Cafe Hayek

Unintended Consequences

Here' my answer to my pop quiz; it's in the form of a letter-to-the-editor that I sent yesterday to the Washington Post:

You report that the "International Trade Commission recommended on Monday that President Barack Obama impose additional duties for three years on imports of low-cost Chinese tires the panel says are harming U.S. industry" ("U.S. trade panel favors stiffer duties on Chinese tires," June 29).

Such a move by Mr. Obama would not save U.S. jobs on net, because fewer dollars spent on imports means fewer dollars that foreigners have to spend on U.S. exports or to invest in the U.S.

More importantly, in this case higher duties would actually kill people.  Higher duties mean higher tire prices, and higher tire prices will prompt many motorists to ride longer than otherwise on tires that are threadbare.  Because riding on older tires is more dangerous than riding on new tires, Mr. Obama will have blood on his hands if he accepts the I.T.C.'s recommendation to stiffen duties on low-cost tires.

Sincerely,
Donald J. Boudreaux

Thanks to all of you who answered the quiz in the comments section of my previous post (or in e-mails to me), and congrats to the many of you who earned A+.

Tired Protectionism

The U.S. International Trade Commission recently recommended to President Obama that he raise import duties on low-priced automobile tires from China.

Pop quiz: If Mr. Obama accepts this recommendation, why will he have then have blood on his hands?

Globalization

Canada's wonderful Fraser Institute honored me by asking me to write a short essay on globalization, and then to participate in an on-line Q&A session with students on this topic.  Here's the result.

Source of Desirable Jobs

Here's a letter that I sent a few days ago to the Washington Times:

Peter Leitner wants Uncle Sam to stop G.M. from selling its Hummer division to China-based Sichuan Tengzhong, LTD., in part because this sale allegedly would be a practice in "forever hijacking scores of U.S. jobs" ("Hummer sale to China," June 5).  Mr. Leitner is blind to the full scope of the modern economy.

Most U.S. jobs today depend critically on economic openness of the sort that Mr. Leitner decries.  Capital from abroad; inputs from abroad; customers abroad; and consumer goods from abroad (that lower prices in the U.S. and so raise Americans' real wages) - each of these consequences of economic openness plays a large role in creating countless jobs in the U.S. and, ironically, in imparting to all jobs in America much of the attractiveness that makes the prospect of losing these jobs so difficult.

Making America more closed to trade would indeed keep fewer U.S. jobs from 'moving abroad,' but it would also make these jobs less worth keeping.

Sincerely,
Donald J. Boudreaux

Why trade matters

This is a speech I gave at a conference in Utah on globalization and trade. The first three minutes are a bit slow, and it isn't until about 7 minutes that the cameraman notices that I'm a pacer. So I'm off camera a bit. But it gets more lively, especially the Q and A, where I compare TV and drugs.

I am having trouble getting the player to look right. You can also watch it here.

Perils of Protectionism

Protectionism -- not free trade -- is created.

What a world

Three of my articles have been translated into Vietnames. Enjoy here, here, and here, if you can. English sources are here. The English version of the home page for the Vietnamese think tank posting the articles is here.

Geithner and Beijing

Here's a letter that I sent a couple of days ago to the Wall Street Journal:

You report that Treasury secretary Timothy Geithner is "planning to press Beijing to take drastic measures to turn China's economy into one that depends heavily on sales to domestic consumers and less on sales to the U.S." ("U.S, to Urge China to Shop, Not Save," May 28).

In other words, Mr. Geithner will press the Chinese to take drastic measures to diminish their success at serving American consumers.

When business executives collude to restrict the amounts that they offer to sell to us, they're in violation of antitrust statutes and are often charged as criminals (even though such collusion is unlikely to work).  But when government officials operate to achieve the very same outcome - i.e., reduced supplies available to consumers - these officials are portrayed uncritically, even heroically, as crafting "trade policy."

Sincerely,
Donald J. Boudreaux

Regressive Thinking about Trade

Here's a letter that I sent yesterday to the American Prospect:

Dear Editor:

You boast that your magazine is "the essential source for progressive ideas."  And yet your contributors, including recently Dean Baker in the blog that you host, are forever lamenting the U.S. trade deficit ("China Knows It Will Take a Beating on Its Treasury Investments," May 21).  Alas, these laments reveal no progress beyond the poor economic thinking and mercantilist policy proposals of the late middle ages.

For example, in 1381 Richard Leicester, worried about England importing more than it exports (and paying for these extra imports with money), could have been featured in your pages when he wrote that "Wherefore the remedy seems to me to be that each merchant bringing merchandise into England take out of the commodities of the land as much as his merchandise aforesaid shall amount to; and that none carry gold or silver beyond the sea, as it is ordained by statute."*

True progress in understanding the nature of trade and the absurdity of fretting about the "balance of trade" - in understanding that wealth is access to goods and services and not gold, silver, or currency per se - did not begin until the late 17th century, especially with Nicholas Barbon.  Adam Smith capped this progress when in 1776 he noted that "Nothing, however, can be more absurd than this whole doctrine of the balance of trade."**

Sincerely,
Donald J. Boudreaux

* Quoted in Jacob Viner, Studies in the Theory of International Trade (1937), p. 6.

** Adam Smith, An Inquiry Into the Nature and Causes of the Wealth of Nations (1776) Book IV, Chapter 3, paragraph 31.

On the Importance of the Extent of the Market

James Gwartney's 2008 Presidential Address to the Southern Economic Association is outstanding.  It's entitled "Institutions, Economic Freedom, and Cross-Country Differences in Performance" and is published in the April 2009 edition of the Southern Economic Journal (Vol. 75, pages 937-956).  Here's an especially important paragraph (from page 946):

Our modern living standards are almost entirely the result of investment, entrepreneurial discovery, and gains from depersonalized trade - trade between people who do not know each other and often never meet.  As Adam Smith noted long ago, the division of labor is limited by the extent of the market.  Much like a telephone or an Internet system, a market economy is a network good.  As the size of the market expands from the local town or village to the region, nation, and beyond, network participants derive larger and larger benefits from trade, specialization, and economies of scale.  For those connected to the global market, this system generates employment opportunities, high productivity per worker, and a vast array of consumer goods that are available at almost unbelievably low prices.  This network system makes high-income levels and living standards possible.

Economizing on Resource Use, Including the Use of Labor, Is Key to Prosperity

I'm utterly delighted to have just found on line a pdf version of Henry Martyn's 1701 pamphlet Considerations on the East-India Trade.  This work was first brought to my attention by Doug Irwin's indispensable book Against the Tide (1996).  Doug quotes much from Martyn and even suggests that Martyn's "analytical contribution to the case for free trade" might surpass even that of Adam Smith.

It's only now, though, that I found Martyn's pamphlet.  I will read it ASAP.

Here's one of my favorites of the Martyn quotations appearing in Doug's book:

Things may be imported from India by fewer hands than as good wou'd be made in England; so that to permit the Consumption of Indian Manufactures, is to permit the loss of few Men's labour...  a Law to restrain us to use only English Manufactures, is to oblige us to make them first, is to oblige us to provide for our Consumption by the labour of many, what might as well be done by that of few; is to oblige us to consume the labour of many when that of few might be sufficient.
....
If the same Work is done by one, which was done before by three; if the other two are forc'd to sit still, the Kingdom got nothing before by the Labour of the two, and therefore loses nothing by their sitting still.

(This quotation is found on page 57 of Doug's book, but it is quoted here as it appears in the on-line version of Martyn's pamphlet.)

Fooled by randomness

According to my car thermometer, It was 54 degrees this morning at 8 am here in DC on May 19. It encouraged my skepticism about global warming. Paul Krugman has none:

The scientific consensus on prospects for global warming has become much more pessimistic over the last few years. Indeed, the latest projections from reputable climate scientists border on the apocalyptic. Why? Because the rate at which greenhouse gas emissions are rising is matching or exceeding the worst-case scenarios.

One of us is being fooled by randomness. Hard to say which one. But Paul is very confident. He is willing to justify protectionism:

As the United States and other advanced countries finally move to confront climate change, they will also be morally empowered to confront those nations that refuse to act. Sooner than most people think, countries that refuse to limit their greenhouse gas emissions will face sanctions, probably in the form of taxes on their exports. They will complain bitterly that this is protectionism, but so what? Globalization doesn’t do much good if the globe itself becomes unlivable.

It’s time to save the planet. And like it or not, China will have to do its part.

The implications of Krugman's certainty is much more frightening than he is willing to admit. If you think China is destroying the planet, a tariff is just the beginning of what you will do.

Chinese Labor, Wages, and Productivity

Persons interested in understanding the economics of labor markets, and in particular how this economics sheds needed light on China's low wages, should read this informative and clear quotation from Martin Wolf - a quotation that I originally shared at the Cafe back in August 2006.

Query

Here are three questions for those persons (and there are more than a few of them) who believe that China's cost-advantage in producing the goods it exports is derived from "slave" labor.

First, what do you mean by "slave labor"?  Work conditions harsher than those now common in America and Europe are not sufficient to signal "slave labor."  Nor is very low pay.  Slave labor, accurately understood, exists only when a human being is owned by another human being, and the owner forces his slave to work at tasks chosen by the owner, with the slave having no real say in the matter or ability to resist.

Second, do you really believe that slaves (as defined above) would be desirable operatives in manufacturing plants?

Third, if your answer to the second question is "yes" (or even "perhaps"), why was China a less-productive economy during Mao's reign?  Why were the Chinese less successful then at exporting to the west than they are today?

Similar (but not identical) questions can be asked of persons who insist that China's success at exporting is due to that country's current repressiveness (if not practice of slavery).

An Economic Case Against Envying Another Person's Improved Productivity

Russ and I will both speak this weekend to high-school teachers about trade.  One of the points I hope that Russ or I get the opportunity to make comes from a simple extension of the standard explanation – the “2 X 2” explanation – of the principle of comparative advantage.

I’ll not review that explanation in this post.  (You can find an eloquent and supremely clear explanation here.)  But here’s the point: the principle of comparative advantage explains why, if one trading partner becomes more efficient at producing whatever good or service she specializes in producing, her trading partners’ comparative advantages in whatever goods and services they specialize in producing intensify even without any change in the productive abilities of these trading partners.

Here’s what I mean.  Suppose that, until today, the maximum number of fish Suzy could produce each month was 200.  Suppose also that the maximum number of bananas she could produce each month was 100.  [That is, if Suzy did nothing but produce bananas, she'd produce 100 bananas each month (and no fish); if, in contrast, she does nothing but fish, she catches 200 fish each month (but gathers no bananas).  Similarly -- with the numbers 50 bananas and 50 fish -- for Sam.]

The corresponding numbers for Sam are 50 fish and 50 bananas.  Suzy has a comparative advantage in producing fish while Sam has a comparative advantage in producing bananas.  The reason is that each fish costs Suzy 0.5 bananas to produce while each fish costs Sam 1 banana to produce, and each banana costs Suzy 2 fish to produce while each banana costs Sam 1 banana to produce.  It's easy to see that Suzy will gain by agreeing to buy bananas from Sam at any price lower than 2 fish per banana.  Likewise, Sam will gain by agreeing to sell bananas to Suzy at any price higher than 1 fish per banana.  Mutually advantageous gains from trade clearly are possible.

This explanation is standard, yet still important and exciting, stuff.

BUT - suppose that Suzy’s fishing skills improve.  She’s now able to produce a maximum of (say) 300 fish (rather than 200 fish) per month.  Nothing happens to Sam’s skills.

Suzy’s clearly better off.  But so, too – at least potentially – is Sam.  Before Suzy’s skill-enhancement, Sam could produce banana’s at half the cost that Suzy incurred to produce bananas.  (Remember, each banana cost Sam 1 fish to produce, while each banana had cost Suzy 2 fish.)  Now, however, after Suzy becomes a better fisherwoman, Sam suddenly finds himself able to produce bananas at one-third (rather than one-half) of Suzy’s cost of producing bananas.

Put differently, just as Suzy’s enhancement of her skills increases her comparative advantage over Sam at catching fish, this very same enhancement in Suzy’s skills increases Sam’s comparative advantage over Suzy at gathering bananas.

Sam now has at least the potential to sell his bananas to Suzy at a higher price (i.e., more fish per banana) – or, what is to say the same thing, to persuade Suzy to lower the price she charges for her fish.

Speaking in Utah

I will be speaking on trade and globalization in Salt Lake City, May 20, in the morning. Details here.

Not a Killer Question from the Protectionist

The proprietor of www.ssotu.com responded to my first letter to him with an e-mail asking me a question.  Here's my reply:

Mr. Mark ________
Proprietor, www.ssotu.com
Melbourne, Australia

Dear Mr. ________:

Opposing free trade, you challenge me to answer the following question:

"You [Boudreaux] are appointed the Chief Terminator of Economic Ignorance at a salary of $150,000 a year.  Things are going great for a while, then one day you're told your job will now be done from India for just $10,000 a year.  How are you going to feed your family?"

Such a question elicits many complementary answers.  Here, for now, is just one - in the form of some questions for you: Suppose that people no longer wish to incur the cost of escaping economic ignorance; suppose that people's preferences change - say, people switch from preferring economic education to preferring more chemistry or theology education, subjects about which I know nothing.  Demand for my services as an economic educator dries up.

Does the fact that my income falls dramatically as a result of this economic change give me the right to force people to continue to purchase my services?  Are people morally obliged, having once voluntarily paid me well to perform a service for them, to continue to pay me well for as long as I wish to be occupied in supplying that service?  Does a change in my economic circumstances entitle me (either directly, or through my representatives in government or through some street thugs whom I might hire) to prevent people from spending their money on instruction in chemistry or theology or on other goods and services?

Sincerely,
Donald J. Boudreaux

My answer to these questions is an unambiguous, emphatic, and unconditional "no."

Gifted in Nepal

In this post, I quoted Robert Frank:

For example, as a Peace Corps volunteer in Nepal long ago, I hired a cook who had no formal education but was spectacularly intelligent and resourceful. Beyond preparing excellent meals, he could butcher a goat, thatch a roof, plaster walls, resole shoes and fix broken alarm clocks. He was also an able tinsmith and a skilled carpenter. Yet his total lifetime earnings were less than even a very lazy, untalented American might earn in a single year.

And that prompted this question:

Why does a spectacularly intelligent and resourceful person in Nepal earn spectacularly less than a lazy untalented American?

My one sentence answer (echoed by a number of folks in different form in the comments to the earlier post) comes from my book, The Choice:

Self-sufficiency is the road to poverty.

The longer answer is that the lazy, unresourceful American of average intelligence has no incentive to learn how to fix a broken alarm clock or butcher a goat or thatch a roof. For the American, these elegant but time-intensive skills have a reward that is far below the cost in foregoing other activities. In Nepal these skills are worthwhile. In America, they are only of any real value relative to the cost if you're working at Plimouth Plantation entertaining tourists. The American is only lazy because he can afford to be. But put that guy on a desert island by himself and he will quickly resemble Tom Hanks in Castaway, a man with no real skills suddenly forced to acquire some and with a very intense incentive to do so.

But that is only part of the story. Why can the American afford so much leisure? The answer is that he has more people to trade with, people who bring more capital and skill to the table. I know nothing about goats, thatched roofs, or alarm clocks. I know a reasonable amount about economics, a skill that is virtually worthless in Nepal. And yet I live like a king relative to the cook in Nepal. I live like a king relative to my great-grandfather who may have been smarter and may have been able to do many things I can never imagine doing. The fundamental reason that is so is because I benefit from the division of labor. By specializing in economics, I am able to leverage the skills of other people who are specializing. It is their specializing, and the opportunity to trade with them, that makes it rational and gloriously pleasant to specialize in economics.

There is much more to say. Specialization and the division of labor is a very complex and subtle idea. I try to untangle some of it here and here. And there is more to say, as some of you noted, about what allows specialization to flourish.

Thanks to everyone who submitted comments.

As an American Economist, I Resent Imports of Economic Advice from Abroad

Here's an e-mail that I received earlier today, followed by my response:

RE-INDUSTRIALIZATION OF AMERICA
- quote -

"No members of America's political, economic, academic and media elites would have supported globalization if they personally feared losing own
jobs to those working from abroad for 90% less pay"

If interested, please visit www.ssotu.com and click on the R-O-A button
www.ssotu.com
Melbourne, Australia

*****

28 April 2009

TO: Whoever Is Responsible for www.ssotu.com

FROM: Don Boudreaux

RE: your e-mail, and associated link, sent to me here in the United States asserting that globalization is de-industrializing America.

I ignore the river of factual errors, misleading definitions, and theoretical misunderstandings that saturate your 'analysis.'  I content myself merely to ask how you - who so ferociously oppose globalization and low-cost foreign suppliers - justify yourself exporting, to America, your advice (free!) and your website (also free!) from your home in Australia?

Forget the Political Boundaries

Sometimes animal spirits work wonders - as here in Carpe Diem's Mark Perry, again adding his powerful voice to the argument against using political boundaries as excuses to restrict the flow of trade.

Some Questions for Protectionists

Protectionism is a disease that feeds on fear and ignorance.

With an unusual amount of economic uncertainty sparking an unusual amount of economic fear, protectionist sentiments today are growing. Blatant protectionist pundits such as Lou Dobbs, and blatant protectionist politicians such as Sen. Sherrod Brown (D-Ohio) and Sen. Byron Dorgan (D-N.D.), enjoy larger platforms than they had even just a few years ago.

Protectionism's allure is understandable. "If we make it harder for Americans to buy foreign-made goods," alleges the protectionist, "we increase the demand for American-made goods. With more goods being made in America, more Americans will find jobs. QED."

In this case, though, "QED" should be read as standing for "Quite Especially Dumb."

That's the opening to my latest piece in the Pittsburgh Tribune-Review, in which I then goes on to pose some "Bastiatian" questions to protectionists, such as,

1. You, Mr. Protectionist, say that low-priced imports harm us. Can you explain why access to low-cost goods and services makes us poorer?

2. You answer question No. 1 by saying that allowing American consumers to buy low-priced goods and services from abroad causes American producers -- who can produce those things only at uncompetitively higher costs -- to lose their markets. When these high-cost American producers lose their markets, high-wage American workers lose their jobs. You insist that it's this displacement of high-cost producers in the U.S. by low-cost producers abroad that must be stopped.

So do you, Mr. Protectionist, also believe that Uncle Sam should force us Americans to pay a high tariff on sunlight before we are allowed to use it? After all, sunlight is an enormously beneficial product that Americans routinely import at no cost at all! (The sun charges us nothing for the valuable heat and light that it exports to us daily.) Don't you worry that this dirt-cheap import that floods our market every day unfairly shrinks the market for American-made goods such as light bulbs, flashlights, central-heating units and down blankets?

If you don't support blocking sunlight with a tariff or with some other government restriction -- why not? Please explain how one low-cost yet valuable import (sunlight) differs from other low-cost yet valuable imports (such as steel from China or textiles from Malaysia).

The State of Manufacturing in the United States

This is a pretty darn good report from Harold Sirkin at Business Week.  A key paragraph:

As Stephen Manning of the Associated Press acknowledged in a rare "just the facts" story in mid-February, the U.S. "by far remains the world's leading manufacturer," producing goods valued at a record $1.6 trillion in 2007 — nearly double the $811 billion produced a decade earlier. Indeed, the AP writer noted, "For every $1 of value produced in China's factories [in 2007], America generated $2.50." Not bad for a country that doesn't produce anything anymore.

The facts contradict those who insist that freer trade condemns high-wage countries, such as the United States, to suffer net losses of highly productive enterprises.  (More such facts on manufacturing in the U.S. can be found here.)

(HT Walter Peterson)

But Think of the Lost Jobs!

I allow myself a second, and final - and vain - commemoration of the Cafe's fifth-year anniversary.  It remains one of my favorite posts at Cafe Hayek; it's the second one I did here:

Policy, Trade, and the Long-Run

Today is the fifth anniversary of my first blog post at Cafe Hayek.  I stand by it still.

Loco: The Sequel

Carpe Diem's Mark Perry, who lives in Michigan, spends valuable space on his blog discussing a post on Cafe Hayek -- which is a product of Virginia and Maryland.  (Russ works in Virginia at GMU, but immigrates in to his job from his home in Maryland.)  Putting aside the damage that Mark is doing to Michigan's economy by promoting a non-Michigan blog, I believe that Mark's blog post is well worth reading.

Loco

Here's a letter that I sent yesterday to the Jacksonville, Florida, newspaper.  (HT Tim Townsend):

Editor, Florida Times-Union

Dear Editor:

In "Florida's economy: Support local business" (April 9) you report that some Floridians are trying to boost Florida's economy by "buying local."  The idea, of course, is that if Floridians buy as much as possible from other Floridians, rather than from non-Floridians, then economic activity in Florida will be stronger.

Nonsense.

Suppose that to promote, say, Florida peach growers, consumers in Florida reject good deals on peaches from South Carolina.  Florida peach growers benefit, but other Floridians suffer. By paying more than necessary for peaches,  Florida consumers not only directly make themselves poorer, but they also have less money to spend elsewhere, such as at the local car-repair shop and at local restaurants.  In addition, to the extent that the misguided ethic of "buying local" takes hold, local firms have weaker incentives to improve their efficiencies and product offerings. The state's economy suffers, both today and especially tomorrow.

Florida's buy-local effort boasts the charming name "Backyard Economics." A more appropriate name would be Backward Economics."

 

Sincerely,

Donald J. Boudreaux

Cheap Shot

A comment on this post by Eric Krangel at Silicon Alley Insider ends with this snide remark:

"Café Hayek: Where tenured US professors lobby ferociously against protecting US jobs."

I don't wish here, for the umpteenth time, to revisit the superficiality of the fact that Russ and I are tenured college professors.  If any of you readers wish to discount what we say at the Cafe -- discount it because tenure is a term in our labor contracts -- then, by all means, discount away.  Feel superior.  Feel smug.  Feel clever.  That's your business.  And if you can muster no stronger argument against the case that we make here for free and open markets than that argument that screams "Oooohh my!  Don and Russ are tenured!  That means that they are oblivious and insensitive special-pleaders!  Let's ignore them!", then proceed.  Wallow away in your puddle of pointlessness, fantasizing that you've adequately addressed serious arguments with your ad hominem accusations.

Instead, I wish to point out that neither Russ nor I "lobby ferociously against protecting US jobs."  Far from it.  Our argument -- which is nothing more than a well-known part of the long-standing argument for free-trade generally -- is that trade changes the pattern of domestic employment; it doesn't destroy domestic jobs on net.

One may challenge the theoretical or empirical bases for our claim that greater openness to international trade replaces current jobs with newly created jobs; that's a reasonable and important debate to have.  But to accuse those of us who argue for more open trade (or more open immigration, or greater openness to innovation) of doing so on the understanding that this greater openness 'destroys' domestic employment opportunities is utterly disingenuous.  Persons who level such accusations against those of us who make the case for free trade either do not understand what that case is or are more interested in scoring cheap debating points than in furthering a discussion that helps promote better economic policies.

Protectionism and Stimulus

Here, at ForeignPolicy.com, I argue that protectionism and fiscal stimulus each hinder economic growth because each thwarts the economy's capacity to allocate resources in ways that promote prosperity.

Pretty Arguments Masking Destructive Policies

Here's a letter that I sent earlier today to the Wall Street Journal.

I Am a Liberal

Many of the comments on this post prompt this follow-up.

Daniel Kuehne is correct: the world is bigger than economics; economics does not explain everything.  Human values are among the things that matter far beyond gains from trade and efficiency.

Among my values is liberalism.

I love and care for my family and friends more than I care for mere acquaintances, and I care about most mere acquaintances more than I care about total strangers.  But the nationalities or physical locations of these people's residences are irrelevant to me.  I care no more for a stranger in my town of Burke, Virginia, than I care for a stranger in Beijing, Beirut, or Berlin.  If this claim sounds harsh, let me say the very same thing differently: I care as much about a stranger in Beijing, Beirut, or Berlin as I care about a stranger in Burke, Virginia.  I accord all strangers the same rights and respect.  I regard the well-being of strangers in foreign countries to be no less important than I regard the well-being of strangers in America.

One of the great tenets of liberalism -- the true sort of liberalism, not the dirigiste ignorance that today, in English-speaking countries, flatters itself unjustifiably with that term -- is that no human being is less worthy just because he or she is outside of a particular group.  Any randomly chosen stranger from Cairo or Cancun has as much claim on my sympathies and my respect and my regard as does any randomly chosen person from Charlottesville or Chicago.

Liberalism recognizes that people are part of families and friendships and a variety of different kinds of associations.  Liberals encourage, or at least tolerate, any and all forms of voluntary associations, from marital ones to religious ones to trading ones.  Liberals reject the romantic nonsense that demands that each person "love" or "care for" everyone in the same way that that person loves and cares for himself, his family, and his friends.

But liberalism rejects the notion that there is anything much special or compelling about political relationships.  It is tribalistic, atavistic, to regard those who look more like you to be more worthy of your regard than are those who look less like you.  It is tribalistic, atavistic, to regard those who speak your native tongue to be more worthy of your affection and concern than are those whose native tongues differ from yours.

For the true liberal, the human race is the human race.  The struggle is to cast off as much as possible primitive sentiments about "us" being different from "them."

The liberal is fully aware that such sentiments are rooted in humans' evolved psychology, and so are not easily cast off.  But the liberal does his or her best to rise above those atavistic sentiments,

The liberal is also fully aware that most people will never rise above such sentiments.  But because rising above these sentiments is a value worth pursuing -- because casting off what is now the irrational feeling that a stranger who happens also to be a fellow citizen of your country is thereby a more worthy person, someone more important to you and your well-being than is a stranger who happens to be "foreign" -- the liberal points out, as occasions permit, that what matters is that people be free to associate as much as possible as they voluntarily choose without being constrained by culture or by force to associate on different terms with foreigners than with fellow citizens.

Free Trade is Common

Persons who, fancying themselves observant realists, insist that "free trade doesn't exist" have their visions and brains distorted by political boundaries.

It is quite true that national governments almost universally erect barriers that hinder their citizens' freedom to trade with citizens ruled by other national governments.  Some governments erect higher barriers than do other governments.  But, indeed, it's rare to find a national government that doesn't indulge the greed of politically powerful interest groups, as well as the prejudice and economic ignorance of much of its population, with trade barriers.

And yet free trade is ubiquitous.  Freedom to trade generally reigns within political borders.  For example, the 50 U.S. states are united on one very large and very successful free-trade zone.

Karol, Thomas, and I live in Burke, Virginia.  We are free to trade not only with cabbage growers in Culpeper, Virginia, but with cabbage growers in California.  We trade freely with residents of any state, from the Atlantic to the Pacific, from the U.S. border with Canada to the U.S. border with Mexico.  That is, whatever taxes and burdens Uncle Sam might impose (however wisely or foolishly) on economic activity within the U.S., those burdens are nation-wide.  No special space-specific burdens are placed on my and my family's ability to trade with other Americans; no extra tariff or restriction applies to our exchanges with an Alaskan or with a Floridian simply because we do not live in those states.

Practically speaking, therefore, there is free trade throughout the United States.  My family and I routinely buy wine from California and Oregon, oranges and lemons from Florida, computer software from Washington state, maple syrup from Vermont, peaches from South Carolina, television newscasts from New York and Atlanta, lumber from Alabama, spicy sauces from Louisiana, crabs from Maryland.  The list is long.

And yet no one, not even Lou Dobbs, insists that the Boudreaux family would be richer if only the government in Richmond could fine a successful way around the U.S. Constitution and managed to slap stiff tariffs on California wine, Florida citrus fruits, cajun seasoning from Louisiana, and you name it.

Surely the burden of persuasion is on those who would insist that each American would be more prosperous if only his or her state were better able to restrict trade with citizens of other states.  If this burden of persuasion cannot be met, then the case for free international trade is pretty solidly established.

Anyone skeptical of free trade must explain why political borders are economically relevant.  With the exception of pointing to (mostly rather vague and poorly considered) national-defense issues, protectionists have never managed -- and I dare say never will manage -- to impart genuine economic relevance to political borders.

Because all reasonably prosperous countries today impose no, or only very few, internal restrictions on trade, two facts stand: (1) free trade is in fact quite common, and (2) free trade is beneficial.

Serious and Pseudo-Serious Arguments About Trade

This post is one of the most disingenuous that I've ever read.  Read it for yourself and tell me if you agree (or not).  I'm not even quite sure that it isn't an intentional spoof.

Consider, for example, this claim:

But the leading official voices for free trade today are the same people who have authored and championed bailouts for our banks and manufacturers and frenetic spending to prop up our companies. Also, today’s free trade evangelists regularly trample on the notion of free trade by backing subsidies for manufacturers and exporters.

For instance, newly confirmed Commerce secretary Gary Locke, during his two terms as Washington State governor, was very close to Boeing and Microsoft. In 2003, he pushed through a $3.2 billion package of special tax breaks for Boeing. More to the point, he heads an agency that spends taxpayer dollars to support American companies. Nevertheless, Locke has long espoused “free trade.”

If by "official voices" the author means the voices of government officials, then I agree -- but no  sensible person this side of toddlerhood takes any statements of government officials to be the definitive arguments in favor of serious principles.  Government officials, by their very nature -- or, by the very nature of the occupations they choose to pursue -- are duplicitous, unprincipled, and untrustworthy representatives of any principles other than those of getting, maintaining, and strengthening their own power and tawdry glory.

The truest and best spokesmen for free trade are not any politicians you can name but, rather, scholars such as Leland Yeager, Jagdish Bhagwati, Doug Irwin, Johan Norberg, Martin Wolf, Dan Griswold, and the Cafe's own Russ Roberts.

To find a modern politician who bleats his or her support for free trade and then to be be shocked! when that politician reveals himself or herself to be inconsistent in his or her views -- or to be shocked! when he or she expresses positions at odds with the underlying principles upon which the most solid case for free trade rests -- is a child's game.  Such inconsistency is par for the course for politicians.  Such rogues ought never be represented as being the best champions (or even respectable champions) of any sound economic or ethical proposition.

To hold up members of the political class as offering the best arguments for free trade is akin to holding up a newly married Hollywood hunk and his drop-dead gorgeous new actress-bride as the foremost champions of monogamy and marital bliss.  Maybe they were serious when they pledged publicly to each other "til death do us part," but surely when Mr. Hunk and Ms. Hubahubahuba divorce one year from now, no one will point to their divorce as evidence that the case for marriage is wanting.
....
I'll say more in a follow-up post about this irritatingly disingenuous blog-post purporting to expose weaknesses in the case for free trade.

Trade and Wages

This item is from the Carlisle Journal, 12 November 1846:

FREE TRADE AND WAGES. - The Protectionists used to be fond of asserting that the manufacturers were anxious to repeal the corn laws in order that they might reduce the wages of their workmen. Events have falsified the assertion. In Carlisle the wages of the hand-loom weavers, since the passing of Sir Robert PEEL's measures, have been considerably increased upon certain fabrics, and we understand there is the prospect of a further rise very shortly. The manufacturing population of Carlisle are, we feel happy in adding, in full employment, and we are not aware of any intention among the millowners to resort to the short-time system, now so extensively adopted in Lancashire.

(HT: T. Alan Russell)

Behind the Marble Facade, It's Thuggery

Here's a letter that I sent recently to the New York Times:

Sen. Sherrod Brown snarls at the notion that protectionist policies reduce freedom (Letters, March 18).  Let's see.  If I want to buy a pair of pants from China, armed agents from U.S. Customs stop me from doing so unless I fork over to them a fee that Mr. Brown and his colleagues on Capitol Hill determine I should pay for the privilege of engaging in this voluntary transaction.

If I resist and try to buy my pants without paying the fee demanded by Uncle Sam's armed goons, I will be imprisoned.  If I resist too adamantly, I will be shot dead.

For Mr. Brown to deny that protectionism infringes people's freedom is disgraceful Orwellian newspeak.

Sincerely,
Donald J. Boudreaux

Getting "Tough" on Trade

A March 10th headline in the Washington Post reads "U.S. to Toughen Its Stance On Trade.”  Sounds great!  Who wants their government to be bullied by bad guys?

Trouble is, "getting tough on trade" is a euphemism for government being bullied by bad guys.  When government "toughens" its trade posture, it always does so under pressure from organized producer groups - producers too frightened, too greedy, and too unprincipled to compete against foreign rivals - producers too namby-pamby to vie for consumer demand without government making it tougher for consumers to get the most for their money by buying imports.

Getting “tough” on trade means protecting domestic producers from having to compete head-on with foreign rivals.

"Toughening” trade protection is no manly maneuver.  Nor is it a policy likely to discipline domestic firms into becoming as productive as possible.  Being protected from competition by a “tough” trade policy encourages domestic producers to get weak.  Why stay on top of your game if a “tough” protector will cover you should you lose a step or two?

More importantly, getting “tough” on trade directly assaults domestic consumers.  A “tough” U.S. trade policy prevents Americans from spending their money as they choose.  Americans are told by the government allegedly empowered to protect their rights and liberties that “You may not deal with foreign suppliers as you wish; you must deal with them on terms conditioned by Washington or not deal with them at all.”

In short, it’s impossible for any government to get “tough” on foreign traders without also getting tough on its own citizens.

Of course, whenever Uncle Sam “toughens” his stance on trade, American consumers aren’t alone in their suffering.  Foreign rivals of the protected firms are indeed among those who suffer.  It’s this damage to foreign firms that lends not only plausibility, but even glamour, to the “get tough” rhetoric.  But because foreign firms generally prosper in America only by giving U.S. consumers the most value for the dollar, it’s fair to ask those officials who call for “tougher” trade policies: “What, exactly, do you have against American consumers?  Why do you want to force them to get less bang for their bucks?  How will coddling domestic producers behind a wall of protection make the U.S. economy resilient and tough?”

For the U.S. "to toughen its stance on trade" is for Uncle Sam - bullied by special interests - to thumb his nose at ordinary Americans while barking at them "tough luck."

Trade war?

Mexico is putting tariffs on 90 American products after the killing of the pilot program that lets in Mexican trucks (HT: Carrie Conko).

WSJ article here.

It's bad enough that we refuse to enforce NAFTA. This is a dangerous path.

Come on Summers and Romer. Speak out!

Here's my article on Mexican truck safety from long ago. Still relevant, alas.

Peace and Free Trade

"If soldiers are not to cross international borders, goods must do so" - so wisely said a now-forgotten aide to F.D.R.'s Secretary of State Cordell Hull.  And Ed Glaeser makes this important case in yesterday's Boston Globe.  Here's his closing paragraph:

Other countries provide us with clothes, cars, markets for exports, and lending for the government and banks. Shutting our markets will make life more expensive for us and hurt the rest of the world. In the 1930s, legislators embraced high tariffs, but putting America first led to a devastating world war. Today, US lawmakers need to choose hope over fear, and stick with free trade.

Everyone Has a Favorite Horse to Beat. Mine is Not Dead.

Earlier today I heard Washington Post columnist Robert Samuelson interviewed on WTOP radio (a local all-news/sports/weather channel in DC).  Samuelson is usually pretty good, but he -- like so many others -- fails to understand the trade deficit.  He said in this interview (as he says sometimes in his columns) that the trade deficit "must be financed."

That's simply not so.

If Mr. Toyota sells $1 million worth of cars to Americans in 2009, spends $600,000 buying ("current") goods and services -- exports -- from Americans, and stuffs the remaining $400,000 into his mattress, the U.S. trade deficit rises by $400,000 but there's no more "financing" of this amount going on than if Americans had spent that $1 million buying, not Mr. Toyota's product, but Mr. Chrysler's and Mr. Chrysler had used the proceeds exactly as Mr. Toyota did.  The only difference between these two scenarios is that, in the first, the U.S. trade deficit rises while in the second it does not rise.

Ditto if, say, Mr. Toyota used the $400,000 to buy shares of General Electric and 3M -- or if he used the $400,000 to buy real-estate in Ohio.

Only if Mr. Toyota lends the $400,000 to Americans is there any financing going on, but even here there isn't necessarily a problem.  Is it worse for Entrepreneur Jones in Jacksonville to launch his firm with money borrowed from Mr. Toyota than with money borrowed from, say, Bill Gates?  In both cases there's debt.  But economically it matters not one whit which government issues the creditor's passport.  If the borrowed funds are used wisely, they serve a useful purpose.  Period.  End of story.

If the borrowed funds do represent a problem, it must be because the debtor went into debt unwisely -- say, he borrowed the $400,000 not to launch a new firm but to throw a gigantic party.  (Yes, yes.  I know that even gigantic parties are not unambiguously wasteful or unwise, but please don't be pedantic with me on this point.)  But the problem here, again, is not the nationality of the creditor but the status of the debt -- how it was used.

There is a great deficiency in the way even otherwise well-informed pundits think and write about the so-called "trade deficit."

Deficient Economic Thinking

Here's a letter that I sent yesterday to the Wall Street Journal:

Peter Morici asserts that America's trade deficit with China causes "a huge drain on the demand for U.S.-made goods and services. The absence of reciprocal free trade is an important reason the U.S. economy is in its current mess," (Letters, Feb. 11). Untrue. Dollars the Chinese do not spend on U.S.-made goods and services are invested in dollar-denominated assets. These investments raise demand for U.S. output just as would more direct expenditures on goods and services. Consider what happens, for example, if the Chinese buy shares of Microsoft, thus raising America's trade deficit with China. First, the American sellers of these shares get more dollars to spend on U.S.-made goods and services. It's economically irrelevant if the persons buying these outputs are from Seattle or from Shanghai. Second, Microsoft's cost of capital falls, making that company more likely to expand operations, or at least less likely to contract them. Concerns about the U.S. trade deficit are unwarranted.

Perspectives on Trade and Romance

After reading this letter, read my take on romance.

Upside to Suicide

New York Times columnist Floyd Norris argues that there is "an upside to resisting globalization."  It is this: economies unintegrated into the global economy aren't very much subject to global-economy downturns.

To be sure, Mr. Norris is correct.  But the Times should be consistent and have, say, one of its medical reporters write about the upside to suicide.  Suicide's practitioners, after all, inoculate themselves against all future illnesses.

Economic Activity Ultimately is for Consumers

A headline at the Wall Street Journal's home page yesterday read

The WTO called a meeting to discuss a fast-rising wave of barriers to commerce, as governments scramble to safeguard key industries, often at their neighbors' expense

This is akin to saying that the chief victims of government restrictions on freedom of the press are suppliers of newsprint and ink.

"Buy American" Means Bye-Bye Prosperity

The great trade economist, Douglas Irwin of Dartmouth, warns in today's New York Times against the dangers of protectionism.  Here are Doug's closing lines:

When the United States imposed the Smoot-Hawley Tariff in 1930, it helped set off a worldwide movement toward higher tariffs. When everyone tried to restrict imports, the combined effect was a deeper global economic slump. It took decades to undo the accumulated trade restrictions of that period. Let’s not make the same mistake again.

Lose the 'We'

Beware double-counting.

Credit Is Too Tight, Except When It's Too Loose

Below (and here) is a letter that I sent this morning to the Washington Post.  Can anyone tell me why more people don't pick up on this obvious inconsistency?

Treasury Secretary nominee Timothy Geithner sides with those who worry, as you put it, that "Beijing has kept its currency artificially low to keep the prices of its goods cheap and generate trade surpluses. That has led to a global capital imbalance, as American consumers borrowed and spent and China became the United States' largest foreign creditor" ("Geithner Says China Manipulates Its Currency," January 23).  And he threatens to act "aggressively" to stop this alleged wrongdoing.

Overlook the reality that the only way Beijing can push the price of the yuan lower is through inflation or other policies that weaken the Chinese economy.  Instead ask: why should the Obama administration be so upset by Beijing pumping easy credit into markets at a time when this same administration is deeply worried that credit has become too tight?

Sincerely,
Donald J. Boudreaux

Some Imbalances are More Mythical than Others

Do current-account "imbalances" cause economic downturns?  No.

Pat Buchanan and failure

Pat Buchanan thinks we should bail out the Big Three. Here is Grant Bosse's response. The best part:

Bailing out the Big Three is subsidizing failure.  And you only subsidize something when you want more of it.

On Peter Morici On the Trade Deficit

I take issue here with Peter Morici's understanding of the trade deficit.

Shameless Bragging and Self-Promotion

I thank Phil Murray for this very nice review of my book Globalization.

My debate with Bill McKibben

I'll be debating Bill McKibben on the virtues or lack thereof of "buying local." The debate will be at 4:00 pm, Oct. 29  at the Dudley H. Davis Center’s Grand Maple Ballroom on the University of Vermont campus in Burlington. Hope to see you there.

Meanwhile, here's an interview I did with a Vermont paper, Seven Days, on the idea of buying local.