Speaker 1: I would end up doing doing my PhD. Um the
Speaker 1: first thing that you just have to find out what
Speaker 1: data exists, So that's UM kind of a scoping project.
Speaker 1: I this never would have been possible. I lived in
Speaker 1: London at the time I was doing my PhD. At
Speaker 1: the London School of Economics. And none of this would
Speaker 1: have been possible if it weren't for the fact that
Speaker 1: the main libraries in London actually had as good a
Speaker 1: collection of kind of official government British Indian publications as
Speaker 1: did any library in India, almost better maybe because things
Speaker 1: have been preserved better. Yeah, so I that, I mean,
Speaker 1: that made it all sort of possible given where I
Speaker 1: was based, and also made it possible because just getting
Speaker 1: the sort of numbers out of the books was of
Speaker 1: course just a huge, huge project because obviously I think,
Speaker 1: I it's complete back at the envelope calculation. But I
Speaker 1: once convinced myself there was somewhere between fifty and a
Speaker 1: hundred man you know, but a person years worth of
Speaker 1: the work involved in typing in the numbers. So I
Speaker 1: was never going to do it myself. And so that
Speaker 1: but that process, you know, very Fortunately, just around the
Speaker 1: time I was doing this, in the mid two thousands,
Speaker 1: late two thousands, was just when people started talking about
Speaker 1: business process outsourcing, you know, the ability to hire, um,
Speaker 1: somebody to do a fairly low skilled task like typing
Speaker 1: in numbers on a computer terminal far away. If you know,
Speaker 1: if only you can find them, you know, And of
Speaker 1: course that wasn't hard by that period of time. And
Speaker 1: pay them that was also relatively easy once I could
Speaker 1: raise the money and then finally just get the get
Speaker 1: the raw materials to them. And I could never send
Speaker 1: these books obviously they're they're way too big and and
Speaker 1: and they're obviously they're held in libraries. But but I
Speaker 1: was able to organize a team of people to take
Speaker 1: kind of digital photographs of every page. It kind of
Speaker 1: like scanning, but way faster. You know, scanning is super slow. Um.
Speaker 1: But luckily digital cameras just became good enough around that
Speaker 1: time where archived based historians like me were able to um,
Speaker 1: kind of skip the scanner, skip the photocopy, and just
Speaker 1: go straight to a good digital camera. Anyway, So I
Speaker 1: sent you a fifty thousand JPEGs or something. Took almost
Speaker 1: half a year just to organize the jpeg send them
Speaker 1: to a number of firms in in India actually, and uh,
Speaker 1: and they sent back spreadsheets full of you know, the
Speaker 1: numbers typed in. Um. You know, the the original publications
Speaker 1: were kind of too low quality to trust optical digital
Speaker 1: character recognition. And uh, at least at that period of
Speaker 1: that technology. Yeah, so I guess you know that that's
Speaker 1: the basic idea of how I and many people like
Speaker 1: me kind of would convert the sort of archival paper
Speaker 1: records into digital machine readable versions. And then right, so
Speaker 1: I guess you know. There are a number of things
Speaker 1: I looked at. I looked at trade actual volumes of
Speaker 1: trade flows. I looked at prices, that is, um, whether
Speaker 1: there was evidence that um, you know, it gets a
Speaker 1: basic prediction that is, when two markets get connected by
Speaker 1: via some technology that makes it easier to move something
Speaker 1: between the markets, then the price of that thing should
Speaker 1: look more similar. That's often just the basic notion of arbitrage.
Speaker 1: If the price were different, then yet it didn't cost
Speaker 1: much to move it. You can always just sort of
Speaker 1: buy in the cheap place and then sell the good
Speaker 1: at the high at the high price place. So we
Speaker 1: kind of think that if if arbitrage is likely to
Speaker 1: be like that likely to happen, and it certainly did
Speaker 1: in this environment of British India, then we would expect
Speaker 1: that the railroads should narrow the difference in prices of
Speaker 1: exactly the same good over over to say two points
Speaker 1: in space. And there's a the data was consistent with
Speaker 1: that obviously as well that as railroads connected places, their
Speaker 1: prices started to converge. And then finally I looked at
Speaker 1: um the kind of consequences for income. As you put it,
Speaker 1: there's such a stresses sort of aggregate income, think of
Speaker 1: kind of like a county or a district as they
Speaker 1: were called in British India. We're looking at the just
Speaker 1: this is is not individual people. I wasn't able to
Speaker 1: look at inequality or anything important like that, but on aggregate,
Speaker 1: the sort of the closest notion we could get to,
Speaker 1: sort of g d P of of a county kind
Speaker 1: of went up and on average went up. And you're right,
Speaker 1: because the spillovers and and the fact that everybody's experience
Speaker 1: was different. These averages can be of course a little misleading,
Speaker 1: but but they represent the average, and the average was
Speaker 1: an increase of about eighteen percent in g d P. Huh.
Speaker 1: We are going to pause for a short break, but
Speaker 1: knowledge to work and grow your business with c i T.
Speaker 1: From transportation to healthcare to manufacturing. C i T offers
Speaker 1: commercial lending, leasing, and treasury management services for small and
Speaker 1: middle market businesses. Learn more at c i T dot com.
Speaker 1: Put knowledge to work, David. I know the Railroads of
Speaker 1: the RAJ paper is probably your most famous work, but
Speaker 1: a lot of people were pointing out when you won
Speaker 1: the John Bates Metal that it was fantastic that you
Speaker 1: had won it. All the two hundredth anniversary or birthday
Speaker 1: of the notion of comparative advantage, which is of course
Speaker 1: a big, big deal in economics, and it's basically the
Speaker 1: idea that people can specialize in one type of industry
Speaker 1: or production, and then they can trade with other people
Speaker 1: who are also specialized and everyone can eventually benefit. Walk
Speaker 1: us through your work when it comes to comparative advantage.
Speaker 1: What have you been looking at and what have you found? All?
Speaker 1: Everything I've done on comparative advantage. In fact, most of
Speaker 1: my work really since my doctoral thesis has been joined
Speaker 1: with a guy at m I T named are No
Speaker 1: Costano and and so we um we started thinking about
Speaker 1: comparative advantage and you're you're right. It was about two
Speaker 1: d years ago to this kind of day that David
Speaker 1: Ricardo really wrote down the first logical argument about why
Speaker 1: trade between two people or two regions or two countries
Speaker 1: would would you know, should benefit both of those people?
Speaker 1: In that trade, and and the essence of his argument
Speaker 1: was just a kind of simple example with two activities.
Speaker 1: They were cloth and wine, and his example that and
Speaker 1: two countries. These were England and Portugal, and the jet.
Speaker 1: The example completely generalizes to as many countries and products
Speaker 1: as you want. But but the two by two was
Speaker 1: the minimum ingredient to kind of see the point. So
Speaker 1: the one kind of catch that are know and I
Speaker 1: got interested in, and this this point was well known,
Speaker 1: but we kind of we were were a little bit
Speaker 1: taken aback when we discovered it for ourselves, was that, Um,
Speaker 1: once those two regions are actually trading, you know, I
Speaker 1: suppose you observe them today, suppose you were observed England,
Speaker 1: or even in David Kardo's time, you observe England and
Speaker 1: Portugal they're actually trading cloth and line with each other.
Speaker 1: Then you know, according to that very same model in
Speaker 1: which that that you're using to explain the trade and
Speaker 1: the understand the consequences of trade in that exact same model, um,
Speaker 1: actually it would have to be the case that one
Speaker 1: of one of the two activities is not being done
Speaker 1: in one of the two countries, at least as as
Speaker 1: you put it kind of there will be specialization and
Speaker 1: and and that means, you know, in the sense that
Speaker 1: there's something that somebody's not doing. So I guess it
Speaker 1: won't surprise you that we kind of predict you'd expect
Speaker 1: that England was not producing much or any wine, right, Um,
Speaker 1: they that was sort of the result of specialization, was
Speaker 1: that England was not producing wine. And the theory tells
Speaker 1: us that there's good reasons for that. It's that England
Speaker 1: is relatively worse at making wine than they aren't making
Speaker 1: cloth relative to Portugal. But the question is how bad
Speaker 1: are they making wine? And we kind of know they're bad,
Speaker 1: both from introspection and also from the theory. We know
Speaker 1: that they couldn't have been good, or else they would
Speaker 1: have been producing it. But how bad and so And
Speaker 1: of course that basic idea pervades all of economic life.
Speaker 1: I mean, I know I benefit from not doing my
Speaker 1: own dental work, But how bad would life be if
Speaker 1: I had to be my own dentist? You know, I
Speaker 1: I don't know, but I know it would be awful.
Speaker 1: And that kind of unknown number, it's not just unknown,
Speaker 1: it's kind of unknowable, right, I mean, Um, it's so
Speaker 1: that so basically everything I've been working on with comparative
Speaker 1: advantage with our no has this flavor of how could
Speaker 1: an economist ever hope to know that fourth number in
Speaker 1: Ricardo's example, That's the basic idea we got interested in
Speaker 1: where one could know that in general that sort of
Speaker 1: fourth number, or generally, just how good are regions at
Speaker 1: doing the things they don't do? And um, the first
Speaker 1: example that came to our mind was agriculture. We thought,
Speaker 1: that's a case where you know, um, nowadays, regions of
Speaker 1: let's say Iowa, most most farms grow either corn or
Speaker 1: soy or maybe wheat. You know, other regions of the
Speaker 1: US do different crops. And but so the question again
Speaker 1: comes up, well, how bad how bad would life be
Speaker 1: if we didn't sort of outsource all of our specialization,
Speaker 1: all of our output of corn and soy to to
Speaker 1: the corn and soy belt, right, I mean, what if
Speaker 1: we had to do it ourselves in New St New England,
Speaker 1: or in California or in the southeast. You know, we were,
Speaker 1: of course, you know, since discovered, but deep down weren't
Speaker 1: too surprised to learn that that there are, of course,
Speaker 1: entire scientific fields, typically under the name of agronomy where
Speaker 1: their goal is to, in a sense kind of just
Speaker 1: try to tell farmers, you know, how, given your soil,
Speaker 1: given your climate, given everything else about your local environment,
Speaker 1: how good would you be at growing any of the
Speaker 1: following kind of list of crops. You know, corn and soy,
Speaker 1: but also cotton, and and and and wheat and peanuts,
Speaker 1: you know, And and it's that advice that agronomous give
Speaker 1: to farmers that of course helps those farmers make the
Speaker 1: right decision about what to grow. But we so we
Speaker 1: sort of in a sense kind of downloaded that advice
Speaker 1: in a in a data file, you know, the advice
Speaker 1: from the agronomous, the actual numbers on you know, if
Speaker 1: this small parcel of land somewhere in the U s.
Speaker 1: Divide the US up into about a million small parcels
Speaker 1: of land, and the agronomos will tell you how good
Speaker 1: each parcel would be at a whole, at virtually any crop.
Speaker 1: And of course it doesn't mean the agronomous are necessarily right,
Speaker 1: but they but they have kind of hundreds of years
Speaker 1: of their own randomized trials in a sense, and and
Speaker 1: greenhouse trials, etcetera, and all physiological knowledge of how crops
Speaker 1: work too in order to build up those numbers. So anyway,
Speaker 1: so we were kind of designed to study around that
Speaker 1: information because we thought it was it was it was
Speaker 1: the core of the economic notion of comparative vantage was
Speaker 1: to know things like, you know, how how how hard
Speaker 1: would it be to grow peanuts in Iowa. So we
Speaker 1: then kind of use that information and filtered it through
Speaker 1: the last hundred year hundred and twenty years or so
Speaker 1: of US um agricultural history, you know, as the as
Speaker 1: the U. S. Counties. The one one, one plausible story
Speaker 1: that we think is consistem with the data is that
Speaker 1: over the last hundred thirty years or so, at least
Speaker 1: this study started in eight the ability for one county
Speaker 1: in the US to trade with another county in the U. S.
Speaker 1: Or with you know, consumers elsewhere in the US, like
Speaker 1: in a big city. Uh, that ability to trade you know,
Speaker 1: dramatically improved. We had the railroads, we had the interstates,
Speaker 1: we had you know, the the the invention of the truck,
Speaker 1: you know, major major improvements in the ability to trade.
Speaker 1: And so we wanted to kind of quantify how how
Speaker 1: beneficial that that process was for the U. S. Economy
Speaker 1: as the whole as a whole, and what the numbers
Speaker 1: of came out. We're we're startling to me at least,
Speaker 1: you know, the U s. Agriculture has been this incredible
Speaker 1: growth story, right, I mean, in a sense, the fastest
Speaker 1: product sustained productivity growth that that we've experienced in any
Speaker 1: sector has happened in agriculture over the last hundred years
Speaker 1: or so. And that's why we can feed the nation
Speaker 1: and beyond with I don't forget the exact number, but
Speaker 1: something under under three percent of the workforce. And so
Speaker 1: that dramatic growth and productivity is just amazing. But according
Speaker 1: to our estimates, about half of it comes from just
Speaker 1: pure allocative efficiency in the sense of kind of specialization,
Speaker 1: places being sort of free as markets are trading, places
Speaker 1: are free to specialize in what they're good at and
Speaker 1: not produce what they're bad at, and that that of
Speaker 1: course enhances aggregate productivity, and that those are the gains
Speaker 1: from trade, those are the gains due to comparative advantage
Speaker 1: at work. That's pretty startling. We just have a few
Speaker 1: minutes left, and of course we want to talk about
Speaker 1: some current applicability of your research, and obviously the place
Speaker 1: I think most people's minds would go is sort of,
Speaker 1: you know, some of the trade disputes that the US
Speaker 1: might soon find itself in. But something else occurred to
Speaker 1: me that is maybe a little more off the beaten path,
Speaker 1: but also interesting, which is that India, which you studied, obviously,
Speaker 1: is still dealing with a lot of the same things
Speaker 1: that you talked about in terms of the diversity of
Speaker 1: its regions and lack of a completely coherent domestic free
Speaker 1: trade area. I believe it was sometime last year that
Speaker 1: the Modi government tried to uh sort of move forward
Speaker 1: and pushing through a national sales tax so that there
Speaker 1: wouldn't be this sort of disparate tax regime across regions.
Speaker 1: There's also efforts to have the sort of national payment
Speaker 1: system to harmonize and unify payments. Do you see applicability
Speaker 1: of your work on India's rail system to some of
Speaker 1: the big domestic debates happening in Indian policy right now? Yeah?
Speaker 1: I do, I mean I of course, you know, it
Speaker 1: would be naive to suggest that sort of the It
Speaker 1: is easy to translate a lesson from one technology one
Speaker 1: point in the past, you know, because it's a very
Speaker 1: backward technology was this. These trains were slow and you know,
Speaker 1: they were the first trains of the world that's ever seen.
Speaker 1: So even just for studying trains, they're they're misleading. A
Speaker 1: piece of evidence the more versatile and long living I
Speaker 1: think piece of evidence is more to do with or
Speaker 1: a lesson that we learned from that that that kind
Speaker 1: of work is more just to do with the the
Speaker 1: overall sense of benefits from trading. You know, if if
Speaker 1: you if you do something that allows more trade, the
Speaker 1: odds are good that people are going to benefit on
Speaker 1: the whole, that the average kind of the total pie
Speaker 1: will grow. Um. And that's the kind of thing I've
Speaker 1: tried to I've tried to quantify and I think you know,
Speaker 1: so you know, the lesson from that that work I've done,
Speaker 1: as well as the huge body of work that I've
Speaker 1: read that other that other people have done that's built
Speaker 1: up our knowledge of that uh tends to leave a
Speaker 1: pretty an equivocal picture that on aggregate, those games can
Speaker 1: be um, you know, exist and or there in the data,
Speaker 1: and they're and they're important and they're worth um yeah,
Speaker 1: they're worth not standing kind of in the way of
Speaker 1: you know that, so when we when we make it
Speaker 1: hard for people within the same country to trade with
Speaker 1: each other, we stand in the way of those benefits. Uh,
Speaker 1: just way we make it hard for me to do
Speaker 1: We make it hard for me to hire a dentist
Speaker 1: rather than doing my own dental work. You know, we
Speaker 1: we stand in the way of gains from trade between
Speaker 1: me and the dentist. Thankfully, in the US, there's not
Speaker 1: much discussion of intrnational trade barriers, and in fact, everyone
Speaker 1: tends to agree that improving infrastructure, transportation infrastructure would be
Speaker 1: a good idea. You know, we we don't think it's
Speaker 1: you know, we we want to encourage more trade between
Speaker 1: Colorado and California, or Kansas or Connecticut, and we we
Speaker 1: we think we have a basic instinct that those are
Speaker 1: things are a good idea, and and that's consistent with
Speaker 1: the evidence that I've seen and that I've worked on myself.
Speaker 1: And I don't think it needs to be any different internationally.
Speaker 1: Just kind of turned into your first question about the
Speaker 1: Internet shield trade policy terrorists. There's no good reason to
Speaker 1: embrace international trade and yet stand in the way of
Speaker 1: international trade, in my book, unless one possible reason it
Speaker 1: would be extreme distributional concerns. You know, if you I've
Speaker 1: stressed obviously aggregate gains, I have not. You know, myself
Speaker 1: worked on the distributional consequence is how virtually any change
Speaker 1: in the economy is very likely to have people who
Speaker 1: are harmed by the change. You know, as Walmart displaced Kmart,
Speaker 1: and as Amazon displaces Walmart, people suffer, right, I mean,
Speaker 1: people who have jobs and capital tied up in the industry,
Speaker 1: the firm that's being pushed out by competition, they suffer,
Speaker 1: and and competition from foreigners is no different. So we
Speaker 1: need policies that help minimize that suffering. But but standing
Speaker 1: in the way of growing the aggregate pie I don't
Speaker 1: think is likely to be the best policy solution to
Speaker 1: those challenges. David, can I ask just one very very
Speaker 1: quick follow up, Um, which is I mean, given the
Speaker 1: body of academic research that points out the benefits of
Speaker 1: trade and the benefits of comparative advantage and specialization, why
Speaker 1: do you think the notion that trade is a zero
Speaker 1: sum game seems to persist in the wider world, and
Speaker 1: in some parts of the world seems to be growing.
Speaker 1: I think there's two basic answers. One is um, yeah,
Speaker 1: and this is a well known problem that political scientists
Speaker 1: have talked about for a long time that whenever you
Speaker 1: have something that with you know, as I stressed lot originally,
Speaker 1: any change I can think of it is going to
Speaker 1: generate benefits for you know, some people, maybe everyone, and
Speaker 1: some costs for some people. But sort of trade and
Speaker 1: many many other things like it, you know, free markets
Speaker 1: in general, tenders that have very concentrated um costs. When
Speaker 1: I say concentrated, concentrated on a relatively small chunk of
Speaker 1: the of the population, and very dispersed benefits, right, I mean,
Speaker 1: think of think of China, right, They've displaced somewhere, you know,
Speaker 1: relatively I mean a huge number of jobs in the
Speaker 1: in the in the absolute, but relative to the total population,
Speaker 1: a relatively small percentage of workers. Yet virtually all of
Speaker 1: us every day, you know, consume things that that that
Speaker 1: are cheaper and maybe only exist thanks to large foreign
Speaker 1: manufacturing countries like China. So so um. But you know,
Speaker 1: I think deep down there's a bit of us a
Speaker 1: incumbent producer bias in our in our society, you know,
Speaker 1: the it's as if you know, it's as if as
Speaker 1: a nation we think I mean, I don't mean we all,
Speaker 1: but if you you listen to a number of people,
Speaker 1: you get this impression that we were just dying to produce, right,
Speaker 1: I mean when when my wife and I trade, you know,
Speaker 1: when we when we kind of bargain over who's gonna
Speaker 1: sort of cook the food and who's gonna mow the lawn.
Speaker 1: You know, I think we specialized according to comparative vantage.
Speaker 1: We understand that that's in our mutual best interest. We
Speaker 1: tend not to fight over who gets to do more producing. Yeah,
Speaker 1: we you know, the debate is more about like, if anything,
Speaker 1: you know, we'd both rather not produce. But so how weirdly,
Speaker 1: at the national level, when it concerns international trade, we
Speaker 1: were we stress over the fact that there's a trade deficit.
Speaker 1: You know, that's of course, like the other people are
Speaker 1: doing the producing, you know, you know, we shouldn't sort
Speaker 1: did in some sense embrace that. So I don't understand
Speaker 1: how at the micro level people understand that that kind
Speaker 1: of consuming is good and producing is costly and unpleasant,
Speaker 1: whereas the macro level it's sort of the opposite. I
Speaker 1: I sort of think deep down that might be because producers,
Speaker 1: you know, I have have a lot of power obviously
Speaker 1: for an individual firm and would much rather produced than
Speaker 1: than not right, Uh, that's how they make their profits.
Speaker 1: But that an aggregate societal level, we we should sort
Speaker 1: of embrace the fact that we can um consume for
Speaker 1: less effort, and that's the basic notion of gains from
Speaker 1: trade is just more productive. We can get more for
Speaker 1: less um for less input. All right. Dave Donaldson, Associate
Speaker 1: economics professor at Stanford and the recent winner of the
Speaker 1: John Bates Clark Metal Award, Thank you so much. Fascinating conversation,
Speaker 1: fascinating work. I can't wait to continue seeing the evolution
Speaker 1: of what you've done. Really appreciate you coming on the podcast. Well,
Speaker 1: like I said, thanks again for talking about me. It's
Speaker 1: been a play. Yeah, come back when you want a
Speaker 1: Noball prize. Okay, I don't want to drink it, So, Joe,
Speaker 1: I thought that was fascinating and it was sort of
Speaker 1: right in the sweet spot for our All Thoughts podcast
Speaker 1: because it uses all these historical examples to really illustrate
Speaker 1: some of the stuff that's going on today. Right. Yeah,
Speaker 1: I love that conversation. Um. I think my favorite detail
Speaker 1: was the idea that the best recorded data on all
Speaker 1: of this Indian trading and taxes and income levels and
Speaker 1: whether was what was how in the UK and then
Speaker 1: the ultimate solution to putting that in usable form was
Speaker 1: to take photographs of all the pieces of paper and
Speaker 1: then email fifty JPEGs two people in India appropriately enough
Speaker 1: to then put back into an Excel spreadsheet to be
Speaker 1: usable for an economist. I mean, it does make you
Speaker 1: wonder what other academic research could be enabled by new
Speaker 1: technology relatively soon, based on old data. And I think
Speaker 1: we've had similar discussions about this before, at least I
Speaker 1: think I did with Sid Verma and Simon Henrisen. The
Speaker 1: other thing that I thought was really interesting was some
Speaker 1: of the stuff he was saying about the way we
Speaker 1: trade within countries versus the way we trade internationally. And
Speaker 1: it does seem to be that trading with our neighbors
Speaker 1: within a country, with the exception of India, um just
Speaker 1: seems to be much more palatable to us than trading
Speaker 1: with other people outside of the country, which I assume
Speaker 1: speaks to human natuy here a little bit. Yeah, I mean,
Speaker 1: I think this does really get to questions of nationhood,
Speaker 1: so that if we see, you know, they're even just
Speaker 1: sort of domestically within this country. We have some places
Speaker 1: that have done very well, like the coastal areas San Francisco,
Speaker 1: New York, some places that have done really poorly, and
Speaker 1: we it doesn't really you know, for the most part,
Speaker 1: intra national gains from trade don't seem to get people
Speaker 1: anxious or winners and losers. But then the idea that
Speaker 1: you know, if we expanded beyond the borders and some
Speaker 1: country is doing well, or and the perception that parts
Speaker 1: of this country are losing out in that trade, then
Speaker 1: that really sort of you know, strikes a deep chord
Speaker 1: with people, gives them anxiety. I don't think there's any
Speaker 1: obvious way to resolve that. I think the sort of
Speaker 1: purely academic way perhaps still doesn't sit right with people.
Speaker 1: And obviously we see that playing politically, but it is
Speaker 1: a really interesting comparison. All right, shall we call it
Speaker 1: a day, Let's do it cool. All right, This has
Speaker 1: been another edition of the APPS podcast. I'm Tracy Alloway.
Speaker 1: You can follow me on Twitter at Tracy Alloway, and
Speaker 1: I'm Joe Wis and all follow me on Twitter at
Speaker 1: the Stall and also Tracy, I realized we never unlike
Speaker 1: some other podcasts, thank are awesome producers, So I think
Speaker 1: we should start doing that. Maybe we're just ungrateful. I
Speaker 1: think we're it's it's just I realized other people do that.
Speaker 1: We've never been doing it. We've been doing this podcast
Speaker 1: for a long time. Should I say we change the tradition?
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