Reprising the Relevance of the Long-Run

Here and in the post just above, I reprise two of my very first posts at Cafe Hayek.  This one deals with the issue of how relevant is the long-run when assessing trade policy.  (My answer: very.)

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Still alive in the long-run

Trade’s documented effect on employment is clear: freer trade does not reduce the aggregate level of employment (and nor does it increase it). Skeptics of free(r) trade frequently respond “Sure, in the long-run new jobs will be created. But what about workers who are unemployed now? The long run is no good to them. Even an economist, John Maynard Keynes, recognized that ‘in the long run we’re all dead.’”

This justification for protectionism – that protectionist policies are justified because they diminish pain and anxiety today, while the costs of protectionism emerge only in the less-significant tomorrow – is faulty on a variety of fronts. Perhaps the biggest flaw of this justification is that it’s a lie. No one really believes that short-run consequences should take precedence over long-run consequences.

You see, people who really believe that long-run effects should be ignored or significantly discounted in favor of short-run effects would, in addition to supporting protectionism, support also the following policies:

- eliminating environmental laws (because these impose substantial costs today in return for benefits that arise mostly in the long-run);

- Uncle Sam’s current, unprecedented budget deficit (because the benefits of the deficit are enjoyed today while payment for today’s benefits need not be made until tomorrow);

- eliminating Social Security (which forces people to forego consumption today in favor of the long-run).

If no sensible person accepts the mantra “in the long run we’re all dead” as an argument against environmental laws and efforts to reduce the budget deficit, why does this mantra have credence in debates over free trade?

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