… is from page 225 of David Boaz’s excellent 2015 book, The Libertarian Mind:
One of the important applications of the principle of comparative advantage is international trade. To an economist there is nothing really special about international trade; individuals make trades when both of them expect to benefit, whether they live across the street, in different states, or in different countries.
DBx: This short passage is about as good a summary of the economics of international trade as there can be. Trade is trade, and there’s nothing at all about political borders that causes the nature or consequences of trade to change. The essence of the benefits from trade that arise from trading with people across town arise no less surely from trading with people across an ocean. And any problems commonly identified as reasons to restrict or to stop trading with people across an ocean arise no less surely from trading with people across town.
I especially like the way David Boaz opens this passage. International trade is simply one application of the principle of comparative advantage. Each and every individual (person or firm) enjoys a comparative advantage in producing some service or good over nearly every other individual and firm on the planet. Comparative advantage is no less an essential part of the reason why you specialize as you do and trade with some of the people in your town as it is a part of the reason why you specialize as you do and trade with some of the people in China.
It’s regrettable that David Ricardo introduced the principle of comparative advantage in the chapter of his Principles titled “On Foreign Trade” and used for his illustrative example two countries – England and Portugal – as the two trading parties. In fact, comparative advantage exists at the level of the individual producer – worker or firm – and not originally or in any unique way at the level of the country. Whatever comparative advantage we might sensibly speak of a country having is nothing other than the composite comparative advantages of the producers within its borders. (When I teach economic principles, the very first piece of formal economic analysis that I share with my students is the principle of comparative advantage. I use this principle to reveal an essential part of the reason why individuals specialize and trade – and, so, in my example the two specialists are individuals, not countries.)
As I’ve argued before, I suspect that the world would be a better place had there never been a speciality in economics called “international trade.” The existence of such a speciality conveys the mistaken impression that there is something unique about the essentials of international trade compared to purely domestic trade. But no such uniqueness exists. For another example, consider that the same reciprocal demand, or “offer,” curves that every student of international trade encounters can be used with no less validity and good effect to explain trade between blue-eyed people and brown-eyed people of the same country as they can be used to explain trade between the people of the United States and the people of Guatemala.
I place the balance of international payments data in the class of statistics for which the world would have been a happier place had the data never been devised, popularized (in a rough way), and used by policy makers. This last aspect is the crux of the matter because the balance-of-trade data in particular can scarcely help but serve as a rationale for pernicious policies, such as export subsidies and tariffs, quotas, and other official restrictions on imports. In short, the data help the government establish and maintain policies that enrich the privileged few at the expense of the unconnected many, including consumers in general and producers who rely on imported raw materials and components, as many do these days.
Jeff Tucker is correct: every Taco Bell is a marvel! (No hyperbole.)
… is from page 6 of Benjamin Rogge’s October 1962 speech titled “The Case for Economic Freedom,” as this essay is reprinted in A Maverick’s Defense of Freedom, the 2010 collection of Rogge’s essays that is edited by Dwight Lee:
In other words, economic freedom is part of total freedom; if freedom is an end in itself, as our society has traditionally asserted, then economic freedom is an end in itself, to be valued for itself alone and not just for its instrumental value in serving other goals.
If this thesis is accepted, there must always exist a tremendous presumption against each and every proposal for governmental limitation of economic freedom. What is wrong with a state system of compulsory social security? It denies to the individual his freedom, his right to choose what he will do with his own money [and] resources. What is wrong with a governmentally enforced minimum wage? It denies to the employer and the employee their individual freedoms, their individual rights to enter into any voluntary relationship not involving force or fraud. What is wrong with a tariff or an import quota? It denies to the individual consumer his right to buy what he wishes, wherever he wishes.
An idea has taken root “that you’re entitled to certain things, that you don’t necessarily have to earn them,” he [Sowell] says. “There’s a belief that something’s wrong if you don’t have what other people have – that it’s because you’re ‘disadvantaged.’ A teenage dropout mother is told she has a disadvantage. But if you’re going to call the negative consequences of chosen behavior ‘disadvantage,’ the word is corrupt beyond repair and useful only for propaganda purposes.”
I want the people of America to be able to work less for the government and more for themselves. I want them to have the rewards of their own industry.
How radical. How humane. How very wonderful.
As you watch this short video of President Coolidge making the case for what he called greater “economy” of government and lower taxes, note his use of the words “freedom” and “liberty.” He seems to have understood freedom better than do most of today’s politicians (a low standard, to be sure), and Coolidge certainly was more committed to it than are any but a vanishingly small handful of today’s so-called “leaders” (again, alas, another terribly low standard).
Here’s a letter to a frequent correspondent – one who, in an e-mail to me, describes any American’s support for free trade as “incomprehensible”:
Mr. Nolan McKinney
You’re “certain that America is powerful enough to win a trade war.”
Waging and winning a trade war are peculiar things.
Trade wars are waged as if the population of each belligerent country consists of a handful of sadists ruling over a mass of masochists. The rulers thrill as they bind and torture the masses, and the masses so enjoy this ordeal that they count their bondage and pain as their gain. It follows that the winner of a trade war is the country whose sadists clamp the tightest bonds and wreak the greatest pain on its mass of masochists.
While I leave open the question of whether or not national rulers really are sadists, I’m sure that the masses really aren’t masochists. Yet the masses, including you, nevertheless fall for the sadistic promise that all of your tomorrows will be pain-free and filled with abundance and pleasure only if you agree today to suffer the bondage of trade restraints and the torture of higher consumer-goods prices.
The cold, hard truth is that the only treasure and spoils captured by victors in trade wars are the bondage and privation of the masses. A trade war is not a contest that sensible people want their government to wage and (even less) to win.
Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
UPDATE: It just dawns on me how very peculiar it is for mercantilists such as Trump and my correspondent Mr. McKinney to be so confident “that America is strong enough to win a trade war” but too weak to prosper by trading freely.
The upshot is that Peter Navarro, ominously the chief economic advisor to President Trump, is wrong – very wrong – on the relationship between deficits in traded goods and services, and the growth rate of the U.S. economy. The historical record suggests that the relationship is almost exactly the opposite of the one he posits. That he is a graduate of Harvard and a professor of economics makes one wonder whether he is simply mistaken or attempting to mislead the public. After all, it is difficult to stand out in a discipline as crowded and filled with brilliant people as economics. But if one happens to be the one trade-sceptic in the whole pack, one might well gain the favour of a U.S. President who, more than any other since the time of Herbert Hoover, is led by protectionist and nativist instincts.
As Hayek warned in The Road to Serfdom, in government, the worst often get on top.
What lessons can we draw from the competitive market for cosmetic medical procedures? Mark Perry has the answer.
Giovanni Peri reports important facts about recent immigration and U.S. economic growth. (HT Anthony Onofreo) A slice:
The immigrant inflow in the labor force has been rather gradual (about 0.5 percent of the labor force per year) and predictable. Therefore, the increased contribution of immigrants to employment did not reduce the capital intensity of the U.S. economy allowing firms to expand and adjust. There is little evidence that it has produced job displacement. However, immigration’s contribution to labor force growth has grown in importance over the past decade as the baby boom generation began to reach retirement age, increasing the share of workers ageing out of the workforce.
Economists clash relatively little on the issue of international trade. From the premise that any voluntary trade benefits both parties as they themselves see it (otherwise one party would have refused) and the premise that international trade is voluntary trade (between parties in different countries), it follows that international trade benefits both parties as they themselves see it.