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Unpacking the Conflict 567

representing labor, Republicans representing capital—which tends to make the

Democrats more protectionist and the Republicans more supportive of free trade.

Though the constituency explanation is generally true, there are divisions within each

constituency. For example, autoworkers’ and steelworkers’ unions are much more

protectionist than dockworkers’ unions because any industry with strong exports will

support free trade, whereas those that have relatively few exports but are vulnerable to

cheap imports are more likely to be protectionist. The ideological explanation focuses on

the bipartisan consensus on trade that emerged after the Great Depression, which was

seen as having been caused in part by the protective tariffs of the 1930 Smoot-Hawley

Act.^71 As with the theories of regulation, both perspectives explain part of the truth. Our

political leaders largely support a free-trade ideology (with the obvious exception of the

Trump presidency), but there are divisions along constituency lines on some legislation.

“Why

Should

I Care?”

Tax and spending policy, monetary policy, regulatory policy, and trade have more effect

on your everyday life than anything else the government does. From the taxes you pay,

to the interest rate on your student loan, to the quality of the air you breathe and the

water you drink, to the cheap consumer goods that you are able to buy, decisions by

policy makers have a tremendous effect on your economic world.

Unpacking the Conflict

There is a common perception that economic policies would work better if we could

just take politics out of the economic policy-making process. But that would be like

saying “football would be better if we could eliminate the contact” or “poker would

be better if we could take out the element of chance.” Economic policy making is

inherently political. It isn’t possible or desirable to have economic policy produced by

economists who would push and pull the levers of growth, productivity, and efficiency,

implementing their economic theories without interference from politicians. Politics

must enter into this process. Economic policy determines who wins and who loses, and

elected leaders must be involved in this process if representative democracy is to have

any meaning. This is especially true of the budget process because the redistributive

implications of taxing and spending are so clear, but as we have discussed, even

monetary policy is not insulated from politics. As discussed in the chapter opener,

winners and losers are also very evident in trade policy. Returning to the questions of

the opener, which side is right about trade policy, and what should the government

do, if anything, about trade deficits? More generally, what is the proper role of the

government in a free market economy? How do political players deal with the conflict

that is inherent in economic policy making?

Both economic theory and history tell us that we are better off with free trade than

having politicians pick winners and losers in the economy. However, there is still clearly

a role for the government in the economy through regulations, taxing and spending

policy, and monetary policy. Having the government in the economy means that

politics must have a role in economic policy making. In fact, this is guaranteed by our

system of checks and balances: Congress, the president, and to some extent the courts

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