Oh look! A gazelle! And it’s name is Efficiency

Dani Rodrik has a lovely short piece up at Project Syndicate:

I was recently invited by two Harvard colleagues to make a guest appearance in their course on globalization. “I have to tell you,” one of them warned me beforehand, “this is a pretty pro-globalization crowd.” In the very first meeting, he had asked the students how many of them preferred free trade to import restrictions; the response was more than 90%.

…maybe they did not understand how trade really works. After all, when I met with them, I posed the same question in a different guise, emphasizing the likely distributional effects of trade. This time, the free-trade consensus evaporated – even more rapidly than I had anticipated.

I began the class by asking students whether they would approve of my carrying out a particular magic experiment. I picked two volunteers, Nicholas and John, and told them that I was capable of making $200 disappear from Nicholas’s bank account – poof! – while adding $300 to John’s.  This feat of social engineering would leave the class as a whole better off by $100. Would they allow me to carry out this magic trick?

This remind me of similar thought experiment about standards.  E.g. if two countries have incompatible standards.  For example which measurement system they use, which side of the road they drive on, or how their electric grid works.  Obviously they can eliminate the resulting friction if one of them switches.  And, after the switch both countries will benefit from increased GDP growth.  But here’s the rub: only one country will pay the switching costs.  Thus it will suffer a setback.  Why would any country ever switch?  Market or regulatory power presumably, and that’s likely to make ’em bitter.

Related: I saw this term go by: “sticky coordination.”  People talk about “sticky prices,” e.g. that when we have economic downturns some prices adapt more quickly than others.  But really that’s nothing compared to how hard it is to shift how things are coordinated.  Coordination is much more embedded.

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