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More on Trade and “Losers”

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Here’s a letter to Mr. T.Y. Holman, who found and read my latest AIER essay:

Mr. Holman:

Thanks for your e-mail.

You misunderstand my latest essay for AIER [2]. I do not there – or anywhere else – deny that when we Americans increase our trade with foreigners that some particular jobs in America are thereby destroyed. Such a denial would plainly be mistaken (as would, by the way, a denial that some particular jobs in America are thereby created).

My point, instead, is that increased trade with foreigners is not unique at destroying particular jobs. Therefore, to say that increased trade with foreigners “creates losers” is to wrongly imply that trade plays a special role in destroying jobs. But it does not.

Increased trade with any specific group of people, however this group is defined, destroys particular jobs (and creates other particular jobs). As I say in my essay, increased trade with women destroys particular jobs. Likewise, increased trade with Mormons destroys particular jobs. Ditto for increased trade with people who live in Philadelphia or who weigh more than 275 pounds or who have green eyes or whose second language is Finnish or who have tattoos on their toes.

Abstract economic analysis can easily be done of the welfare effects of free trade with women (or with Mormons, or with Philadelphians….) And this analysis would certainly show that under all realistic scenarios the gains of the “winners” would exceed the losses of the “losers.” Yet no serious economist has ever thought to geometrically or mathematically compare the size of the gains from free trade with women with the losses, and then conclude that free trade with women is justified only because the size of the gains exceeds the size of the losses.

And much less has anyone ever announced that free trade with women is an acceptable public policy only if the “winners” actually compensate the “losers.”

Yet economists routinely compare the size of domestic-citizens’ gains from free trade with foreigners with the size of domestic-citizens corresponding losses. (Indeed, some economists – Dani Rodrik [3], for example – have written that a policy of free trade is justified only when the winners actually compensate the losers. And Paul Krugman has come close to doing the same [4].) Although the gains from free trade with foreigners are easily shown to exceed the losses under realistic circumstances, this very exercise of analytically showing the gains and losses from free trade with foreigners creates the impression that there’s something economically or ethically unique or special about trade with foreigners.

My point is that this impression is both completely false and highly misleading. Increased trade with foreigners creates losers in no ways or degrees that differ from increased trade with any other group of people. Yet the fact that we routinely talk of trade with foreigners as though it does differ in some relevant manner from trade with you-name-the-group only sows confusion – confusion that fuels rent-seeking and demagoguery.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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