Quotation of the Day…

by Don Boudreaux on November 4, 2017

in Myths and Fallacies, Taxes, Trade

… is from pages 117-118 of the 2015 Fourth Edition of Dartmouth economist Douglas Irwin’s superb book, Free Trade Under Fire (footnote deleted):

How much are imports to blame for the job losses experienced in any given year?  Not much.  Changes in consumer tastes, domestic competition, productivity growth, and technological innovation, in addition to international trade, all contribute to the churning of the labor market.  It is virtually impossible to disentangle all of the reasons for job displacement because they are interdependent: for example, technological change may be stimulated by domestic or foreign competition.  Yet to the extent that such attributions are made by the [United States] Bureau of Labor Statistics, trade is a tiny factor in the displacement of labor.  As table 4.1 shows, import competition and overseas plant relocations accounted for about 3 percent of total employment separations due to mass layoffs in recent years.  During the recent Great Recession, layoffs topped two million in 2009, but less than 1 percent of those job losses were due to import competition.

In fact, study after study has confirmed that the trade-induced number turnover in U.S. labor markets is small in comparison with the overall turnover.

DBx: I confess to being unusually annoyed whenever someone accuses me or other academic economists who support free trade of doing so because many of us are tenured.  Forget that we do not make the rules of academic employment.  (I, for one, would happily abolish the tenure system were it in my power to do so.  I’d prefer to take more of my compensation in the form of cash rather than in the form of institutionally enforced greater job security.)  Forget that I, and most academic economists who support free trade, supported free trade long before we became tenured.  (I became a free-trader at the age of 18 as a college freshman at Nicholls State University.)  Forget that an ad hominem argument is an argument rooted in a logical fallacy.  Forget also that to protect some domestic-economy jobs from import competition is to destroy other domestic-economy jobs.

Focus instead on the fact that no one blinks an eye when an academic economist argues that markets should be competitive, or when an academic economist writes favorably about entrepreneurship.  If (contrary to fact) it were true that tenure disqualifies an academic from pointing out the enormous net benefits of free trade (and, because of those benefits, from advocating a policy of free trade), then tenure should also disqualify an academic from pointing out the more general reality that there are enormous net benefits of market competition.

In reality, everyday market competition for consumers’ expenditures and the freedom of consumers to change how they spend their incomes cause far more job losses (and job creation) than do changes in trade patterns that span across politic borders.

American conservatives are fond of saying, when advocating tax cuts, that “workers should keep more of their own incomes.”  I fully and enthusiastically agree that those who earn incomes should keep more of their own incomes while the taxman gets as little as possible.  But many of the same conservatives who proudly intone that “workers should keep more of their own incomes” turn around and, in the next breath, advocate higher tariffs.  These conservatives are deeply inconsistent.  Higher tariffs are higher taxes.

More fundamentally, the value of keeping more of your own income is reduced if the government puts artificial restraints on how you may spend that income.  If the income truly is yours – if the government has no right to take it in the form of taxing it when you earn it. – by what mysterious process does the government get a right to take that income when you spend it?

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