What to Expect When You're Free Trading

by Don Boudreaux on January 16, 2008

in Trade

The always-insightful Steve Landsburg has this excellent and timely op-ed in today’s New York Times.  Although access to the NYT‘s editorial page is now free, I paste Steve’s important op-ed below in its entirety.  Read, reflect, learn.

What to Expect When You’re Free Trading




IN the days before Tuesday’s Republican presidential primary in
Michigan, Mitt Romney and John McCain battled over what the government
owes to workers who lose their jobs because of the foreign competition
unleashed by free trade. Their rhetoric differed — Mr. Romney said he
would “fight for every single job,” while Mr. McCain said some jobs
“are not coming back” — but their proposed policies were remarkably
similar: educate and retrain the workers for new jobs.

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.

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.

In what morally relevant way, then, might displaced workers differ
from displaced pharmacists or displaced landlords? You might argue that
pharmacists and landlords have always faced cutthroat competition and
therefore knew what they were getting into, while decades of tariffs
and quotas have led manufacturing workers to expect a modicum of
protection. That expectation led them to develop certain skills, and
now it’s unfair to pull the rug out from under them.

Once again, that argument does not mesh with our everyday instincts.
For many decades, schoolyard bullying has been a profitable occupation.
All across America, bullies have built up skills so they can take
advantage of that opportunity. If we toughen the rules to make bullying
unprofitable, must we compensate the bullies?

Bullying and protectionism have a lot in common. They both use force
(either directly or through the power of the law) to enrich someone
else at your involuntary expense. If you’re forced to pay $20 an hour
to an American for goods you could have bought from a Mexican for $5 an
hour, you’re being extorted. When a free trade agreement allows you to
buy from the Mexican after all, rejoice in your liberation — even if
Mr. McCain, Mr. Romney and the rest of the presidential candidates
don’t want you to.

Steven E.
Landsburg, a professor of economics at the University of Rochester, is
the author, most recently, of “More Sex is Safer Sex: The
Unconventional Wisdom of Economics.”


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