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Winners and losers from trade

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This week’s podcast is with Don Boudreaux [2], my co-host here at the Cafe and the author of Globalization, [3] a superb primer on trade policy and the phenomenon of globalization.

Don argues in the book and in the podcast that to point to an American steel worker put out of work by imports of Brazilian steel and say that he is "harmed by trade" is to misunderstand the nature of trade and its winners and losers. He says it’s like saying that a man whose wife leaves him for another man is harmed by love. After all, the man married because of love. The man is the product of his parents who were touched by love. So it is with the steel worker. His steel job exists because of trade. His whole life is supported by trade of various kinds. So in what sense is he "harmed by trade?"

It’s a profound point. It forces you to see just how trade and specialization and the division of labor create the incredible lives we lead, lives of wealth and health unimagined by previous generations.

But having said that, I think there is something else to add, something about the way our self-worth and pride and satisfaction are tied up in our work. An out-of-work steel worker still has a very good life compared to generations past and the success of his life up until the loss of his job is indeed due to trade (and sometimes to the protectionism that worker would like to see made stronger). But there’s no denying that it’s very tough on a person who has invested most of his life in a particular skill to suddenly find that there’s no demand for that skill. Yes, it’s the price of progress and it’s a price worth paying. Yes, it’s not particular to foreign trade, as Don points out, but is the result of all kinds of economic change. But there is something deeply poignant about it, nevertheless.

It is a mistake to use protectionism to keep that worker from having to deal with change. But that doesn’t change the potential sadness of the situation. I’ve argued that the real consolation for that worker who loses his job and struggles to find another that is as satisfying is knowing (if he knows any economics) that his children and grandchildren will lead better lives because we tolerate economic change.

If computer-based learning caused George Mason and other universities to shut down, it would be a good thing. (Remember, I’m assuming in this story that students choose computer-based learning over brick and mortar education.) I would applaud it and I’m sure Don would too. But many great teachers would have trouble finding jobs that paid as well or that led to as satisfying a life on the job. Younger teachers would find an easier time adjusting and finding new opportunities. And some of those opportunities would come into existence because of the resources saved by shutting down universities. But that wouldn’t change the sadness of the out-of-work teachers who find themselves unable to use the skills that they have proudly honed.

As Don points out eloquently in the podcast, most of us willingly embrace and accept economic change even though we know that it sometimes has disparate effects on us. There is always a temptation to ask for an exemption from the costs while enjoying the benefits.

So I agree with Don that it’s wrong to say that trade creates winners and losers. We are all winners. But it’s also true that the benefits from winning are not evenly distributed and that the political demand for exemptions from certain kinds of economic change isn’t going away.

Ironically, the richer we become, the more specialization we have. The more specialized you are, the greater the risks (and rewards) from economic change.

The lesson, I think, is that education should give you a range of places to apply your specialized skills. It’s better to learn how to program than to learn how to program in HTML. It’s better to know how to write than to know how to write an article for a traditional newspaper. It’s better to know how to communicate generally than to know how to write.

It is better to learn how to learn than just to learn something specific.