Milton Friedman Was Well Aware

by Don Boudreaux on April 3, 2018

in Adam Smith, Myths and Fallacies, Subsidies, Trade

Here’s a letter to the Wall Street Journal:

Ed Kahl’s writes that the late Milton Friedman’s arguments in support of free trade “were correct when he made them.  But he didn’t envision China subsidizing inefficient state industries” (Letters, April 3).

Not so.

Governments have for centuries used subsidies in attempts to artificially increase their countries’ exports.  Adam Smith wrote of such interventions in 1776, and Milton Friedman, of course, was also well aware of such subsidies.  Here’s Friedman speaking during his 1980 PBS show, Free to Choose: “When anyone complains about unfair competition, consumers beware.  That is really a cry for special privilege, always at the expense of the consumer.  What we need in this country is free competition.  As consumers buying in an international market, the more unfair the competition the better. That means lower prices and better quality for us.  If foreign governments want to use their taxpayers’ money to sell people in the United States goods below cost, why should we complain?”

Not only would Milton Friedman not be surprised by Beijing’s export subsidies, he would point out about these subsidies today what he pointed out about Japanese export subsidies 40 years ago: those who reap the bulk of the benefits of these subsidies are Americans and other buyers of the subsidized exports, while those who suffer the bulk of the costs of these subsidies are Chinese consumers and taxpayers.

Friedman was explicit that foreign-government subsidies supply no good excuse for protectionism at home.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

…..

Protectionists’ ignorance is not only of basic economics and of foundational facts about trade.  They are ignorant of the contents of even the most public of history’s trade debates.

I am unfailingly struck by protectionists’ unfamiliarity with the history of protectionism.  Protectionists regularly serve up this or that objection to free trade as if this or that objection is some clever new and unanswerable insight only recently uncovered by today’s protectionist geniuses.  Yet no argument for protection punitive taxes on domestic citizens who buy imports is new – or, at least, I’ve yet to encounter, since I was a graduate student in the 1980s, any such argument that is new to me.  Indeed, I conservatively estimate that at least 75 percent of the arguments against free trade that protectionists today proudly offer as evidence of their creative genius were explicitly addressed and thoroughly debunked by Adam Smith in The Wealth of Nations.  And I doubt very much that there is any argument offered today for protectionism that Milton Friedman (1912-2006) did not encounter even before he was awarded by Columbia University his doctorate degree.

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