Trade Is Trade – Or, Economic Activity Is Economic Activity

by Don Boudreaux on June 29, 2015

in Adam Smith, Crony Capitalism, Myths and Fallacies, Seen and Unseen, Trade

Commenting on this recent post – a post that argues that there is no good economic reason for government to provide retraining or other benefits to workers who lose their jobs because their fellow citizens take advantage of enlarged opportunities to purchase imported goods and services – Zuying Gao writes:

Ricardo’s theory is probably going to work in the long run. But theory is theory, it works best when there is no other intentional disturbance. In the real world, the best outcome for the free trade won’t come out so easily. I think Lowenstein simply is on humane stance to use “victim”. In the short run, out of luck, failing keep up with the steps of technology, some people are no doubt to be suffering, which does not mean they deserve this and we should show no compassion towards them.

I join with Mr. Gao in calling for compassion for anyone who suffers misfortune (although one must always be careful to distinguish misfortune that is genuine from misfortune that is trumped-up).  Yet I dispute Mr. Gao’s premise that there is something unique or special about economic misfortune that stems from changes in patterns of economic activity that span political borders (rather than being confined within a nation’s political borders).  The very point of that post of mine – and, indeed, of the bulk of the economics of international trade from the time of Adam Smith forward – is that there is nothing unique about the economic consequences of changes in trade patterns that span across political borders.

Yes, Mr. Jones who loses his job because his fellow citizens choose to buy less of the steel he produces and more of the steel produced by someone in another country must endure an outcome that he’d prefer not to endure.  But this outcome is no different than if Mr. Jones lost his job because his fellow citizens switched much of their spending away from buying products made with domestically produced steel to, say, products made with domestically produced plastics.  Whatever compassion one feels for Mr. Jones in the first scenario should be felt for him in the second scenario: no more and no less.  The reason is that from his perspective – as judged or measured by his disutility, suffering, anger, sadness, whatever you call it – the misfortune to him of his job loss is the same in both cases.  Nothing special or unique attaches to job and profit losses (and gains) “caused” by changes in the pattern of international trade; these losses (and gains) differ in no relevant way from such losses (and gains) “caused” by changes in the pattern of economic activity that involve no international component.

The importance of this point should be self-evident, although I realize that it isn’t.  People are easily mislead by the existence of political borders into imagining the existence of economic relevance that simply isn’t there.  Any such supposed economic relevance is a delusion.  Rent-seekers in each domestic market, of course, have powerful incentives to embrace and to fortify these delusions, for the greater the number of people who are so deluded, the greater are the prospects for rent-seekers to win and to maintain government-granted special privileges – such as tariffs – to protect them from having to compete in markets as vigorously as they would have to compete without such privileges.  But the economics of the matter are crystal-clear: any such imagined economic relevance of political borders is a popular delusion.  And one important role of the economist is to do all that he or she can to cure people of suffering this delusion.  Any successes that economists have in this endeavor help to protect society from rent-seekers who shamelessly exploit the popular delusion that there’s something economically unique about international trade.

So whatever quantum of compassion or indifference someone wishes to bestow upon a worker who loses his or her job because consumers choose to reduce their rate of purchasing whatever it is he or she produces is a quantum of compassion or indifference that should be bestowed upon any worker who loses his or her job because consumers choose to reduce their rate of purchasing whatever it is he or she produces – whether these consumer choices involve buying more imports or not.


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