Paradigm shift on trade and inequality

Life has been busy so posting is light. But this point by Matt Yglesias cannot be missed:

But of course this isn't something that just happened. A lot of research has come out in recent years indicating that contrary to the blithe assurances of economists expanded trade with China has in fact reduced the earnings of American workers substantially. At the same time, these developments have made America richer overall. Which is to say that the resources exist, in principle, to make investments in Social Security, education, universal health care, wage subsidies, etc. that leave everyone better off. We just haven't actually done those things. And that, at the end of the day, is my bottom line. The broad shape of the economy is always shifting. What matters for big distributional outcomes isn't really those shifts, it's what the political process does with them. Our process has done a little of what we should be doing (Obamacare, for example) but also a fair amount of the reverse—as seen in the relentless drive for Social Security cuts.

This insight is really the heart of the inequality discussion.  People try to frame it as a form of social justice (let people keep what they earn).  But access to markets is, and always has been, regulated by governments.  Even in the state of nature, customs arise to facilitate trade and barter. 

But the failure to redistribute really makes trade policy look stupid.  Why should workers sacrifice earning power so other people can become richer?  Sure, there is an "on average" issue.  But that is only interesting if the wealth is broadly shared.  The relentless attack on taxes and social security seems to break the implicit social contract of "if we are richer then we will all be better off".

Now add in this new stuff on Canadian exceptionalism  (more Canadians work more than Americans and the gap widened when the US cut tax rates) and it all looks like a "bill of goods".  After all, taxes might well be the mechanism by which the gains from improved trade wealth are shared.  And yes, there may be some deadweight loss, but one presumes that the increase in trade wealth is large or they wouldn't be worth capturing.

[EDIT: Frances Woolley has some smart things to say about Noah Smith's argument.  But we don't need the strong form he proposes to spot a problem.  The tax effect has to be massive to overcome the wealth distribution argument.  Some of the arguments, like the different marginal tax rate on the second earner, suggest tax policy reform and not necessarily lower taxes]

It's killing me that I am too busy to properly develop these points but they are really, really important.