Here’s a letter to the Weekly Standard:
Irwin Stelzer opens his essay “Trump and Trade ” (Dec. 19) with this recollection: “Protectionism, I once said to Irving Kristol, is a bad idea. It benefits producers, but it harms consumers. ‘Where,’ [Kristol] asked, ‘is it written that the welfare of consumers takes precedence over that of producers?’”
Dr. Stelzer was and remains much-impressed by Mr. Kristol’s reply. He shouldn’t be. Mr. Kristol was wrong to equate the profits of producers with the welfare of consumers.
Mr. Kristol and Mr. Stelzer overlook the fact that consumption is the end while production is only the means. Therefore, means have value only insofar as they enable us to achieve our goals. Means that are less effective in enabling us to achieve our goals are less valuable than are means that are more effective. This is the reason why, for example, the price of an electric screwdriver is higher than is price of a manual screwdriver.
Profits and losses earned in markets measure each producer’s effectiveness at enabling consumers to achieve their goals. When a producer suffers losses, these losses are the market’s way both of informing that producer that it is serving consumers poorly and of motivating it either to perform better or to move into some other line of work. Without the information and motivation supplied by profits and losses, markets cannot function. Economies stagnate or even deteriorate.
By artificially swelling profits and preventing losses, protectionism mutes the information and motivation supplied by the profit-and-loss system. The end – consumer welfare – is sacrificed in order that some particular means be cosseted or preserved independently of its effectiveness. But a means whose value is disconnected from the ends that it serves is a means whose effectiveness we cannot accurately assess. And no economy can thrive without accurate assessment of the effectiveness of alternative means of supplying consumers with the goods and services that are the ultimate purpose of economic activity.
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
It’s important to keep in mind that it is misleading to speak of producers’ welfare. Only individuals experience well-being or welfare; as economists put it, only individuals have welfare functions. And while producers are individuals, they produce in order to earn income to consume. Their production is a means to their end of consumption. Each person’s welfare should be reckoned by how well that person achieves his or her ends. Therefore, each person’s welfare should be reckoned by how well he or she achieves his or her consumption goals, broadly conceived. (There is, of course, typically a consumption element in production – for example, the satisfaction that comes from doing a job well. But like all consumption, it should be paid for by the person who consumes it and not subsidized with privileges or other people’s money.)