Welfare enthusiasts have always used pushes for free trade as leverage for increased support for laid-off workers. The logic was that because free trade brings myriad benefits to society, society could give just a little spare change to those who no longer can shelter behind consumer-funded protectionist walls.
That is not exactly a principled position, of course (as I have asserted here before) but a new, ”improved” proposal this time appears to have the support of business groups. They have been convinced that the possible backlash against globalization is worth a massive expansion of the welfare state, and are backing a new wage insurance scheme that would cost $22 billion, funded through payroll (i.e., employment) taxes.
But wait, there’s more. The new program would be available for all displaced workers, not solely for those who lost their jobs because of import competition. While I have always resisted that distinction because it demonized trade unfairly (see here), a trade-linked scheme at least was less costly (less than $1 billion currently) and, up until recently, kept the trade ball rolling well enough.
In light of the collapse of the Doha round, the stalling of the bilateral trade agreement with Colombia, and increased protectionist sentiment at home and abroad, it is clear that negotiated trade liberalization efforts are in peril. What is not clear is whether an expansion of the welfare state would appease trade skeptics, including a certain front-running presidential candidate, and revive the decades long bipartisan support for trade. So what exactly are we buying here?