The irrational voter quandary

Sonic Charmer is in a quandary. I’m here to help.

I’ll go through Aretae’s post and highlight our points of disagreement. Sonic Charmer can then make up his own mind (I’d love to know what he decides).

Fact 1:

Free trade and labor-saving devices are EXACTLY equivalent domestically. Anyone who doesn’t understand this is simply economically ignorant. If you oppose free trade for domestic reasons, you should also be opposing industrial robots. The effects are EXACTLY the same. If you’re not opposing Industrial robots, because that position is insane, you should not be opposing free trade, because the results are EXACTLY the same. Oppose both, or oppose neither. The domestic effects are indistinguishable.

Aretae loves to say that trading with Japan is exactly (this is usually all capped or bolded) the same as a machine that turns corn into cars. This is a factually incorrect statement for a variety of reasons. First, such a machine is impossible – it cannot exist. Free trade with Japan can exist. More substantively, they are not equivalent with respect to long-term economic flexibility. A factory that produces cars can be turned into a factory that produces helicopters. A black box that turns corn into cars cannot. A factory that produces cars is staffed by employees that know how to produce cars (this may be helpful if the market later decides that it wants to produce helicopters, for example). A black box that turns corn into cars does nothing to increase, create or maintain human capital.

This "fact" actually gets to Caplan’s discussion of "make-work bias." It’s my proposition that Aretae and Caplan vastly underestimate the negative externalities associated with long-term unemployment. A society with lots of people not working for long periods of time is a broken (see, e.g., the current Middle East and North Africa). Or, if you prefer something closer to home, my normal commute takes me within a block a housing project in DC. The people who live in the project get paid not to work. The effects are there for all to see.

In my ideal society everyone would work.

Fact 2:
Free trade + taxation + compensating payments (welfare, workfare, retraining, whatever) is financially better for EVERY SINGLE PARTY IN THE WORLD than unfree trade.

Sonic Charmer, if someone tells you that they are 100% sure of all the costs and all benefits associated with all possible combinations and permutations of all possible trade systems, taxation systems and wealth transfer systems you should be very suspicious. It’s possible that you are dealing with a being who is omniscient, but it’s unlikely.

Moreover, this statement is so strong that one single counterexample can falsify it. I used the example of my uncle, the cabinet-maker, in my book review. He personally has been made worse off by free trade. Therefore, fact 2 is not a fact. It’s possible that our welfare/re-training system could be altered to make him better off, but the current system has not done so.

Finally, it’s not clear that what we should be most concerned about is maximizing the financial position of everyone. I would argue that we have higher concerns and I think this is our fundamental disagreement. If what matters most to you is the current level of wealth in society, you should listen to and agree with Caplan and Aretae.

Fact 3:
Trade restrictions do exactly TWO things. (1)Pay off favored constituencies at the cost of making the whole country poorer. (2) purchase support for politicians. They always incur a cost of (say) $1 from each of the 300M people in the USA, and pay GM $100M in trade benefits. Net $200M loss. Collecting $.50 from everyone in the country, and giving it to straight to GM is better for EVERYONE, except the politicians who are hiding the the net $ transfers behind anti-foreign bias.

Again, this is not a fact. A fixed and flat tariff would not satisfy criterion (1) or (2) and it is a trade restriction.

In addition, fixed and flat tariffs have existed, whereas complete free trade has not. If you really don’t want trade policy to corrupt politicians, I think picking the system that has actually existed is a better route.

Fact 4:
If I want to trade the Plums in my yard with my buddy Jesse’s Oranges, and some bozo with a gun says stop trading or I’ll shoot…because I want you to buy George’s oranges which are 3x as expensive…the guy with a gun is a Thug, and morally in the wrong. Full stop.

A tariff would continue to allow you to trade plums with whomever you wanted. Aretae’s system still relies on taxation (see "fact" 2). I see no reason why a tax in the form of a tariff is more thuggish or morally wrong than a tax on income.

Aretae then turns to my examples.

Oregon’s no self-service gas "tax". DUMB AS ROCKS. It is net welfare improving to hire teens to dig trenches, and refill them out of general revenues. Pretending they’re doing something useful is pure delusion. Digging trenches and refilling them is less value-destroying. Nearly everyone is richer…and the Thug-in-chief could probably target the tax better as well. OTOH, there’s undoubtedly also some transfer from the public to the Gas Station owners, which is why the policy persists.

No one is pretending that they’re doing something to enhance economic efficiency. Would you rather pay a guy to sit at home and play video games or pay them to show up to a job every day? It’s my position that the externalities associated with the latter are hugely positive, while the externalities associated with the former are hugely negative. I believe the only effective way to "educate," "assist," or "re-train" people is through having them do actual work – more time in classrooms or left to their own devices will not help. I really don’t think this is a difficult concept to grasp.

If you travel to any first-world Asian country, you can see the difference in action. Japan pays people to give directions to people in the subway system or stand on street corners and provide assistance, the US pays people to sit at home and play video games. Both involve inefficiencies and taxes. I think the former system has significant benefits over the latter.

Foseti’s grandpa the cabinetmaker. Every person in the country can be made wealthier paying Foseti’s grandpa his full cabinetmaker wages (and then some) out of taxes for the rest of his life to dig ditches and refill them, while not interfering with free trade than they would be by limiting free trade. Yes…Foseti’s grandfather has a vested interest in hiring thugs with guns to stop me from trading with cabinetmakers in China…he gets to do something that he is not (relatively) very value-creating at, because he likes it…even though it destroys wealth for everyone who wants cabinets. You may as well keep the buggy-whip makers, for all the value it builds.

It’s actually my uncle. Every person could be made wealthier if the system worked as Aretae suggests. But the system doesn’t work that way.

I find it fascinating that Aretae believes that any restraint of trade would be terrible because politicians will screw it up while simultaneously believing that politicians could run a perfect wealth transfer system without corruption resulting. What am I missing?

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9 Responses to The irrational voter quandary

  1. hogberg says:

    When all you have is a comparative advantage hammer in your intellectual toolbelt, everything looks like an analogy

  2. sconzey says:

    A couple of things:
    1. I think it’s important to divide the discussion of “is free trade a Universal Good” from the discussion of “could a democratic government ever implement a rational unfree trade policy, supposing one existed”. The two discussions are linked (what’s the point in perfecting a policy that could never be implemented?) but they aren’t the same.
    2. I agree there are problems with comparative advantage:
    a) the calculations assume goods are substitutable based on their dollar-price. If the dollar price of some goods are being manipulated, I’m not sure the calculations are still valid (ask an economist :P)
    b) the theory assumes no unpriced externalities
    3. It is not obvious that a fixed and flat tariff has no net negative effect on the country’s wealth, and it is well-established that tariffs on imports raise the price of those products domestically, whilst lowering the price of all the things the country exported. It may still be a Good Idea, but that remains to be proven.
    4. Oregon’s self service gas station “tax” is dumb as rocks when coupled with minimum wage law.
    5. You’re right: it is ludicrous for Aretae to advocate some form of welfare state, yet explicitly object to tariffs on the grounds that they cost money

    I will concede that there are times and circumstances in which a tariff or other work-creating tax makes sense. I will definitely concede that unemployment has severe externalities. I remain to be convinced of your arguments about a country’s “long term viability” and whether a democratic government could be trusted to correctly implement a tariff system.

  3. Jehu says:

    Seems everyone forgets that the government has to bite someone for their money. If you don’t have tarrifs, likely you have an income tax. Tarrifs and no income tax was the status quo in the US for a long time—a better one IMO.

  4. Erik says:

    Aretae: “Free trade + taxation + compensating payments (welfare, workfare, retraining, whatever) is financially better for EVERY SINGLE PARTY IN THE WORLD than unfree trade.”

    Foseti: “if someone tells you that they are 100% sure (…) you should be very suspicious. It’s possible that you are dealing with a being who is omniscient, but it’s unlikely.”

    Foseti: “It’s possible that our welfare/re-training system could be altered to make him better off, but the current system has not done so.”

    Erik: You two seem to be talking past one another. Aretae has a very large “whatever” in there that’s handwaved away in much the same way as physicists assume a spherical cow on a frictionless plane in a perfect vacuum. Foseti is more realistic about what does and doesn’t exist, but this leads him to either overlook or misinterpret Aretae’s point. Aretae says that given sufficient fudge factor, free trade works out better. Foseti says that free trade works out worse, because of unfudged things.

    • Foseti says:

      I think you are correct. I don’t understand why he’s willing to give free trade such a huge fudge factor but not give any other policies any wiggle room.

      • Erik says:

        Possibly because “no tariffs” is a stable and easily observable state that it’s hard for politicians to meddle with if they want to look as though they’re not really messing with it, but once you break the bright-line rule and implement tariffs, it becomes much easier for politicians to start tinkering in relative obscurity.

  5. Handle says:

    The thing that this discussion is missing is that, whatever it’s merits and demerits, one cannot separate the subject of free trade from considerations of the trade-*balance*. It is long-term trade imbalances which can cause most of the detrimental effects to any particular economy to the benefit of another.

    The subtle thing hard to grasp without an Economics background is that such imbalances can only be accomplish by currency-manipulation policy which is equivalent to transfers of wealth from households to capital-intense exporting industries, which is *also equivalent* to tariffs and subsidies. Even Paul Krugman agrees with that. It’s silly to be in favor of “free trade” but not permit countries to establish policies which counter such strategic zero-sum behavior.

    You can talk all you want about black-box corn-into-cars machines. But the problem is what if the car-seller offers attractive financing and the corn farmer gets more cars for less corn today? Eventually, the corn farmer owes the entire present-value of the farm to the car-makers *and cannot adjust* to making cars for himself because he didn’t build up the requisite institutions and human capital. This is what Warren Buffet (not an idiot, a champion of markets, but not a free-trade fundamentalist) means by “colonized by purchase instead of by conquest” – pure predatory mercantilism.

    • sconzey says:

      currency-manipulation policy [is] equivalent to transfers of wealth from households to capital-intense exporting industries, which is [effectively identical to] tariffs and subsidies

      This is an excellent point.

  6. […] Foseti has written further on his free trade conversation that left me in ambivalent paralysis, so I owe him a response. […]

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