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No Saving Cass’s Case

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Longish and wonkish, this letter is to an economics major.

Ms. Shell:

Thanks for your e-mail. You ask if it’s “possible to compromise with policies like the ones supported by [Oren] Cass by recognizing the tradeoff between consumers’ interests and producers’ interests.”

My answer is no, if by compromise you mean for me to endorse government policies that slow consumers’ abilities to switch whatever amounts of their spending they like to imports. My reasons are many, but I’ll here mention just four.

First, any such a policy requires granting to government officials a great deal of discretionary power. Someone must decide which particular workers are likely to be impacted negatively by imports and in ways that warrant the kinds of protection that Mr. Cass recommends. Is it just those workers at firms that produce outputs that compete directly with imports, or do we include also workers who supply inputs to firms that produce outputs that compete directly with imports? What about workers at firms that supply inputs to firms that supply inputs to firms that produce outputs that compete directly with imports?

The ripple effects of increased trade, like those of all economic change, are long and complex. I don’t trust any mortal, or council of mortals, to be able to trace out these effects in sufficient detail and to be wise enough to draw appropriate lines separating workers who are entitled to the kinds of government privilege favored by Mr. Cass from workers who aren’t so entitled.

Second, because the goal of such a policy is to prevent worker dislocations from occurring, government officials invested with this discretionary power must be able to accurately predict which industries and jobs will be negatively affected, and to what degree, by expansions of global trade before these expansions begin. It’s absurd to believe that human beings possess such fantastical foresight.

If these government officials predict incorrectly and protect workers who actually don’t need protection, this error will never be revealed because the policy will appear to work as advertised. If, instead, these government officials predict incorrectly and refuse to protect workers who (according to Mr. Cass) deserve such protection, by the time the error is discovered it’ll be too late, for many of these workers will already have lost their jobs. Yes, some might be hired back if protection is then applied, but this fact brings me to point number three:

Third, given that protection of the sort that you suggest is only temporary, is it wise to encourage workers to remain in jobs that are destined soon to disappear? I think not.

Fourth, the longer government artificially props up declining firms and jobs with tariffs and other privileges, the longer is the time that it takes for economically viable firms to get the resources they need to launch or to expand and, hence, to create jobs. Such protection of the sort that Mr. Cass endorses is the protection of wasteful work and the suppression of productive work – an outcome quite incompatible with Mr. Cass’s desire for people to find dignity in work.

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