conomics is sometimes referred to as the “dismal science.” While we often think of economics as the study of means of production, some definitions specifically refer to it as “the study of scarcity.” While the objective of economists may be to identify the ideal equilibrium for aggregate output, the reality is that as policies and the economy shift toward these equilibria, there are winners and losers. Society may be better off in the aggregate, but some sectors will be negatively impacted. The failure to recognize this reality has resulted in growing distrust of both experts and politicians. To address the most pressing challenges of the 21st century—from climate change to technological advancement—policymakers must understand this reality and ensure that the benefits are shared more equitably and that those negatively impacted are provided with new opportunities in the new economy.
Trade liberalization has epitomized this challenge in the 21st century. Economists have long pointed to the benefits of free trade—noting increases in aggregate productivity, lower costs of goods, and increased profits and wages. However, while economic models highlight that these come from sectoral specialization, policymakers have not taken the necessary precautions to support sectors that suffer losses due to trade liberalization. Further complicating the issue is that while the benefits of trade are widespread and diffuse, some of the industries negatively impacted are geographically clustered—resulting in widespread harm to workers in these areas.
For instance, despite former U.S. presidential candidate Ross Perot warning of the “giant sucking sound” of automotive jobs leaving the country due to the North American Free Trade Agreement (NAFTA), efforts to ensure new opportunities for displaced workers were ignored. While NAFTA created opportunities for some sectors and helped integrate the economies of North America, its impacts on Detroit have been devastating.
The failure to account for these negative consequences has resulted in politicians and the public turning their backs on the free trade agenda and distrusting politicians and experts—or as the New York Times claimed, breaking American politics. While this backlash helps to explain the rise of Donald Trump, similar political phenomena are evident across the globe.
“… you say trust the experts, but those same experts for 40 years said that if we shipped our manufacturing base off… we'd get cheaper goods… it would make the middle class stronger. They were wrong about that… This has to stop. And we're not going to stop it by listening to experts.” – JD Vance
While the failure to account for the distributional impacts of trade liberalization are still playing out, policymakers need to learn the lessons of this failure so that they can design more effective policies to confront future challenges. Addressing climate change through the “green transition” means shifting the economy away from fossil fuels and toward alternative energy. While the green transition will provide economic opportunities, it will have negative consequences for communities that rely on fossil fuel extraction—whether it is in West Virginia or the Brazilian state of Rio de Janeiro. Even more than with trade, the negative consequences will be geographically specific. Likewise, new technologies will replace wide swaths of the labor market. While it may drive down costs, those displaced will need to find new opportunities.
To ensure that the green transition and technological advances are not derailed by the backlash faced by those whose economic livelihoods are lost during these transitions, policymakers need to ensure that new opportunities are created for these populations. This can include investing in new industries in areas that are disproportionately affected. While this may not fully relieve the economic hardship, it helps to ensure there are new opportunities. Furthermore, policymakers must clearly articulate how the benefits of economic shifts benefit wide swaths of society and why helping those left behind is critical to ensuring that the economic gains are maintained and equitable.
Economists and other experts are not wrong about the need to reshape our economy and improve aggregate welfare. The challenge is that these changes will have real distributional impacts and some sectors of society will feel hurt by them. To ensure that they are able to implement the necessary policies to prepare economies for the green transition and new technologies, policymakers need to focus on communicating why these changes are necessary and implement policies to protect those that are negatively impacted. If they don’t, they risk facing the same backlash as the free trade agenda and may just doom us all.
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Making the dismal science more equitable to secure our future
Detroit, Michigan, which suffered from displacement of automotive jobs with the advent of NAFTA. Photo by Nick Thomas on Unsplash.
January 17, 2025
Economics is often called the "dismal science," but its real challenge lies in balancing benefits with the negative impacts of change. Policymakers must address economic shifts equitably to ensure sustainable progress and prevent societal backlash, writes Adam Ratzlaff.
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conomics is sometimes referred to as the “dismal science.” While we often think of economics as the study of means of production, some definitions specifically refer to it as “the study of scarcity.” While the objective of economists may be to identify the ideal equilibrium for aggregate output, the reality is that as policies and the economy shift toward these equilibria, there are winners and losers. Society may be better off in the aggregate, but some sectors will be negatively impacted. The failure to recognize this reality has resulted in growing distrust of both experts and politicians. To address the most pressing challenges of the 21st century—from climate change to technological advancement—policymakers must understand this reality and ensure that the benefits are shared more equitably and that those negatively impacted are provided with new opportunities in the new economy.
Trade liberalization has epitomized this challenge in the 21st century. Economists have long pointed to the benefits of free trade—noting increases in aggregate productivity, lower costs of goods, and increased profits and wages. However, while economic models highlight that these come from sectoral specialization, policymakers have not taken the necessary precautions to support sectors that suffer losses due to trade liberalization. Further complicating the issue is that while the benefits of trade are widespread and diffuse, some of the industries negatively impacted are geographically clustered—resulting in widespread harm to workers in these areas.
For instance, despite former U.S. presidential candidate Ross Perot warning of the “giant sucking sound” of automotive jobs leaving the country due to the North American Free Trade Agreement (NAFTA), efforts to ensure new opportunities for displaced workers were ignored. While NAFTA created opportunities for some sectors and helped integrate the economies of North America, its impacts on Detroit have been devastating.
The failure to account for these negative consequences has resulted in politicians and the public turning their backs on the free trade agenda and distrusting politicians and experts—or as the New York Times claimed, breaking American politics. While this backlash helps to explain the rise of Donald Trump, similar political phenomena are evident across the globe.
“… you say trust the experts, but those same experts for 40 years said that if we shipped our manufacturing base off… we'd get cheaper goods… it would make the middle class stronger. They were wrong about that… This has to stop. And we're not going to stop it by listening to experts.” – JD Vance
While the failure to account for the distributional impacts of trade liberalization are still playing out, policymakers need to learn the lessons of this failure so that they can design more effective policies to confront future challenges. Addressing climate change through the “green transition” means shifting the economy away from fossil fuels and toward alternative energy. While the green transition will provide economic opportunities, it will have negative consequences for communities that rely on fossil fuel extraction—whether it is in West Virginia or the Brazilian state of Rio de Janeiro. Even more than with trade, the negative consequences will be geographically specific. Likewise, new technologies will replace wide swaths of the labor market. While it may drive down costs, those displaced will need to find new opportunities.
To ensure that the green transition and technological advances are not derailed by the backlash faced by those whose economic livelihoods are lost during these transitions, policymakers need to ensure that new opportunities are created for these populations. This can include investing in new industries in areas that are disproportionately affected. While this may not fully relieve the economic hardship, it helps to ensure there are new opportunities. Furthermore, policymakers must clearly articulate how the benefits of economic shifts benefit wide swaths of society and why helping those left behind is critical to ensuring that the economic gains are maintained and equitable.
Economists and other experts are not wrong about the need to reshape our economy and improve aggregate welfare. The challenge is that these changes will have real distributional impacts and some sectors of society will feel hurt by them. To ensure that they are able to implement the necessary policies to prepare economies for the green transition and new technologies, policymakers need to focus on communicating why these changes are necessary and implement policies to protect those that are negatively impacted. If they don’t, they risk facing the same backlash as the free trade agenda and may just doom us all.
