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Quotation of the Day…

… is from pages 277-278 of Douglas Irwin’s 2017 book, Clashing Over Commerce; Doug here quotes from page 199 of the 1993 co-winner of the Nobel Prize in economics Douglass North‘s 1961 paper “The United States in the International Economy, 1790-1950,” which originally appeared in American Economic History (Seymour Harris, ed., 1961):

Douglass North concludes that “on balance, it is doubtful if the tariff promoted American industrialization much more rapidly than would have occurred in its absence, and it is even more doubtful that it resulted in any net addition to national income over this same period.”  In part, this is because “the tariff indiscriminately blanketed protection on many raw materials and manufacturers, aiding and abetting those which represented a poor use of resources as well as some in which we were efficient.”

DBx: Industries at which a country (as it is said) ‘has a comparative advantage’ need no special government-granted privileges to arise, thrive, and grow – and to adjust through time – to ‘optimal’ size.  Industries at which a country has no comparative advantage (which is to say for nearly all cases, industries at which a country has a comparative disadvantage) are industries that, if protected by government, use resources inefficiently.  To use resources inefficiently means to use resources to produce a flow of outputs that is of less value than would be that of the flow of outputs that would have been produced had those resources not been diverted into their inefficient uses.

In short, the people of every country whose government diverts resources from more to less productive uses are made less, not more, prosperous.  Among the paramount errors of protectionists is to mistake the increased profits, wages, and prosperity of producers in the protected industries for increased prosperity for the people of the country in general.  Again, a protectionist is someone who, upon seeing the very real increased prosperity of successful burglars, concludes that everyone would be more prosperous if more people burgled.

(Pictured above is Doug North.)