Anne O. Krueger

As an American economist studying international trade and protectionism, Anne Krueger had her own method: she traveled to poorer countries to talk, not just to government officials, but also to businesspeople in those countries. She also often asked to see the businesses’ books, not just the books that they prepared for the government and the books they showed the public, but also the third set of books, which were the ones they used to operate their businesses. Krueger was quite successful at getting the businesses to cooperate.

As a result of her careful observations of the political economy of Turkey and India, she developed the concept of rent-seeking. She has been an outspoken advocate of multilateral trade negotiations and opponent of protectionism. She also defends the idea that increased globalization has been good for virtually everyone who has experienced it.

These are the first two paragraphs of my biography of Anne Krueger, recently published in David R. Henderson, ed., The Concise Encyclopedia of Economics. Writing this was a labor of love. I enjoyed going through her work, especially her recent book, International Trade: What Everyone Needs to Know. I also enjoyed, and learned a lot from, the two recent interviews that I quote extensively in the bio.

I used to think that her concept of rent-seeking owed a lot to Gordon Tullock, who had covered some of the same ground 7 years earlier. But writing this bio caused me to reread both her and Tullock’s articles more carefully. It’s funny how writing something causes one to do that. And I discovered a key difference:

Krueger’s focus on competition for import licenses implicitly points to a major difference between her thinking and that of Tullock. In Krueger’s model, each potential importer is willing to spend a lot to get a license. Therefore, much of the rent is competed away, causing a large efficiency loss. Tullock, though, did not consider competition for import licenses; he dealt with companies’ investments in obtaining tariffs. But because tariffs benefit all producers of an import-competing product, those firms that invest in tariffs are, essentially, investing in a public good that benefits other domestic firms in the industry. All firms, recognizing this, will underinvest in getting tariffs. Although economists generally treat underinvestment in public goods as a bad thing, in this case, it’s good because the public good to the firms is not the same as the public good to society; indeed, the public good to the firms consists of their gains from charging consumers more for their outputs.

Another highlight from the bio, on multilateral trade agreements:

Krueger has long been an advocate of multilateral trade agreements rather than of trade agreements between two countries. In International Trade: What Everyone Needs to Know, she pointed to the tremendous success that multilateral trade negotiations had led to after World War II. She wrote, “In the first (Geneva) round of MTNs [multilateral trade negotiations], the pre-agreement tariff rates before 1947 averaged 48 percent across the advanced countries. The rates as of the end of 1947 pre-Geneva had fallen to 32.2 percent, and the January 1, 1948, rates post-Geneva averaged 25.4 percent.” She also noted that after the Kennedy Round (1964-67), the Tokyo Round (1973-79), and the Uruguay Round (1986-94) of trade negotiations, each of which had brought tariffs down, the average tariff rate imposed by the United States was 3.1 percent, by the European Community was 2.9 percent, by Japan was 1.4 percent, and by Canada was 2.6 percent. These rates were on dutiable manufactured items. Because not all manufactured items were subject to tariffs, the average tariff rates for all manufactured items were even lower.

I also learned a lot from Krueger’s recent book about the fundamental disagreement between the U.S. government and foreign governments on the role of the World Trade Organization:

Krueger has been a strong supporter of the World Trade Organization (WTO), the successor to the General Agreement on Trade and Tariffs (GATT.) The WTO has mechanisms for resolving disputes between the member countries. Contrary to what many casual observers believe, Krueger has noted that the U.S. government had won approximately 90 percent of the cases that it had brought to the WTO. Moreover, she noted, it had “lost a smaller share of the cases brought against it.” (International Trade, 2020, p. 157.) Also, compliance rates were fairly high.

Nevertheless, the U.S. government, under Republican and Democratic presidents, has had a philosophical problem with how the WTO operates. The U.S. government sees the WTO as a contract among sovereign states, whereas other countries’ governments see it as a legal system that evolves. During President Trump’s first term, his administration blocked new appointments to the Board. President Biden did nothing to change this. Although the WTO can still issue rulings in trade disputes, since December 2019, the WTO’s Appellate Body, which used to be the final court of appeal, has no members and, therefore, can no longer hear appeals. As a result, the governments of countries that lose in dispute cases can avoid complying.

And I love this quote from her interview with Dylan Matthews:

Some of these arguments about the market assume that if there are market failures, then whatever the government will do will be better. Maybe the market failures are huge, but that does not persuade me that government failures will not automatically be as huge. That’s the part that’s wrong. I still think that when you’re talking about lots of economic activities, you want to just look at incentives. If there’s something wrong with the market, get the incentives right. Giving bureaucrats the incentive to regulate is not the incentive that will work best in most cases.

Krueger is badly overdue for a Nobel Prize. Come on, Sveriges Riksbank (Swedish central bank.)

Thanks to Doug Irwin, Lauren Landsburg, and Tyler Cowen for many suggestions, almost all of which I took.