Aretae responds to my anti-free trade posts here.
Again, I’m not sure I disagree with anything he says, but I think he misses my point.
By way of background, I’ve ardently pro-free trade for as long as I can remember. List, however, raises two points that I had never previously considered: 1) pro-free traders assume that general wealth maximization is the goal – specifically they are concerned with international benefits – the game changes when you are thinking of a specific country’s welfare (i.e. thinking realistically); and 2) pro-free traders assume that free trade is occurring in free economies.
Additionally, pro-free traders are making some very strong claims. The idea that free trade is always better than any restriction on free trade for any period of time however brief is an incredibly strong statement. Statements this strong are almost always wrong.
Unfortunately, I don’t agree with either of the assumptions and I distrust such strong statements. Nations will be concerned with maximizing their own wealth, not global wealth. I thinking of this is here, not the ought. If every nation was looking out for every other nation, the story might be different, but we’d also being living in a fantasy land. Further, our economies are not free. It’s impossible to measure the costs of free trade, but they must include welfare benefits, job re-training costs, etc. These costs are not borne privately in our economy.
For the record, if I was in charge, trade would be much freer than it is.
There is one additional reason why I’m so intrigued by this issue: mainstream economists holds two absurdly contradictory positions: 1) it’s best for a economy if the money supply is managed by a group of economists; and 2) it’s terrible to manage trade in any manner. Surely, it’s impossible for a rational person to believe both of these positions simultaneously? Unfortunately, these positions are held simultaneously by all mainstream economists. What am I missing? Why is it easier to determine the number of dollars needed in the economy at any given time than to determine how trade should flow across national boundaries?
Anyway, I’d like to respond to some of Aretae’s objections:
1. Alan grows Apples and Betty raises Beef. Since Alan has so darn many apples, and Betty is drowning in cow patties, Alan and Betty will both benefit by trading some apples for some beef. Chuck raises cows, but his cows are far more expensive to raise than Betty’s beef. Free trade says: Let Betty and Alan trade. Alan is better off, and so is Betty. Protectionism says that since Betty lives in Canada, we should prohibit Alan from trading with Betty, and instead make Alan trade with Chuck. In this case, Chuck is better off, Alan is worse off, and Betty is worse off. . . .
All true. Now let’s say that Alan makes guns and Betty makes butter. They’re better off if they trade with each other. Consequently the manufacture of guns moves to Alan’s country. Is Betty’s country really better off if it can’t make its own guns? Really?
2. Who gets protectionist policies? Politically connected folks. Duh. Are there any other choices? Protectionism is a transfer of control from free market decisioning into the political realm. ALL transfers of power from individual decisionmaking into the political realm are (a) net-destructive of liberty, and (b) creating inequality, and (c) generally welfare destroying.
This is the best objection, I think. List (and I) actually agree with this point. List merely argues that for some time during a country’s development, it’s better to have some tariffs to allow domestic manufacturing to have a chance.
3. Blatantly stealing ideas from others: Did you know we have a huge floating factory in the Pacific that takes corn and turns it into cars? The factory happens to be called Japan…so we don’t think about it properly…but it’s really just a factory. Indeed, to an American, foreign trade is EXACTLY, 100% equivalent to a factory or process that does something better than how it is currently done. . . . The only way of distinguishing between a labor-saving device (machine) and foreign trade is by noticing that the other country is also benefiting. Prohibiting foreign trade damages both my country and the other country. My consumers and the other country’s producers lose. My producers win.
Again I’m not sure that I have enough information to agree or disagree with this statement. What happens to US workers that no longer produce cars? How much do we spend on unemployment, welfare, and knock-on effects of having additional families on welfare. I think the only honest answer is "I don’t know." Further problems arise if the country has lots of workers unsuited to the only industries remaining in the country – the Chinese may be able to do things cheaper if we only look at direct costs, but we can’t all be computer programmers. Too often when I read the arguments of pro-free traders, they assume that dis-placed American workers are going to be the next Bill Gates. This is not realistic – variations in cognitive abilities exist and they’re a bitch. Finally, we need to clarify what the goal is. If the goal is higher GDP, free trade may be optimal. But one country with a higher GDP and 12% unemployment that has no chance of dropping lower may not be better off than a country with a slightly lower GDP that is running at full employment. Economics can tell us which policies will result in higher GDP. It can’t tell us what is optimal for society beyond that.
4. Hayek. ’nuff said. Actually, most folks don’t understand Hayek yet. Hayek says, correctly, that the primary problem with government action is that there is high uncertainty, and even an uncorruptible superhuman central planner cannot make decent decisions about which industries will prosper if given protection, and which ones won’t. Indeed, empirical studies, which I’ve linked to in the past, but can’t find now, indicate that Infant Industry protection does not make for competitive industries any better than does no protection. Turns out that central planners suffer from Hayek’s knowledge problem in planning infant industry protection as well.
I’ve read my share of Hayek and I agree that he’s a complicated thinker. Isn’t it just possible that other government programs could create an environment in which free trade was no longer the optimal outcome? Just potentially, slightly possible?