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Don’t Blame Trade

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Below the fold is an expanded version of a comment [2] that I left on this EconLog post by David Henderson [3].

Effem asks:

And how do you value the externality that the losers in the free trade game might tear down your entire system?

This question should not be limited to trade. The people who are typically identified as “losers in the free trade game” are a subset of people who can, with equal justification, be identified as “losers in the competition game.”  Anytime consumers change their spending patterns, some jobs and businesses are destroyed and some jobs and businesses are created.

If the economy is so rigid that an increase in imports causes such economic misery that the losers “might tear down your entire system,” the same risk of destruction arises for all economic change. The new labor-saving machine; the new restaurant chain; consumers’ new faddish diet; the new means of transportation; the medical breakthrough that extends life-expectancies; demographic trends that prompt changes in people’s spending patterns. The new tax. The list is long indeed.

So we either freeze or slow all economic (and tax and regulatory) change or we don’t. Either way, there’s no reason to single out international trade as if it is a unique ‘spark’ to what Effem calls an “externality.”

For centuries, such an externality was real: people resisted economic change [4]. Economies therefore grew, when they grew at all, only at a tortoise-like slow pace. For the past few centuries, the embrace of change and creative destruction has permitted unprecedentedly rapid and widespread economic growth [5].

Rather than give in to – instead of laying down before – the forces of stagnation, fear, and ignorance by erecting trade barriers, we should challenge these forces. Bottle them up as much as possible. Make those people whose spread ideas that fuel such antediluvian forces intellectual and ethical outcasts (rather than stand by silently as they call themselves, as some do, “Progressive,” and as others do, “champions of the working class”).

And finally there’s this question: what’s the true source of the externality that Effem would have us worry about? Is it economic change (or trade) itself? Or is it people who incessantly spread fear and loathing of trade? I favor government suppression of neither of these potential sources of this “externality.” But let’s not be blind to the reality that, if our civilization is burned to the ground by those who resist economic change and competition, it would make at least as much sense to put the blame for uncorking this externality on those people who speak out against trade as it would to put the blame on freedom to trade itself.

Or here’s a third potential source of the externality that has Effem worried: government. Government restrictions on starting businesses – either direct restrictions, such as occupational licensing, or indirect restrictions, such as high tax rates – make the economy less flexible and less able to create new opportunities as old opportunities vanish. If riots and other manifestations of social unrest arise in the wake of changes in patterns of international trade, why suppose that this externality is caused by trade rather than by government intervention?  A strong case can be made for putting the blame on government intervention.  The reason is that, without such intervention, international trade would cause no unusual economic hardships.  Yet with such intervention, unusual economic hardship (of the sort that Effem worries will spark riots) will arise as a result of any change in the pattern of economic activities – that is, these problems will arise even if there is no – or no change in the extent or patterns of – international trade.

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