Not that Pierre Lemieux Needs Me to Defend Him….

by Don Boudreaux on November 13, 2018

in Balance of Payments, Myths and Fallacies, Trade

My old sparring partner Ian Fletcher yesterday sent a long e-mail to Pierre Lemieux. In this e-mail, Ian registered 30 objections that he has to Pierre’s new monograph, What’s Wrong With Protectionism? Because I am among a large number of people who were cc’d by Ian, I took the liberty of responding by e-mail to some, but not yet all, of Ian’s objections to Pierre’s points.

Below I summarize in bold (although I don’t quote) some of Ian’s objections. My responses to Ian are italicized (and only very slightly edited from the version that I sent out in my e-mail).

1.      You [Lemieux] attack a protectionist straw man. For example, contrary to what you [Lemieux] say on page 48, reasonable opponents of unilateral free trade do not advocate protecting “obsolete manufacturing.”

Of course you do not admit to wishing to protect obsolete manufacturing; but tell us: what manufacturing do you wish to protect? You will say something like ‘relevant’ or ‘cutting-edge’ manufacturing – likely accusing foreign governments of attempting to ‘steal’ such manufacturing for their countries. Can you tell us how politicians and government bureaucrats are to discern which sorts of manufacturing are not-obsolete (and, hence, worthy of protection) and which sorts are obsolete? (I’d think that individuals with this sort of information or predictive skills would work as entrepreneurs in the private sector to make lots of money for themselves rather than work in the public sector.) And can you tell us why we should trust politicians and bureaucrats not only to acquire this knowledge of the future but to act on it without being swayed by the ever-present political and rent-seeking biases that infect politics?

3.      You [Lemieux] rest your ethical arguments upon dogmatically libertarian premises, and so you ignore the fact that a) freedom isn’t the only ethical good, as well as the fact that b) in reality increasing freedom on one front typically requires that freedom be decreased on another front.

Contrary to you, I find nothing about Pierre’s arguments to be dogmatic, but this determination is perhaps one of judgment and is not conveniently here hashed out. So I’ll leave that be. But your point b) misses the mark. Having free trade requires no sacrifice of any other freedom. That is, for the state to stop obstructing its citizens’ freedom to do commerce with foreigners requires no reduction either in the freedom of anyone else or in any other of the freedoms of those who gain more freedom to trade. The tradeoff in freedoms to which you allude simply doesn’t exist.

4.      You [Lemieux] build your philosophical arguments on methodological individualism.  But methodological individualism is a deeply controversial philosophical position, not some well-established truth.

Methodological individualism might be deeply controversial among the likes of sociologists and cultural anthropologists, but it is not at all controversial among economists. It has been core to the economic method since Adam Smith. True, some economists have been more consistent than others in applying this methodological principle. But all but the most rare and extreme ‘heterodox’ economists – mainly Marxists – accept and practice methodological individualism as a matter of course. And as for the validity of methodological individualism, I ask: if economic choices are not ultimately done by individuals, and if values (be they economic or ethical) do not ultimately reside in the minds of individuals, where are these choices done and where do these values reside? Please don’t say “society” or “the group” or “the market” or “government” or “voters,” for these are mere names for collections of individuals – individuals each of whom might well be influenced by, or in some cases even coerced by, other individuals in the group, but ultimately all of these individuals – and only them as individuals – are the ones whose choices we must understand in order to make sense of economic and political processes and outcomes.

5.      Free trade is objectively impossible because other countries impose tariffs and grant subsidies to benefit their industries. Free trade, in short, “is a mere curiosity.”

I’m surprised that you seem to be unaware that the classic economic and classical-liberal case for free trade is a case for unilateral free trade. Therefore, free trade is not only emphatically not “objectively impossible” in reality, it is economically (if not politically) astonishingly easy to implement: all that a government must do is to stop discriminating for or against goods or services based upon the location of their sellers and buyers. Eliminate all import and export tariffs, subsidies, and quotas. Voilà! Free trade!

Yes, other governments continue to impoverish the denizens of their countries with the artificial scarcities created by their protectionist policies, but the denizens of the home country – of the government that follows unilaterally a policy of free trade – are free from any obstructions imposed by their government to trade as they please. That’s the classic meaning of the case for free trade. Advocates of free trade – Milton Friedman, Thomas Sowell, Walter Williams, Jean-Baptiste Say, Frederic Bastiat, William Graham Sumner, Richard Cobden and John Bright, John Cowperthwaite, Henry George, William Allen, Fritz Machlup, Leland Yeager, Ludwig von Mises, Thomas Babington Macaulay, Frank Knight, the list is very long and, yes, it includes even Adam Smith (despite his recognition of the possibility that home-country tariffs might pressure foreign government to lower their tariffs) – have always meant it to be a case for a policy of unilateral free trade.

6.      You [Lemieux] essentially ignore other countries subsidies and non-tariff barriers, which these days loom large.

How does Pierre ignore these? And never forget that subsidies and non-tariff barriers (like tariffs) inflict the bulk of their harm on the denizens of the countries whose governments impose them – and often create gifts to us Americans in the form of access to artificially large quantities of valuable good and services at artificially low prices.

7.      You [Lemieux] caricature mercantilism, whose history you apparently do not know. Mercantilism was the basis of all the developed nations we know today, though this history is generally ignored now.  Please read Erik Reinert’s How Rich Countries Got Rich and Why Poor Countries Stay Poor.

8.      You [Lemieux] further appear to have heard nothing about China since about 1980.  On p. 27, you explain how China’s protectionism and industries subsidies are a terrible burden on the Chinese. But it was China’s regulated and manipulated state-capitalist economy that caused China to grow 10 percent annually for many decades now. This fact repudiates libertarian economics.

Here’s a book for you: How China Became Capitalist (2012) by Ronald Coase and Ning Wang. (Coase is the winner of the 1991 Nobel Prize in Economics.) This book – like many other studies – shows conclusively that China’s economic success occurred only insofar as China freed its markets. China’s absurd mercantilism retards that country’s growth; it doesn’t promote it. Ditto for all other countries.

9.      Regarding capital mobility: Comparative advantage is just a mathematical definition, so it always exists.  But when capital is mobile, comparative advantage no longer proves that free trade is optimal. Even David Ricardo said so.

This myth is as weary as it is wrong. I’ve not here the inclination to do an exegesis of Ricardo, but regardless of what Ricardo himself meant or thought, all that capital mobility does that might be economically relevant is to change the pattern of comparative advantage (as you seem to agree). But to leap from this fact to the conclusion that (as I summarize your point) ‘therefore, when capital is mobile across borders, free trade no longer necessarily works to improve welfare’ is unwarranted. (Among other errors, to make this leap is to assume that the world has only a fixed amount of productive capital – or an amount of capital that is independent of human action and institutional details.) Rather than repeat myself here, I point you (if you’re interested) to my 2004 paper “Does Increased International Mobility of Factors of Production Weaken the Case for Free Trade?

But before completely leaving this topic, I ask you to note that within the United States there is, and has long been, a great deal of mobility of capital and factors of production. Has free trade among all Americans therefore not worked? Does the freedom and ease of capital to move from New York to Mississippi render free trade between New Yorkers and Mississippians harmful to the residents of one or to both of these states?

16.   You [Lemieux] overlook the fact that ongoing trade deficit means that Americans owe more and own less.

False. You write – admittedly as many others mistakenly do – as if the amount of capital in the world, and in the United States, is fixed. Once it is recognized that capital can and does grow in amount, an increasing U.S. trade deficit does not necessarily mean that Americans “owe more and own less.” (And, by the way, it’s wrong to portray increases in the U.S. trade deficit as being necessarily increases in Americans’ indebtedness. I realize that this portrayal is common, but it is demonstrably mistaken. When, for example, foreigners simply hold on to dollars for several periods, the U.S. trade deficit is higher as a result, but there is no corresponding increase in Americans’ indebtedness.)

Don Boudreaux
Department of Economics
George Mason University


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