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Another Open Letter to Ian Fletcher

Posted By Don Boudreaux On January 9, 2011 @ 11:27 am In Seen and Unseen,Standard of Living,Technology,Trade | Comments Disabled

Mr. Ian Fletcher
U.S. Business & Industry Council [1]
Washington, DC

Dear Mr. Fletcher:

You allege [2] that the case for free trade is “a myth, promoted by special interests which benefit from free trade.”  Among the arguments that you muster to support this allegation is this one: “free trade increases inequality even if it makes the economy grow overall….  Because free trade tends to raise returns to the abundant input to production (in America, capital) and lower returns to the scarce input (in America, labor), it tends to benefit capital at labor’s expense.”

Overlook your failure to address the possibility that whatever unhappiness lower-income people might suffer from greater income inequality is more than offset by the happiness they enjoy from being wealthier as a result of freer trade.  Overlook also the fact that – because making trade freer raises the returns to capital in countries such as the U.S. and, therefore, encourages more capital investment in the U.S. – free trade raises worker productivity and real wages over time in the U.S.  Overlook, too, the fact that data on changing trade patterns and income ‘distribution’ do not support your claim that free trade promotes greater income inequality within countries [3].  Finally, overlook the fact that you overlook the benefits of the higher wages that free trade makes possible for workers in poor countries.  (Why should you or I celebrate less an improvement in the welfare of a South Korean than we celebrate a comparable improvement in the welfare of a South Carolinian?)

Ignore all the above points and ask: is it also a myth that freedom to improve and use technology is beneficial?  After all, these improvements and uses have the same consequences as does freer trade.  In countries such as America in which labor is relatively scarce, technological research is aimed chiefly at discovering ways to economize on labor – at discovering ways to substitute machines and other non-human means of production for labor.  If your thesis is correct, such technological improvements permanently lower the returns to labor relative to the returns to capital.  That is, technological advance in America, according to your thesis, “tends to benefit capital at labor’s expense.”  So is the case for research & development – for additions to our knowledge of science and engineering – for advances in technology – ‘a myth, promoted by special interests which benefit from technological improvements’?

Sincerely,
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA 22030

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URLs in this post:

[1] U.S. Business & Industry Council: http://www.americaneconomicalert.org/aboutus.asp

[2] You allege: http://seekingalpha.com/article/198470-ten-problems-with-free-trade

[3] data on changing trade patterns and income ‘distribution’ do not support your claim that free trade promotes greater income inequality within countries: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=632684

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