A Simple Question

by Don Boudreaux on January 6, 2007

in Trade

Here’s a question for everyone — Lou Dobbs, Paul Craig Roberts, Pat Buchanan, Sen. Sherrod Brown, etc. — who believes that government should use force to reduce the amount of money domestic consumers voluntarily spend on goods and services offered for sale by foreign producers:

Do you believe that a consumer who has long patronized a corner bakery is morally obliged to continue patronizing that bakery?  Do you believe that government would be acting justly if it told that consumer "You must not take your patronage from this bakery.  We do not care if you no longer care for baked goods or if a new bakery across town offers you a better deal.  Because the owners and employees of this bakery have depended upon you for some time now to help keep their business and incomes afloat, you would harm them if you stop buying from them, or even if the amount you buy from them is substantially reduced"?

If you don’t believe that any such consumer is morally obliged to continue patronizing the corner bakery, on what ethical foundation do you rest your case for "protectionism"?

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{ 31 comments }

Bret January 6, 2007 at 6:56 pm

Isn't giving a specific bakery monopoly rents a bit of a different question than some restriction on trade?

Don Boudreaux January 6, 2007 at 7:03 pm

Bret,

Please explain the relevant difference. I (honestly) don't see it.

Thanks.

Don

Sam January 6, 2007 at 7:23 pm

There is no ethical basis for protectionism.
Protectionism is based in political pragmatism.
As we all know.

roger January 6, 2007 at 7:48 pm

Thank you Don for helping me understanding economics as i read your blog and others economic blogs.

Lee January 6, 2007 at 8:17 pm

You should really have put it like this:

Do you believe that the bakery owner should have the right and power to threaten his patrons with fines or even incarceration, should they decide to take their custom elsewhere?

That's what most government legislation boils down to, a semi-enslavement of one group by another for the latters sole benefit. However, done discreetly through the proxy of government, our law enforcement agencies and backed up with plenty of rhetoric, hardly anybody notices and will even advocate such practices.

It's quite astonishingly that is works so well. Thankfully, places like this demonstrate that while you can fool most of the people all of the time, you can't fool all of the people all of the time.

Michael January 6, 2007 at 8:30 pm

Actually the Supreme Court basically said this in one of the most absurd decisions in history, when they determined in Utah Pie V. Continental Baking that the price of pie in Salt Lake City was too low and needed to be raised. Gotta love the Robinson Patman Act. Fortunately the Court has developed more reasonable interpretations in the last 20 years. Still for thos of you who think this example is absurd, look at antitrust cases from the pre-1980's time period.

Calca January 6, 2007 at 8:46 pm

Well I don't have TV so I've never seen Lou Dobbs, but I bet that he must have been a huge supporter of drilling in Alaska when that debate was raging, I'm sure he's appalled at how the US goes around hunting down cheap foreign oil instead of buying expensive national oil produced on american soil by american workers. Right?

Lee, they sometime say that the mob, mafias, are primitive forms of government, which is like saying that the govt is an advanced form of mafia.

Calca.

Sam January 6, 2007 at 8:53 pm

There is a natural conflict of interest between consumer and producer. The consumer wants to pay less and the producer wants to charge more. In the marketplace, they tend to work things out, but in the political arena, people are generally more concerned about how much they make than how much they spend, and thus the incentive for influencing the political process is greater for people as producers than as consumers.

Kurt January 7, 2007 at 12:36 am

I was amazed when I recently read in one of Donald Trump's books (don't hold it against me) his "plan" to "revive" the American economy (this was 1990 or so). It had protectionism written all over it, with Trump claiming that imports from Germany and Japan should be taxed at 10-20% extra in order for American industries to have "fair" competition. I'm afraid Trump is not the only one in corporate America that has these kind of ideas.

Bret January 7, 2007 at 2:34 am

Don,
If you said I could patronize any one of two or more neighborhood bakeries but was prohibited from going across town, then I'd say your example is equivalent. Being limited to a set of competing producers is a different situation than being limited to a single producer. The first has at least some competition. The second has none and the single baker completely has you over a barrel.

Grzesiek January 7, 2007 at 6:50 am

"I was amazed when I recently read in one of Donald Trump's books (don't hold it against me) his "plan" to "revive" the American economy (this was 1990 or so). It had protectionism written all over it, with Trump claiming that imports from Germany and Japan should be taxed at 10-20% extra in order for American industries to have "fair" competition."

For the better part of two years the Bush administration imposed steel tariffs on imported steel. I wonder if Mr. Trump learned anything from this action.

Domestic steel producers won through the application of tariffs while domestic automakers/finished steel parts manufacturers were hurt by the tariffs.

Does globalization need to be improved? Of course, but let us remember:

"The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups." – Henry Hazlitt

bob wright January 7, 2007 at 8:57 am

Bret,

You are missing the point.

Government should not be able to tell you which bakery to patronize.

It doesn't matter whether it is two neighborhood bakeries or a bakery across town.

Ceding the latter is to cede the former.

I believe you have made a distinction without a difference.

Slocum January 7, 2007 at 9:46 am

As a matter of fact, I do know quite a few people who think it is morally preferable to patronize the corner bakery (or bookstore or clothing store) than to buy from a national chain or order by mail.

But I don't know how far they'd go to enforce this preference legally. Laws to require people to patronize their local outlets? No, probably not. But special tax breaks for shopping at locally owned businesses? Yes, they probably would go for that.

Grzesiek January 7, 2007 at 11:40 am

"As a matter of fact, I do know quite a few people who think it is morally preferable to patronize the corner bakery (or bookstore or clothing store) than to buy from a national chain or order by mail."

Using the bakery example and assuming that each business is not engaged in nefarious activities it seems I must be missing something.

Since when do morals play any role in deciding which baker I choose to buy my bakery from?

Randy January 7, 2007 at 12:41 pm

Grzesiek,

They shouldn't, but to those who oppose free trade they do. Their arguments are chock full of examples of people who have been hurt by loss of business due to free trade.

Bret January 7, 2007 at 2:29 pm

bob wright wrote: "Ceding the latter is to cede the former."

Not really. If so, then by that black-and-white logic the fact we've ceded the right of some kind of taxation and regulation to the government (even Nozick thought that necessary) means that we've ceded the right of all forms of taxation and regulation to the government.

There are some shades of gray here, I think. With some restrictions on bakers, you pay a bit more. Specifying a specific baker and no other, you pay 2, 5, 10, or 1000 times more. Given I'm being taxed on the transaction anyway, paying 20% more versus 1000% more seems different enough to me to put it in a different moral category.

True_Liberal January 7, 2007 at 3:16 pm

Denying the freedom of choice to a consumer is merely using the force of government to prop up the vendor at the expense of the consumer.

It's that simple.

Steven M. Warshawsky January 7, 2007 at 3:33 pm

I am very sympathetic to the argument for free trade, but far too often it is asserted in an overly simplistic manner. Perfect example is foreign oil.

In an ideal world, the free trade argument makes sense, even applied to oil: We should buy our oil from lower-cost foreign producers rather than rely on more expensive domestic sources, for all the standard reasons.

BUT . . . this utterly ignores the reality of what is being done with the money being sent by the West to Arab oil producers. A substantial portion of this money is being funneled to terrorist groups and to radical Islamic religious, educational, and political organizations. Only a fool believes these consequences are automatically outweighed by the "efficiency gains" of buying cheaper foreign oil. At a minimum, these are serious considerations that must be factored into any foreign trade analysis. But the free traders on this website and elsewhere never do. For them, theory based on idealized conditions trumps reality.

The bottom line is that buying oil from the Middle East is not remotely equivalent to buying bread from a bakery in a different neighborhood, or whatever facile analogy the free trade extremists want to make. Their position is just as blind to reality as the rabid protectionism of Lou Dobbs.

Bruce Hall January 7, 2007 at 4:12 pm

Protectionism provides only a localized advantage in the sense that a local area (region, if you will) may be severely damaged economically by the impact of foreign competition.

As long as there are other regions that benefit from such trade, protectionism is seen as obstructionism. The U.S. is large enough that protectionism makes no sense nationally.

It is hard to see under what conditions that a national interest is served by protectionism… as defined by restriction of trade… such as patent protection and copyright protect which obviously restricts competition and forces consumers to pay higher prices for these protected products.

JohnDewey January 7, 2007 at 5:29 pm

Steven M Warshawsky: "Only a fool believes these consequences are automatically outweighed by the "efficiency gains" of buying cheaper foreign oil."

Let's assume you are correct that U.S. purchases of Arab oil fund terrorism. What difference would it make if the U.S. stopped purchasing Arab oil? The global demand for oil is huge. If the U.S. could somehow convince all of Europe and all of Asia to also stop purchasing Arab oil, then perhaps economic pressure could force the Arabs to stop those who fund terrorism. Is that likely to happen? IMO, not anytime soon.

Who would be hurt if the U.S. alone boycotted Arab oil? First, I suppose, would be the U.S. corporations that operate in Arab nations. Also, the U.S. itself would lose the cooperation of Arab leaders.

Why even consider the empty gesture of boycotting Arab oil?

Lee January 7, 2007 at 5:36 pm

Steven,

The mistake you make is by implicitly presupposing that the only difference between buying Middle Eastern oil and North American oil would be the presence of extra funding for terrorist groups.

There are all kinds of consequences which would come from more expensive oil, which I am quite convinced would strongly outweigh the benefits of reduced terrorist funding. The fact is that the more expensive it is to transport goods and people, the less goods and people will be transported.

How many people will over the course of years, among hundreds of millions of people, will die or suffer greatly because the life saving medicine or facilities they needed were too far away, too expensive to transport to a more local chemist or hospital?

How many people will have to forgo a vacation, or a trip to visit relatives because the costs of transport have increased?

How many services will increase in cost, from calling out a tow truck when you break down, calling a plumber when a pipe bursts or an electrician when the wiring fries? How many people will forgo these services entirely for the increased costs?

Will police patrols be cut to save money? The number of ambulances or fire trucks on call? How much will food prices increase? How will this effect the very poorest families?

An artificial scarcity imposed by government legislation has consequences which reverberate throughout society, sometimes causing little more than a minor nuisance, but at other times costing lives, always reducing the standard of living for all but that small subsection of society who benefit at the expense of everyone else, from who they extort by the proxy of government legislation.

The difference between an economist and the layman, is that the economist considers these long run and almost invisible consequences to our choices. It is this that ultimately is of concern to those interested in developing effective public policy, it is the short run and more obvious consequences to one particula group, such as terrorist organisations, that are of central importance to those with politicised incentives.

Furthermore, the fact that Americans buy Middle Eastern oil in such huge amounts helps to ensure peace, it constrains the actions of these corrupt politicians who well recognise that it is not wise to bite the hand that feeds them (though they'll certainly nibble to appease the radicals back home). There would be a real danger if America pulled out of that trade, leaving those political powers with less incentive to resist or combat extremism.

ben January 7, 2007 at 5:40 pm

Steven M Warshawsky

Even if you are correct that oil money funds terrorism, not buying foreign oil is an exceedingly indirect means of combating terrorism.

1) only a fraction of oil money is presumably used to fund terrorism

2) even if the US boycotted Arab oil, there are plenty of other purchasers. Given a world oil price, the effect on terrorist funding would be close to zero.

3) consumers can in any case make energy choices at the individual level to suit their own preferences.

4) There are more direct ways to combat the funding of terrorist groups, such as diplomacy, sanctions, direct intervention, freezing assets, and so on.

In short you would lose much and gain little by preventing access to Arab oil.

JohnDewey January 7, 2007 at 7:01 pm

Lee: "the fact that Americans buy Middle Eastern oil in such huge amounts helps to ensure peace"

I agree, Lee. But just to be clear, U.S. imports from the Middle East are a small part of total U.S. oil consumption – about 15 percent.

Major sources of oil refined in the U.S.:

U.S. ………35%
Canada……..12%
Mexico……..11%
Saudi Arabia..10%
Venezuela……8%
Nigeria……..7%
Iraq………..4%
Angola………4%
Ecuador……..2%
Kuwait………1%

Source: U.S. Energy Information Administration data tables

Our NAFTA partners are our major suppliers.

Geoffrey Brand January 7, 2007 at 7:38 pm

Dilbert comic from Sunday Feb 19th
(I couldn't find a permanent link but I have it up in my office)

Dilbert: I’m thinking about buying a more fuel efficient car.

Dogbert: Why?

Dilbert: It’s my patriotic duty to reduce this country’s dependence of foreign sources of oil.

Dogbert: Why?

Dilbert: Because then the countries that hate us will have less money to fund terrorists.

Dogbert: Actually developing countries would buy the oil you saved, thus adequately funding those same terrorists.

Dilbert: At least I wouldn’t be funding them myself

Dogbert: Oil is a fungible commodity. The capitalist system virtually guarantees that you’ll end up buying the lowest cost oil from sources unknown to you.

Dilbert: Well maybe. But I want my car to make a statement.

Dogbert: And the statement would be “Hey everyone, I don’t understand what fungible means!”

Lee January 7, 2007 at 7:50 pm

"I agree, Lee. But just to be clear, U.S. imports from the Middle East are a small part of total U.S. oil consumption – about 15 percent."

Less than I thought, but still a massive amount of money, and no doubt important to the wallets of those who sell it. The principle stands nonetheless, that those who depend on each other have a strong incentive to avoid hostility.

ben January 7, 2007 at 8:16 pm

Steven M Warshawsky

Also, terrorism is not a card that automatically trumps all others. Terrorism is a cost which must be weighed against other costs and benefits. This is true even in a moral analysis: it is hard to see the morality of saving lives by (indirectly) reducing funding of terrorism only to kill more people by, say, raising the cost of gasoline and making it harder for people to obtain urgent medical treatment. As noted above, trade itself provides strong, and demonstrably effective, incentives for good behaviour by nation states.

coyote January 8, 2007 at 12:22 am

This is a reasonable question to me, but I fear that there are many people who would answer "yes" to your question. For example, before Wal-Mart was evil for not paying people more than they needed to, they were evil for destroying small local businesses.

triticale January 8, 2007 at 6:54 am

My son likes to point out that it wasn't Wal-Mart that killed off the local businesses, it was Zayre and E J Korvette.

JimSaco January 9, 2007 at 9:45 am

What about the "keystone industry" argument, i.e., that some industries are so important to a country that they must be protected from foreign competition lest the country be put at risk of survival?

JohnDewey January 9, 2007 at 3:30 pm

JimSaco: "some industries are so important to a country that they must be protected from foreign competition lest the country be put at risk of survival"

What industries would those be?

Oil? Over half the oil consumed in the U.S. is produced by the U.S. and its NAFTA partners.

Chemicals? Nobody produces more than the U.S.

Motor vehicles? The U.S. produces the same number today that it did ten years ago and more than it did twenty years ago.

Agriculture? I'm pretty sure the U.S. is self-sufficient.

Aircraft? We're the number one producer.

Medical Equipment? Number one also.

Pharmaceuticals? Not positive, but I think we're self-sufficient.

Suppose we could envision an industry that may not survive without tariffs. Wouldn't the real economic damage from tariffs be far greater than any imagined damage from supply cutoff?

Cyberike January 9, 2007 at 5:11 pm

My two cents is that we are going to buy (and use up) all of the oil in the world sometime, and when we buy it from the Middle east at least some of the money will go to terrorists.

However, However, I would rather buy middle east oil now when it is cheap and use it all up, thus drying up the funds, than boycott, use up all our own expensive oil, then buy in larger quantities when the price is higher. Paying less now seems like a better idea to me.

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