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Consumers, Producers, and Trade

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A few minutes ago at GMU’s Arlington campus, I was chatting with a law student in the elevator.  This student politely informed me that he’s skeptical of my “full-bore” (his term) free-trade position.  We didn’t have a lot of time to talk (the building is only four stories tall), but his concern about economists’ case for free trade springs from the fact that we economists focus only on the consumer and ignore the producer.

Well, yes and no.  No advocate of free trade denies that production is necessary for consumption to take place; nor does the typical advocate of free trade deny that producers must profit in order to continue to produce.

But the advocate of free trade nevertheless insists that production is justified only insofar as it satisfies genuine consumer demands.  Consumption takes place for its own sake (at least that’s how economists do, and ought to, look at it).  Production, in contrast, does not – or should not – take place for its own sake.

It follows that consumers ultimately should call the shots, and in competitive markets they do call the shots.  Producers whose offerings are accepted by too few consumers quit their current businesses and go into others.

Consider the following example: you fly to New York City.  You get a cab at LaGuardia Airport and ask the driver to take you to Times Square in Manhattan – which is west of LaGuardia.  Soon, though, you notice that your cab is headed east.

“Where are you going?” you inquire.

“To Times Square, but via Montauk,” the driver responds.

“Montauk!  That’s a hundred miles east of here, and Times Square is west of here!  What the heck are doing?!”

Your driver informs you that the taxicab business isn’t just for riders; its for drivers, too.  Drivers need incomes, and his income of late has been too low to enable him to pay his bills.  “So,” your driver announces, “by first going out to Montauk before heading to Times Square, I’ll make a lot more money off of you than I would if I drove you directly to Times Square.  You’ll get there, but just not as quickly or as inexpensively as you would if I drove you there directly.  Relax and enjoy the view.”

The above little tale sounds nuts.  No taxi driver would do such a thing and justify his actions in that way.

But what the fictional driver in my little story does differs in no fundamental way from what producers everywhere do when they succeed in getting government to protect them from competition – for all such protection involves government preventing consumers from striking the best deals they can find.

You’d report any such cab driver as described here to the authorities and call it a crime.  But when Congress does the same thing, the producer-favoritism is typically discussed respectfully as “trade policy.”

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