Cosmopolitanism is the idea that all people on the planet are part of a global community. The philosophy of cosmopolitanism is very broad, sometimes advocating universal rules, or that we should all have the same partiality to people far away than we do closer to us. By appending the modifier “methodological” to “cosmopolitanism,” I mean to invoke a meaning similar to the philosophical one, but more limited to just one’s analytical method. In short, I am using the phrase “methodological cosmopolitanism” simply to mean that when examining the economic effects of something, the costs and benefits to all parties affected must be taken into account. Arbitrary distinctions like race, nationality, gender, wealth, class, etc., do not determine whose costs matter and whose do not.
Methodological cosmopolitanism is necessary to economic understanding. Consider the so-called optimal tariff. Given certain conditions, a sufficiently small tariff could potentially create a net social welfare gain: consumer surplus losses plus the deadweight loss from the tariff can be less than the surplus gains to the producers and the government. This outcome is quite unique among taxes: with the exception of taxes on goods that generate externalities, the model of taxes indicates a net welfare loss. Tariffs are not taxes on externalities. So, how do they generate net welfare gains? Through an accounting slight-of-hand. Optimal tariffs only suggest a net welfare gain because the reduction in surplus to the foreign producers is not counted in the model. If those reductions were counted, then the optimal tariff no longer creates a net welfare gain.
Many economic nationalists object at this point. When discussing the point above, I often get a retort along the lines of, “Who cares that foreigners have their welfare reduced? We should only care about our nation!” Whether or not the wellbeing of a foreigner matters from a moral standpoint is irrelevant; it matters significantly from an economic standpoint. Trade, all trade, is reciprocal. In the initial exchange, both parties benefit (the buyer gets something of higher value than their money and the seller gets something of higher value than the good they sell). But the exchange process does not end there. The seller sold and now has dollars. They can do any number of things with that: buy goods from the other nation, invest in the other nation, etc. When trade is reduced between two nations, then economic wellbeing is reduced twice: once through the tariff reducing primary exchanges, and again when the foreigner, who has been made worse off, now has fewer dollars to spend on exports or investments in the economy. As Abba Lerner pointed out in 1936, a tariff on imports has a similar reductive effect on exports.
This effect, well known to economists (indeed, one of the reasons why an optimal tariff has to be sufficiently small is to minimize the loss to domestic producers/consumers attached to the export market) is missed by nationalists and others who reject methodological cosmopolitanism. Even if one does not think the wellbeing of foreigners should matter, one must be a methodological cosmopolitan to fully appreciate and consider the total effects of policy (as opposed to simple single margin effects).
