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Trade-Economics Assistance

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Here’s a letter to someone who identifies himself, in his e-mail to me, as a high-school social-science teacher.

Mr. Mike Sweeney

Dear Mr. Sweeney:

You accuse me of being a poor economist because I argue against government-supplied trade-adjustment assistance for workers who lose jobs when Americans buy more imports [2].  Your argument is that such job losses are “a social cost of trade” – a cost not fully accounted for by economic decision-makers.  Asserting that workers “don’t do anything to deserve import induced unemployment,” you insist that taxpayer-funded trade-adjustment assistance “internalizes the social cost of free trade.”

With respect, your economics is faulty.  Most obviously, you miss the elementary distinction between pecuniary externalities and technological externalities.  Therefore, you miss the fact that even in principle only the latter call for corrective government taxation or subsidization.  Job losses due to changes in the patterns of consumer demands are pecuniary externalities and, thus, even in principle require no correction by the state.

Relatedly, let me ask if you think that consumers should be taxed every time market forces lower the prices of food, clothing, and other household goods.  Consumers, after all, “don’t do anything to deserve” these lower prices; these lower prices are delivered to consumers gratis.  To be consistent, you ought to favor such taxation: if people “should” be protected with subsidies by government from one of the ‘undeserved’ costs of participating in a competitive economy (namely, having to compete), then people should also be taxed extra amounts so that they are disgorged of the gargantuan undeserved benefits they enjoy from participating in that economy.

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