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August 10, 2006
Revisiting Protectionism's 'Logic'
Don Boudreaux
Let's revisit some of the 'logic' of protectionism. Many people today are torn by the age-old worry that trade with foreigners will reduce domestic employment or wages or both. The logic of this fear, such as it is, isn't. Indeed, the illogical, baseless, and factually mistaken beliefs that sustain fears of free trade are too numerous to review even in any decent-size book, much less in a single blog-post.
So let's keep this entry short by asking a simple question of all protectionists: if a machine were discovered that, with only water combined with dried leaves or dirt or animal manure, could at the mere flip of a switch produce almost unlimited quantities of high-quality automobiles, household furniture, life-saving pharmaceuticals, personal computers, cell phones, clothing, and chia pets, would humankind suffer from this discovery? Would people generally be made worse off by putting this machine to work?
Yes, yes -- autoworkers, furniture makers, pharmaceutical researchers, Michael Dell, and lots of other people would find that the jobs they worked in prior to the discovery of this machine suddenly stop paying enough to make it worth these folks' while to keep working at these jobs. This machine would indeed "destroy" lots of jobs, many of them high-paying, and almost all of them occupied by good persons who 'played by the rules.'
Would anyone -- I'd like to ask, for example, Paul Craig Roberts -- suppose that such a machine would be bad for the economy, for people, for workers, overall? Would anyone beyond the second grade -- again, I'd like to ask Paul Craig Roberts -- seriously advocate keeping this machine under wraps, perhaps even that it be destroyed?
If not -- that is, if it is generally agreed that the discovery and use of such a machine would be a boon to humankind -- on what basis do protectionists rest their argument that freer trade will lead to a permanent decline in the living standards of those persons who are allowed to trade more freely? How is being able to satisfy a want at lower cost (which means, ultimately, with fewer resources) harmful? Asked the other way, how is it possible to make people generally better off by forcing them to forgo opportunities to satisfy their wants at lower cost -- to force them to spend resources unnecessarily satisfying want X?
Hostility to free trade reveals either ill-will toward fellow human beings (including fellow citizens) or profoundly confused thought. Or both.
Posted by Don Boudreaux in Trade | Permalink
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Tracked on Aug 11, 2006 10:34:15 AM
Comments
Sorry, that is the dumbest attempt to explain free trade I have ever read. At least be a little classy and come up with something better than a manure machine.
(A Star Trek replicator would have made more sense.)
I know very few people who are full blooded protectionists.
I know a lot of people who think the American middle class has been prostituted to Wall Street and K Street.
And even most free trade economists would agree that people are severely hurt in the short run, ever heard of "displaced workers?"
So instead of calling your opponents mean or stupid why not sharpen your argument a little. Manure machine?
Posted by: save the rustbelt | Aug 10, 2006 9:56:56 PM
If the manure machine is a little odd, then there's a better example from the 1951 film, The Man in the White Suit!
Posted by: Anand | Aug 10, 2006 10:07:21 PM
Rustbelt, Dr. Boudreaux did recognize displaced workers...."This machine would indeed "destroy" lots of jobs, many of them high-paying, and almost all of them occupied by good persons who 'played by the rules." Even though people would lose their jobs everyone would agree that society as a whole would benefit from this invention.
While it may be a strange invention its the analogy is strong. This imaginary machine conceeds all the negative effects cited by protectionists and all the positive effects cited by free market advocates. EVERYONE would agree that the benefits outweigh the costs.
Posted by: DSC | Aug 10, 2006 10:42:12 PM
"And even most free trade economists would agree that people are severely hurt in the short run, ever heard of "displaced workers?"
So instead of calling your opponents mean or stupid why not sharpen your argument a little. Manure machine?"
Why don't you present an argument at all? Even the most ardent protectionist will admit that this machine would be good in the long run. Yes, there would be short term pain, but everyone will be better off in the not too distant long run. I think that Don has come up with a great example to show how silly protectionists really are...
Isaac
Posted by: Isaac Crawford | Aug 10, 2006 11:59:06 PM
Protectionism's logic is very simple: businesses want your money. It's very telling that an entirely different argument has been developed to defend the practice.
Posted by: Swimmy | Aug 11, 2006 1:18:28 AM
Professor Boudreaux,
Whether intentionally or not, you do Dr. Roberts a great dis-service by materially misrepresenting his position on trade.
For the record I don't know the man, have never met him and have only ever had one communication with him - indeed, I live on another continent.
However, the miracle of the Internet has enabled me to read many thousands of his words. Not once have I gained the impression that he is an opponent of classical Ricardian free trade.
What he does rail against is the wilful abolition of comparative advantage into the absolute corporate advantage which the globalisation policy has wrought.
Perhaps your slings and arrows might be better directed towards Stephen Roach, the Chief Economist of Morgan Stanley, who wrote in his bulletin of June 23 that,
"The basic conclusion of Ricardian comparative advantage that all economists are taught to worship from birth holds that trade liberalization not only brings poor workers from the developing world into the global economic equation (win #1), but workers in the developed world then benefit by buying low-cost, high-quality goods from the developing world (win #2). The theory breaks down because of a new disruptive technology -- in this case, the Internet -- that dramatically accelerates both the speed and scope of worker displacement in the developed world. It used to be that such workers would eventually -- with considerable dislocational distress, to be sure -- seek and secure refuge in the non-tradable segment of their economies. The shocker is that the sense of security in services has effectively broken down. In recent years, IT-enabled connectivity has quickly migrated up the knowledge worker occupational hierarchy in once-nontradable services, denying displaced workers in the developed world the comfort (i.e., sustainable labor income generation) of enjoying the benefits of the second win of globalization".
Roach is also remarkably forthcoming about the mechanics of how 'free trade' is now practiced. For example, in his bulletin of July 31 Roach wrote that,
"Barring a spontaneous and sustained resurgence of labor income generation -- something I think is unlikely for as long as globalization and the global labor arbitrage persist -- the state of the US property market could well hold the key to the consumption outlook."
An arbitrage of labour is nothing to do with any idea of everybody gaining from trade. It is absolute advantage staring you in the face.
And the continued credibility of the economics' profession is ill-served by its constant repetition of tropes about how offshoring and mass immigration make everyone 'richer' when the evidence points in a starkly contrasting direction.
Roach's bulletins can be found at
http://www.morganstanley.com/GEFdata/digests/latest-digest.html
Posted by: Martin | Aug 11, 2006 2:07:10 AM
Martin: five hundred years ago most of us were dirt farmers who were lucky not to be slaves or serfs. Trade has made all the difference between then and now.
Posted by: Russell Nelson | Aug 11, 2006 2:51:29 AM
Russell,
Have I said anything to the contrary?
No, although your assessment of what's got us off the land omits the not
inconsequential impacts of colonialism, the
Industrial Revolution and the wars of the 20th Century.
What is happening now is not free trade. That's the point.
Posted by: Martin | Aug 11, 2006 3:00:37 AM
Boudreaux: Hostility to free trade reveals either ill-will toward fellow human beings (including fellow citizens) or profoundly confused thought.
Or simply fear? Fear of losing one's job? Which produces great agitation? After all, with 2.3 children to feed and pay the house mortgage, what is one supposed to do?
The US and Europe are at a crossroads. The Industrial Age is winding down inexorably as third-world countries combine old technologies with cheap labor to produce low-tech products with which American and European workers can no longer compete.
The GATT accords of the 90s were quickly decided upon to give China (which was just opening to the western world) an opportunity to become and remain a capital-based economy by entering into the global market for base manufacturing. It is communist in name only.
Since the 1960s, we have seen the gradual rise of the Information Worker. If you like, the Information Age is upon us. In the UK, for instance, no car manufacturer remains. There is aircraft manufacturing for Airbus and this remains because the demand for commercial aircraft is strong and the number of vendors reduced to only two (Boeing and Airbus, the Russians are dormant in this industrial sector). The UK saw the handwriting on the wall 15 years ago and started its transition towards the Information Age with its service-sector jobs.
So, developed western nations are at a conjuncture, in passage from Industrial Age jobs that employed largely unskilled workers to the Information Age with its qualified and semi-qualified workers. (And, in this context we see that male brawn is less necessary than female nimbleness with a keyboard.)
Why should nations compete on manpower that is over-priced (the sad tale of GM), when brainpower is the requisite talent more and more? But, how do you explain that to people who have passed their lives at US Steel or GM or GE or ... or ...?
You don't because you can't. They are mostly over 40 or 50 and going back to school is simply not on. They are unskilled labor largely because schooling did not suit them in the first place. Until America understands that its priorities are schooling children to a higher set of skills, their children are condemned to flipping hamburgers at McDonalds. I exaggerate of course. But, not much.
In fact, the US is at very dangerous point in its evolution as a nation. The general public is unconscious, I think, of the challenge of the global economy that faces them. The Tigers are beginning to move up the technology ladder of skills and will be competing at increasingly higher levels of technical sophistication. (Why do you think so many Chinese companies are opening engineering offices in Germany, where machine-tools are the mainstay of its export business, a GNP component that is larger than even America's.)
It is mired in a war it cannot win which saps the public spirit. It is riven with an aging technology base, whilst “hi-tech” gets the celebrity limelight particularly on Wall Street where it creates fortunes. It has a major health problem with pandemic obesity.
I could go on with this tangent, but I wont. It is a moment for some hard decisions, and I do not see the political will to either elaborate difficult alternatives or an electorate willingness to appreciate the scope of the danger. Any doctor will tell you … a patient must realize he/she is sick before any remedy can be administered.
Posted by: A. PERLA | Aug 11, 2006 5:02:14 AM
Perla,
What you are describing are the fruits of ideology - a policy, not a natural economic process.
I don't really buy the 'ill-will toward fellow human beings argument - not since my country the UK and the USA always seem to be in the donor slot where the distribution of good will is concerned.
Posted by: Martin | Aug 11, 2006 5:53:31 AM
A. Perla,
Re; "Or simple fear..."
Yes, that's most certainly it. But does it make sense to protect people from the need to respond to change? Is doing so in the best interest of the public? Which part of the public? To drag in a previous discussion, trade restrictions boil down to enforcing an involuntary community at the expense of voluntary communities.
Posted by: Randy | Aug 11, 2006 9:49:44 AM
"Protectionism's logic is very simple: businesses want your money."
Who is disputing this? Certainly no economist.
What opponents of trade and commerce fail - somehow - to realize is that to get my money, businesses must offer me something of value, and that when the exchange takes place we both benefit.
Posted by: Noah Yetter | Aug 11, 2006 12:08:03 PM
Noah: I meant, simply, that protectionism tends to be a series of rules designed to arbitrarily increase the price of what businesses offer. I'm not condemning their greed, I'm condemning those who defend pro-business policies with anti-business rhetoric. You rarely see, on the forefront of anti-globalization's slogans, "Oh yeah, and this is also in X and X corporation's interests because they face less competition. But still!" Rather, you see anti-corporate slogans. It's a farce.
Posted by: Swimmy | Aug 11, 2006 1:59:18 PM
A.PERLA: "How do you explain that to people who have passed their lives at US Steel or GM or GE or ... or ...? You don't because you can't. They are mostly over 40 or 50 and going back to school is simply not on."
Why is retraining not feasible for someone who is 40 or 50 or even 60?
The 50 year old retrained worker may not find a job as fast as the 20 year old. The new job will not likely pay as much initially as the union job that's gone forever. But that doesn't mean it's an impossible task.
The biggest problem I see for displaced older workers: not taking responsibility for their own well-being. Every worker should have put aside an emergency fund that can sustain them for months if not years. Older blue collar workers who know layoffs are likely should have emergency funds that will last 12 or even 24 months.
Posted by: JohnDewey | Aug 14, 2006 5:21:41 AM
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