Wednesday, January 16, 2008

The best defense of free trade you will read all year 

Writing in today's Grey Lady, economist Steve Landsburg has produced the best defense of free trade -- and the case for letting the consequences fall where they may -- that you are likely to read all year. Teaser:

All economists know that when American jobs are outsourced, Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices. In other words, the winners can more than afford to compensate the losers. Does that mean they ought to? Does it create a moral mandate for the taxpayer-subsidized retraining programs proposed by Mr. McCain and Mr. Romney?

Um, no. Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside?

I doubt there’s a human being on earth who hasn’t benefited from the opportunity to trade freely with his neighbors. Imagine what your life would be like if you had to grow your own food, make your own clothes and rely on your grandmother’s home remedies for health care. Access to a trained physician might reduce the demand for grandma’s home remedies, but — especially at her age — she’s still got plenty of reason to be thankful for having a doctor.

Some people suggest, however, that it makes sense to isolate the moral effects of a single new trading opportunity or free trade agreement. Surely we have fellow citizens who are hurt by those agreements, at least in the limited sense that they’d be better off in a world where trade flourishes, except in this one instance. What do we owe those fellow citizens?

One way to think about that is to ask what your moral instincts tell you in analogous situations. Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonald’s, should you compensate the owners of the diner next door? Public policy should not be designed to advance moral instincts that we all reject every day of our lives.

The last sentence is especially true, but read the whole thing.


By Blogger Unknown, at Wed Jan 16, 08:56:00 AM:

Landsburg is a very smart economist, but as a politician? Not so much.

The reason for compensating the losers of free trade is not moral, but practical. The benefits of free trade are dispersed across the country, while the losses (of free trade in sugar, for example) are more highly concentrated.

In this and many other examples, the benefits of closed trade accrue to ADM, but let's ignore that for now.

The losers care a lot more about stopping free trade than the winners, even if the winners come out much further ahead in aggregate. If you don't throw the losers a bone, it will never happen.

Economic literacy is quickly spreading through the country. Maybe someday we won't have to give into this kind of blackmail. But we're just not there yet.  

By Anonymous Anonymous, at Wed Jan 16, 09:40:00 AM:

You are correct about public policy but considering your examples you consider morality but not practical reasons for still buying from the fellow nearby.

I am actually in that position with the local gaming store. I can usually pick up games either on the net or on ebay for anywhere from 15 to on occasion 25% cheaper. I don't.

I like having the option of getting the games locally. I like being in a place where I can physically interact with other gamers. I like being able to take my boys there to play. I know that if there is a problem Dave will take care of me. The loyalty goes both ways.

There are compensations for acting locally its up to the buyer to decide if they are high enough and the seller to make that experience and service worth the money.

It is not the states obligation to force it.  

By Anonymous Anonymous, at Wed Jan 16, 10:21:00 AM:

Its time to repeal NAFTA and end the invasion of america by terrorists are crinimals  

By Anonymous Anonymous, at Wed Jan 16, 10:21:00 AM:

Economic literacy is quickly spreading through the country.


thanks for what I'm sure will be the laugh I enjoyed the most all day.  

By Blogger TigerHawk, at Wed Jan 16, 10:23:00 AM:

Michael, you are certainly right about the politics. Unfortunately.

Anonymous Buy Locally guy -- May I suggest that you are recharacterizing the product you are buying. You are not buying a video game, but a combination of the game, personal service, and community. You are buying your game from the local dude for the same reason that people buy a latte at Starbucks and drink it in the pleasant ambiance of the store (perhaps while blogging) than making it at home from the same coffee and drinking it in the tedium of their own kitchen at 6 am. Even if the drinks are essentially identical, the thing being purchased is very different. So you have identified one of the main ways that small businesses can survive against Amazon and Wal-Mart -- create an experience for your customers that cannot be duplicated from China.  

By Blogger David M, at Wed Jan 16, 01:02:00 PM:

The Thunder Run has linked to this post in the - Web Reconnaissance for 01/16/2008 A short recon of what’s out there that might draw your attention, updated throughout the day...so check back often.  

By Blogger Unknown, at Wed Jan 16, 06:02:00 PM:

NoBrainer -

Wasn't meant to be a laugh line - although I can easily see the chuckle in retrospect.

But seriously, I'm amazed at:

* The widespread appeal of Freakonomics, Bloomberg, etc.

* The entire country (if you consider Berkeley to be part of Cuba) now realizes that Marxism does not work.

* The Republicans and Democrats no longer like to tax-and-spend. Well scratch that one.

The point is, the country has advanced a lot since say, 1975.  

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