What is Happening to Free Trade?

According to Noah Smith, free trade is now being questioned in circles where - not so long ago - support appeared as though quite certain:

...economic theory has been overtaken by macro events. The full-fledged entry of China into the global trading system since 2000 has been hugely disruptive. The lost jobs and vanishing industries have become impossible to ignore...The simple logic of free trade, so familiar from Econ 101, is either failing or ceasing to be relevant. Some astute economists are now claiming that the old formulation was never airtight in the first place. 

Wait, what? From Dani Rodrik, per the link in Smith's quote: "Many of the conditions under which free trade between nations is guaranteed to be desirable are unlikely to hold in practice." Even as Dani Rodrik appears to doubt the efficacy of free trade in the above quote, consider his suggestions for Greece in "The Mirage of Structural Reform". Per the Project Syndicate article, Rodrik reasons that given a lack of results from structural efforts (in terms of short term growth), more emphasis on tradable goods is needed. In other words, what Rodrik suggests for Greece, is what many economists still consider the epitome of free trade: "The absence to date of a single minded focus on tradables has been costly."

Okay...so what gives? How does one reconcile doubts regarding free trade, with calls for more free trade? None of this is to belittle Dani Rodrik's reasoning, but to note the discrepancy in what economists and policy makers believe to be possible or not possible, in terms of wealth creation. Without really thinking the matter through, politicians and economists alike speak of bringing traditional production "back home". Unfortunately, it's also tempting to believe this strategy would provide greater support for much needed services. However, instead of trying to undo the gains of globalization, it would be far better to generate wealth gains for services through more direct means. It's the non tradables sectors, which need new focus and initiative at home.

Knowledge based services were never sufficiently exposed to the marketplace, as they came to play larger roles in the 20th century. This is the elephant in the room: the economic factor which is in desperate need of new definition, before nations begin to backtrack on the progress of recent centuries. Even though the traditional production of tradable goods can continue to support services formation up to a point, this form of wealth can no longer be expected to generate the full services marketplace which so many invested in, prepared for, and expected to take part in as consumers.

Too much human capital remains locked in a secondary role, in terms of aggregate supply. A marketplace for skills value, has displaced much of the economic environment which once responded well to time value. More than anything, a lack of competitive options for time value, has limited the ability of nations to support the wealth potential of human capital.

For free trade to flourish well into the future, it needs a marketplace for time value, alongside what already exists for skills value. Professionals of both the political left and right remain dependent on the tradables markets they question, for the resources which compensate the meritocratic structure of skills value. Unfortunately, not only does this limit knowledge use in non rival capacities, it limits the coordination of many knowledge based service functions to that of upper income levels. In turn, this makes for hopelessly divided politics as various factions struggle over the services which they hope to maintain.

However, there is plenty of resistance to production reform on the right as well. Free trade works fine as a slogan, until it threatens to sacrifice a few "sacred cows". Tyler Cowen linked to a recent article about the collapse of the libertarian movement, which prompted plenty of discussion in the comments. Some also wanted to know...libertarianism: what's in it for the marginalized, or poor people? From the article:

Just because people buy certain arguments when it comes to civil liberties or foreign policy does not mean they are more likely to buy them on taxes, spending or regulation...Libertarians love to preach the virtues of markets. Yet in the "marketplace of ideas", their bundled product has been regularly and thoroughly rejected for over a century. Until libertarians acknowledge that market verdict and re-think what they're selling, or both, they will remain on the margin of American political life. And for friends of liberty, that would be a tragedy.  

Fortunately, freer markets can be sought through means which need not threaten existing systems. Time arbitrage would generate free trade in services production: not just for individuals who seek challenges beyond today's marketplace, but for those of limited means. The benefits of globalization need not be lost to the fears of present day policy makers. Free trade in knowledge based services is a real possibility, but it needs to be approached in small experimental settings, instead of being imposed on groups who already have adequate means to coordinate knowledge use and services among themselves.