Committing to Economic Freedom at Home and Abroad

Dartmouth’s Doug Irwin has been writing about the General Agreement on Tariffs and Trade (GATT) that was finalized seventy years ago this month. His tweets includes a link to President Harry Truman’s statement upon the announcement of the completion of the agreement. It is amazing how different attitudes about trade agreements are now compared to then, and how rapidly attitudes have changed in the ten years since Doug wrote an optimistic op-ed “GATT Turns 60.” Doug is, of course, hoping that we can learn from how people addressed these problems seventy years ago, and develop a strategy to meet our current challenges, even though the world and problems are different.

Here it is important to point out that the GATT was part of a flurry of economic institution building in the mid-1940s. In 1945 Truman signed the Bretton Woods Agreements Act, officially creating the International Monetary Fund and the World Bank. As Henry Morgenthau, the Secretary of the Treasury, said: the Bretton Woods agreements aimed to “do away with economic evils—competitive currency devaluations and destructive impediments to trade.”

In 1946 Truman signed the Employment Act. It created two more new institutions: The President’s Council of Economic Advisers (CEA) and the Congress’s Joint Economic Committee (JEC). The CEA and the JEC brought professional economics to both international and domestic economic policy.

In 1947 along with the GATT, came and the Truman Doctrine, and in 1948 the Marshall Plan. The Truman Doctrine and Marshall Plan supported freedom and democracy with the principle that they are “essential to economic stability and orderly political processes” as stated by Truman at a joint session of Congress. Economics was a big part of these new foreign policies.

The reforms required leadership by the U. S. Administration and Congress. Legislation passed in two different congresses, the 79th controlled by Democrats in 1945 and 1946 and the 80th controlled by Republicans in 1947 and 1948. As Chicago economist Jacob Viner put it in 1945: “The United States is in effect, and, as concerns leadership, very nearly singlehanded, trying to reverse the whole trend of policy and practice of the world at large in the field of international economic relations…”.

U.S. leadership made it possible, but what else about the strategy is worth applying today?  I outlined reform ideas in a Truman Medal talk a year ago. The essence of the strategy is that United States should commit to promoting the principles of economic freedom–predictable policies, the rule of law, incentives provided by markets and a limited role for government—in all aspects of its economic policy. These are the keys to restoring prosperity and security at home and abroad.

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