… is from page 260 of my teacher Leland Yeager’s, and of his co-author David Tuerck’s, still-vital 1966 volume, Trade Policy and the Price System:
If self-styled victims [of increases in imports] must prove and not merely complain about injury to receive compensation or aid from the government, they may have weak incentives to avoid the actual injury needed to document their claims. Firms will have weakened incentives to reconvert, workers will have weakened incentives to move or to acquire new skills on their own initiative, and so forth. On the contrary, firms and workers alike will have reason to exaggerate their troubles.
So-called “trade-adjustment assistance” sounds lovely, but this sound is deceptive. Such ‘assistance’ is a policy of socializing losses while keeping gains privatized – which means, therefore, that it is a policy that creates moral-hazard problems. More generally – and apart from the very real problem highlighted above by Leland and David – the economic and ethical case against trade-adjustment assistance is fraudulent because there is nothing unique about international trade in destroying particular jobs, businesses, and industries. Why should the worker who loses his job in the steel factory to increased imports of steel receive government assistance while the worker who loses her job in the aluminum factory to increased domestic production of carbon-fiber materials be denied such assistance? There is no good reason to treat the two cases differently.
Neither worker is entitled, economically or ethically, to any such ‘assistance.’
Of course, someone might argue that both of these workers should receive government assistance. Apart from such a policy intensifying moral-hazard problems (“Is your firm’s bankruptcy really due to changing patterns of economic activity rather than to your own incompetence as a business owner?”) – and also apart from the need to give such assistance now to the many people who will lose businesses and jobs because of the resulting increase in taxes that must be raised to pay all of this ‘assistance’ (Why should workers and businesses who suffer as a result of changes in government polices be treated differently than those who suffer as a result of changes in private economic activities?) – such a policy of assistance is premised on the false and economically calamitous assumption that the ultimate goal of economic activity is to ensure the well-being of existing producers rather than to satisfy as many consumer desires as possible. The serious pursuit of any such policy would grind the economy to a standstill, and all but the powerful elite into crushing poverty.