From time to time, when I write a blog post I feel as though I’m setting a trap.  Setting a trap is never my intention, but on such occasions I have a pretty good sense of the specific contents of the retorts that my post will elicit – retorts that will give me the opportunities to explain just why the retorts are mistaken.

I had such a sense when writing this post earlier today and, sure enough, the retort that I felt confident would come actually came (as it happens in this case from Bret Wallach).  My post made the point that the logic of protectionism, if it were correct, would suggest that individual households would maximize their material prosperity by refusing to trade with each other.  Each household would be autarkic.

Here’s Bret Wallach’s comment, in full, on my earlier post:

And an anti-protectionist who makes such a claim has no concept that scale can matter, that while going from one person doing everything himself to a thousand people specializing is overwhelmingly more productive, going from a billion people trading to a trillion people trading might not be more productive at all, and even if it is more productive, will not yield nearly the increase as going from 1 to 1,000 people.

Scale does indeed matter, but contrary to Mr. Wallach’s evident supposition, this reality does not strengthen the protectionist’s case for trade restrictions.  I have two responses to Mr. Wallach’s point, with the latter being the more fundamental – the one that I anticipated being given the opportunity to make.

First, scaling up from an individual being completely self-sufficient to that individual trading with a thousand people might well produce a larger increase in that individual’s material standard of living than would be produced if, as one of a million people who as a group start off trading only with each other, the group opens up trade such that the trading group now consist of a billion people.  But maybe not.  Suppose that when the group of a million people opens up trade with 999,000,000 other people, one of the 999,000,000 other people is an Alexander Fleming who invents antibiotics or a Norman Borlaug whose research greatly expands crop yields.  Is it obvious that the additional lives saved and improved by having access to the fruits of such a person’s genius, creativity, and hard work would be a lesser improvement in living standards than that which would occur when one individual begins trading with 999 other individuals?

Remember that the number of possible ways for individuals to connect and to cooperate with each other – opportunities (as Matt Ridley says) for ideas to “have sex” with each other – increases exponentially with the size of the population.  These increasing returns to scale work against Mr. Wallach’s point.  (See also this important article by my late Nobel-laureate colleague Jim Buchanan and his co-author Yong Yoon on Adam Smith’s increasing-returns-based argument for free trade.)

Second and more fundamentally, even if there unambiguously are decreasing returns to the scale of the trading population, this fact means neither that the optimal scale is the population of the nation-state nor that the increased benefits to be gotten by expanding trade beyond the borders of the nation-state are somehow trivial or unworthy simply because the magnitude of these increased benefits aren’t as large as is the magnitude of the benefit of scaling up the size of the trading group from some unit smaller than the nation-state to the full nation-state.  Decreasing returns to scale does not mean negative returns to scale. And decreasing returns to scale does not mean that the benefits of increasing the scale are necessarily less than the costs of doing so.

One benefit of free trade is that such trade allows the ‘optimal’ scale of the trading group to be discovered through actual, competitive market activities – with buyers and sellers spending their own money – rather than through political machinations which invariably – and invariably mistakenly – treat the nation-state as if it is economically something special or even meaningful.

Put differently, the case for free trade can be stated as a case for allowing markets rather than government to discover the ‘optimal’ scale of the trading group – which, do note, almost certainly differs for different goods and services.

Whatever the case, there is absolutely no good reason to accept the protectionist’s implicit assumption that the size and population of whatever nation-state he or she happens to be in somehow is the optimal scale of the trading group.

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… according to Michael Connell of Monmouth College, “wants to reward his neighbors with low productivity jobs to provide him with something he values highly — a sense of self-righteous smugness.”

(I thank Michael for e-mailing to me this insight and for giving me permission to share it here.)

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Shikha Dalmia argues persuasively that United States border bouncers (as she so aptly calls them) already have too much power; they do not need additional powers, such as those of spying on private people.

John Tamny draws an important lesson from “the awful Republican budget.

Richard Rahn makes the case for privatizing as many government agencies as possible.

Todd Zywicki, a colleague from over in GMU’s Scalia School of Law, writes in today’s Wall Street Journal on the Consumer Financial Protection Bureau (CFPB).

James Pethokoukis is understandably underwhelmed by Scott Galloway’s historically uninformed, economically unlearned, and politically unaware case for breaking up today’s large tech firms.

Randy Holcombe writes about gun control.  And relatedly, here’s Alan Reynolds on the data on mass shootings in the U.S.

My Mercatus Center colleagues Veronique de Rugy and Justin Leventhal put U.S. government spending in perspective.

For those of you in upstate New York, my GMU Econ colleague Alex Tabarrok will speak on Wednesday at the University of Rochester.

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… cannot adequately explain why each and every household in the world does not itself literally build its own home, literally grow its own food, literally spin the thread and weave the textiles that it literally sews together into its own clothing, literally manufacture its own automobile, literally treat its own medical ailments, and literally produce for itself each and every good and service that its members consume.

When asked why we don’t observe each and every household being completely self-sufficient in this literal manner, the protectionist replies “Don’t be ridiculous!  That’s silly.”  Of course, this reply is exactly correct.  But what the protectionist misses is the fact that this very same reply is no less appropriate as a response to any argument that he or she makes in support of trade restrictions.

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In the November 2003 Freeman I attempted to bust some myths about the alleged dangers of population growth.   My column is below the fold.

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Quotation of the Day…

by Don Boudreaux on February 20, 2018

in Growth, History, Myths and Fallacies, Trade

… is from pages 280-281 of Douglas Irwin’s vital 2017 volume, Clashing Over Commerce; Doug here is writing about, roughly, the half-century following the U.S. Civil War (link added):

[P]roductivity growth in non-traded sectors (such as transportation, services, utilities, and communications) was much more rapid than in agriculture and in manufacturing, the sectors more affected by trade.  Productivity growth in the service sector is usually explained by particular technological innovations – such as railroads, electrification, and the telegraph – none of which depended on protective tariffs.  And yet the service sector was key to US economic performance during this period.  As [Stephen] Broadberry (1998) has shown, output per worker in the United States grew relative to that in Britain because US labor productivity in services converged to the higher level in Britain.

DBx: As this, and other, empirically grounded arguments demonstrate, U.S economic growth during the 19th century was not plausibly promoted by protective tariffs.  Note also that, contrary to popular myth, the growth of the American service sector is not a post-WWII phenomenon; and the service sector itself is no ‘inferior’ sector the growth of which is to be lamented if that growth occurs relative to that of the manufacturing sector or even if it helps to promote the relative or absolute decline of the manufacturing sector.

As I and others have pointed out repeatedly, no one who hopes that his or her child will “grow up to be a doctor or lawyer” – or engineer, or architect, or accountant, or opera star, or preacher, or hedge-fund manager, or (heaven help us) ‘the president’ – has any standing to lament the rise of the service sector relative to that of other economic sectors, including that of manufacturing.  Only someone who truly hopes that his or her child “will grow up to be a factory worker” and not the likes of a doctor or lawyer – or who honestly believes that such a wish is one that most parents should have for their children – has any business lamenting the decline of the manufacturing sector relative to that of the service sector.

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A Political Survey

by Don Boudreaux on February 19, 2018

in Politics

A team of researchers from Stony Brook University have asked me to help them study the role that emotion plays in politics.  I have completed the survey myself, and it only took me a few minutes to finish.  The survey is completely anonymous.

Click the link below to begin the survey:

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… believes that years of historically unprecedented state brutality (such as reigned in Maoist China), continuing abnormal oppression, a relatively weak rule of law, comparatively poor infrastructure, comparatively little education, comparatively primitive skill-sets, and comparatively few capital goods to work with make workers who live and toil under these conditions such fearsomely adept, talented, and productive – indeed, indomitable – competitors of workers in the United States and other first-world countries that the only hope that first-world workers have of withstanding the onslaught of goods and services produced by these other workers is for first-world governments to protect first-world workers from having to compete against the priviliged-by-oppression hordes of invincible-at-any-and-all-tasks workers who populate countries much poorer than the United States.  “American workers can compete with anyone!” boasts the American protectionist – who immediately betrays the insincerity of his boast by asserting that there’s no way that American workers can “compete” with low-wage foreign workers.

…..

To be precise, the above is a first-world protectionist.  A third-world protectionist believes something akin (although not completely identical to) the opposite.  A third-world protectionist believes that workers and firms of the third-world are so backward and hopelessly inept at every conceivable task that free trade with the first-world would grind the people of the third-world even further into poverty and despair.

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In the September 2003 Freeman I argued that those who respond to the case for free trade by asking “But what about…?” do not, in fact, call the case for free trade into serious question.  My column is below the fold.

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Arnold Kling offers a persuasive case that the science of economics has stagnated.  A slice:

Mainstream economics is materialistically oriented. Economists view the firm as an entity that transforms tangible inputs into tangible outputs. Because they insist on focusing on what is tangible, their analysis of finance frequently degenerates into “irrelevance theorems” that supposedly prove that finance does not matter.

Here’s Alberto Mingardi’s review of Deirdre McCloskey’s Bourgeois trilogy (a review that I meant but, I think, failed to post when it first came out a few months ago).

On Valentine’s Day, Colin Grabow reflected lovingly on free trade.

Allan Golombek continues to bust myths about trade.  A slice:

Although [because of technology] fewer people than ever earn a living in steel plants, far more workers than ever earn their living in industries that depend on steel. There are only at most 150,000 Americans earning a living full-time in the steel industry, but more than 6 million work in industries that depend on steel, industries likes autos and construction that would be hurt badly by steel tariffs.

Jeff Jacoby looks back – way back – at Chester Alan Arthur.

Jonathan Adler points us to an intriguing paper on the obligations of elected officials.

Mark Perry says that you just might be a protectionist if you…

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