Economic Fallacies Are Zombies

by Don Boudreaux on November 29, 2015

in Myths and Fallacies, Seen and Unseen, Trade

Here’s a letter to a long-time, but still unknown-to-me, correspondent.  This person apparently learned his or her economics from the likes of Donald Trump or William Greider.

Mr. or Ms. WorkingAmerican:

You find “laughable,” “beyond crazy,” and “so stupid it’s something only academics think” my claim that Americans trading with low-wage foreigners is no different than Americans trading with each other.  One reason for your finding such hilarity in my claim is that I allegedly “miss the unfair enormous cost advantage” enjoyed by producers in low-wage countries.

Please learn some economics.

First, the alleged “enormous cost advantage” of such foreign producers is a mirage.  Those very low wages reflect the very low productivity of workers in those foreign countries.  So there exists here nothing to describe as “unfair” or “fair.”

Second, trade is governed by comparative advantage.  This fact means that even if wages in some countries were indeed significantly lower in all industries than worker productivity in those countries, it would still be profitable for people in those countries to import from high-wage countries many of the goods and services that they consume.  In other words, many American producers would still find it profitable to export to those countries.

Third, trade is conducted by flesh-and-blood people, not by countries.  It is no more economically damaging for me to buy sneakers from Brazilian shoemakers who have an “enormous cost advantage” over me in the production of footwear than it is for me to buy chardonnay from California vintners who have an “enormous cost advantage” over me in the production of wine.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

If people such as this correspondent of mine – and this person is hardly alone – are to be believed, then among the best and most reliable paths a country can take to ensure that its producers are highly efficient is to subject that country for decades to impoverishing command and control by communists or other brutal autocrats.

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