The Case for Unilateral Free Trade

by Don Boudreaux on June 20, 2018

in Trade

In today’s New York Times my intrepid Mercatus Center colleague Veronique de Rugy makes the case for unilateral free trade. Some slices:

Economists since Adam Smith have understood that free trade is the best policy. Studies show that countries with freer trade have both higher per-capita incomes and faster rates of productivity growth. Economists have also long understood that barriers to trade, while pitched as a way to help domestic workers, always heavily penalize domestic consumers. For instance, when Uncle Sam imposes stiff barriers on sugar imports to protect a few hundred producers in Florida and Louisiana from competition, these farmers’ gains come at the larger expense of consumers who are obliged to pay more than twice the world price of sugar, on average, each year since at least 1982.

….

The fact is, free trade is a robustly good policy — which doesn’t mean that it affects all Americans in the same way or at the same time. Not only is it the best policy when other governments practice free trade; but it’s also the best policy even when other governments are wildly protectionist. By lowering its trade barriers, a government enriches its citizens regardless of the policies implemented by foreign governments. This idea runs counter to the public’s assumption that we benefit from lowering our trade barriers only if other governments lower theirs.

….

Far from suffering from its free-trade stance, Hong Kong’s economy has experienced multiple periods of rapid growth. In 1950 its average per capita income was about one-third the average United States income, but by 2017 it was slightly higher. In 1960 life expectancy in Hong Kong was three years lower than in the United States, whereas by 2017 it was five years longer. Sure, other free-market policies contributed to this economic success story, but at the very least unilateral free trade hasn’t stopped Hong Kong’s transformation into one of the richest economies in the world.

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Quotation of the Day…

by Don Boudreaux on June 20, 2018

in Growth, History

… is from page 24 of Nathan Rosenberg’s and L.E. Birdzell, Jr.’s excellent 1986 book, How the West Grew Rich:

The West’s sustained economic growth began with the emergence of an economic sphere with a high degree of autonomy from political and religious control. The change from the coherent, fully integrated feudal society of the Middle Ages to the plural society of eighteenth-century Europe implied a relaxation of political and ecclesiastical control of all spheres of life, including not only the economy, but also science, art, literature, music, and education.

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Bonus Quotation of the Day…

by Don Boudreaux on June 19, 2018

in Balance of Payments, Trade

… is from pages 242-243 of the 2003 Cato Institute edition of Johan Norberg’s indispensable 2001 volume, In Defense of Global Capitalism (original emphasis):

The defense of the mobility of capital is a question of freedom. This is not a matter of “the freedom of capital,” as the critics complain, because capital is not a person capable of being free or unfree. It is a matter of people’s freedom to decide what to do with their own resources – the freedom, for example, to invest their pension savings wherever they believe it is best to do so….

There is also a question of businesses being at liberty to seek financing from other countries. Factories and offices do not build themselves – it takes capital.

DBx: Americans who complain about the U.S. trade deficit in fact complain about not only global investors’ freedom to seek out and to take advantage of the best possible investment opportunities, but also that global investors find a disproportionately large number of promising investment opportunities here in the United States.

This complaint, to put it mildly, is bizarre.

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Some Links

by Don Boudreaux on June 19, 2018

in Myths and Fallacies, Seen and Unseen, Trade, Work

Here’s David Brooks on the rise of the thuggish use of the label “amnesty.” A slice:

For centuries, conservatives have repeated a specific critique against state power. Statism, conservatives have argued, has a tendency to become brutalist and inhumane because a bureaucracy can’t see or account for the complexity of reality. It tries to impose uniform rules on the organic intricacy of human relationships. Statist social engineering projects cause horrific suffering because in the mind of statists, the abstract rule is more important than the human being in front of them. The person must be crushed for the sake of the abstraction.

This is exactly what the Trump immigration policies are doing. Families are ripped apart and children are left weeping by the fences constructed by government officials blindly following a regulation.

GMU Econ alum Lawrence McQuillan sets millennials straight about the true nature of socialism.

Are there too many or too few jobs?

Dan Mitchell explains many of the ways in which Trump is wholly wrong about trade.

Are you suffering tariff fatigue?

Dan Ikenson argues that, when it comes to trade, Trump isn’t irrational but he is wholly mistaken.

Angry at China, Trump punishes Americans.  A slice:

Forgotten by Trump is the simple truth that the division of labor is arguably the most powerful economic concept in the world.  A division of labor doesn’t put us out of work as much as it frees us to specialize in the form of work most commensurate with our talents.  Picture a near-deserted island: if two people are dividing up work on the island, the arrival of eight more won’t render the original island inhabitants unemployed.  It will just mean that ten people will produce exponentially more than two simply because the addition of eight new able-bodied people will free all ten to specialize even more.

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Quotation of the Day…

by Don Boudreaux on June 19, 2018

in Myths and Fallacies, Trade

… is from page 3 of the 1963 Van Nostrand edition, translated by Arthur Goddard, of Faustino Ballvé’s 1956 book, Essentials of Economics (original emphasis):

The establishment of absolute monarchies in the sixteenth and seventeenth centuries and the rise of modern nations imbued with an ardent and youthful spirit of nationalism produced at the same time a control over economic activity and a theoretical justification of that control that is known historically as mercantilism. Its fundamental principles, of which those of the present age, aptly called neomercantilist, remind us, are: the direction of economic life by the public authorities, the consideration of money as true wealth, a concern with a favorable balance of payments with the object of obtaining more money in international exchange, the protection of industry for the purpose of having articles of export in order to bring money into the country, a system of subsidies and privileges for exporters and for industries producing for export or avoiding imports, an increase in the population in order to augment the productive forces of the domestic economy, competition with and isolation of foreigners by means of tariff barriers, and, above all, the belief that the prosperity of one country is possible only at the expense of the others.

DBx: Except for the wish to increase the population of the home country – a wish either not emphasized or positively rejected by today’s mercantilists – there is nothing “neo” about neomercantilism. It’s the same pack of primitive, atavistic fallacies that were current when people wore ruffs or justacorps.

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Regular readers of Cafe Hayek are aware of the importance that I attach to the distinction between legislation and law. “Legislation” is the name for the commands issued by the state. “Law” is the name for the rules of behavior that evolve undesigned and unplanned in society – rules that better enable us gregarious human beings to live peacefully along side each other and that are part of the expectations that we carry around in our minds and hearts about the behavior of others as well as of ourselves.

Regular readers of Cafe Hayek are aware also that I believe that legislation deserves far less deference than does law. These two kinds of constraints on human behavior differ from each other in many ways, including this way: law reflects the time-tested consensus of the relevant community while legislation, even in democratic societies, often reflects an unsavory mix of raw interest-group politics and popular, faddish fears and superstitions.

With this post I don’t wish to explore or explain further the crucial distinction between law and legislation. (Interested readers can find more here.) Instead I want to suggest that this distinction is helpful for understanding why those of us who are deeply appalled at the latest cruelty of U.S. immigration policy are correct to insist that this policy is so outrageously immoral that it should be disobeyed by all who are in positions to disobey it.

The policy that I write of is the Trump administration’s “zero tolerance” policy toward immigrant border crossings, including the forced separation of children from parents.

“It’s the law!” protests those who object to those of us who wish to see this so-called ‘law’ universally violated. One correspondent wrote to me after I favorably linked to this Kathleen Parker column to ask me if I believed it to be wrong to separate children from parents when the parents commit crimes such as murder and armed robbery. I wrote back that murderers and robbers – even shoplifters – initiate violence against others and others’ property. Therefore, as tragic as it is, any separations of children from their law-breaking parents in such circumstances do not strike me as foundationally ethically wrong. (I do not wish here to discuss proposals and possibilities for fundamental reform of the criminal-justice system. I here take the U.S. criminal-justice system largely as it is.)

The people currently victimized by the Trump administration are guilty of nothing other than what the ancestors of all Americans were guilty of: wanting to live in America. Acting to make that wish come true is itself not a crime; it is not, as lawyers say, malum in se. Acting on that wish is a crime only because the state declares it to be so; it is, as lawyers say, malum prohibitum. Ethically, violating legislation is – or ought to be – presumptively far less objectionable than violating law. And also: violating law in order to enforce legislation is itself presumptively unethical. I submit that the law is violated by the Trump administration and those U.S. government officials who follow the Trump administration’s commands to separate children from their peaceful parents.

Most people, acting on their own, would not use force to separate children from parents who are simply trying to move into a new political jurisdiction. Indeed, even those individual Americans who today would on their own find no problem enforcing, with their own hands, such separations would likely not be willing to do so if there was no legislation that declared what the parents are doing to be criminal.

Decent people do not inflict such heartache and trauma on others who are peacefully trying to move into a new political jurisdiction. Decent people refuse to countenance such actions. Decent people renounce such actions. And decent people do not hide behind “It’s the law!” to justify such cruelty when the so-called “law” is nothing more than legislation.

……

It is often claimed that legislation enacted by the state is necessary to prevent people from behaving barbarously towards each other. I have never believed there to be much truth in this claim. But whatever truth is in this claim, that truth should not overshadow this other truth: legislation enacted by the state often incites people to behave barbarously towards each other, if for no reason other than that those who blindly obey the legislation wrongly fancy themselves to be principled champions of the rule of law. To repeat, again: legislation is not law.

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Quotation of the Day…

by Don Boudreaux on June 18, 2018

in Trade

… is from page 226 of Douglas Irwin’s superb 1996 book, Against the Tide: An Intellectual History of Free Trade:

Consequently, despite the abundant and repeated criticisms that have been made about the theoretical case for free trade, the broad presumption behind free trade has not been substantially undercut, but has remained intact.

DBx: Indeed so. And Doug’s point is no less true in 2018 than it was when he published these words in 1996. The reason is not difficult to find: free trade is a policy of rejecting government creation of artificially high degrees of scarcity. Free trade is a policy based on the recognition that more goods and services available in a country’s markets means, on the whole, more goods and services available for the people of that country to consume. Protectionists peddle the opposite conclusion – and, I admit, I don’t envy the task that they set for themselves – namely, that a government’s creation of artificially high degrees of scarcity make the people of that country richer rather than poorer. Protectionists anticipated Orwell by centuries, because for protectionists, less is more and more is less.

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Dan Ikenson looks at the numbers and concludes that the negative economic effects of Trump’s tariffs punitive taxes on Americans who buy imports could very well exceed the positive economic effects of the cuts in other taxes.

Bret Swanson points us favorably toward research that shows that the conventional means still used to measure countries’ economic performance are not up to adequately capturing the gains bestowed on ordinary people by today’s technologies. (HT David Levey)

Here’s my Mercatus Center colleague Dan Griswold’s case for not readmitting Russia to the G7.

There is only one flaw in Jeff Jacoby’s otherwise excellent case for not siccing the antitrust dogs on Google – that flaw being Jeff’s stated acceptance of the popular history that John D. Rockefeller, Sr.’s Standard Oil company was a monopoly. (Standard Oil did indeed have large market share, but it – like Google – continually acted to promote consumer welfare because its executives understood that potential rivals were ever-present. Large market share ≠ monopoly.)

Kathleen Parker is fully right and correct that the Trump administration’s policy of separating immigrant families at the border is barbaric, inexcusable, and vile.

Put yourself in the room with immigration officials and try to imagine exactly which argument would convince you that separating children from their migrating parents would be a good idea.

Would it work for you because you’re a stickler for obedience to rules — no exceptions? Would it be okay because the United States must convey to others that illegal migration comes with severe consequences? How about because it’s the law (as of recently), as press secretary Sarah Huckabee Sanders told reporters in a hollow attempt to justify what can’t be justified.

Does no one remember the atrocities that have been committed under the law?

Bob Murphy offers a clarification on whether or not Hayek supported a basic minimum income.

My GMU Econ colleague Dan Klein is cited in this essay on the resurgence in the term “classical liberal.

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… when he encounters a correct and clear description of his protectionist position, or of undeniable implications of that position, accuses the person offering the description or implications of creating a straw man.

Yet the free trader need never create a straw man when arguing with the protectionist, for the protectionist’s argument is a spoof on itself. In short, the creator and champion of the straw man is none other than the protectionist himself. He is simply too uninformed or benighted to understand that the arguments that he offers in favor of the artificial enhancement of scarcity are fundamentally absurd.

When offering his arguments, the protectionist manages to present them in a manner that fools him and his followers into believing that his arguments are logically sound, economically sensible, and historically verified. That is, the protectionist doesn’t intend to offer as arguments only straw men. Yet with exceptions too rare to note, such arguments are the only sort that he has available. So when any person better informed and more intellectually consistent than the protectionist describes the protectionist’s argument in full and clearly, the protectionist yells “Straw man!” And, again, in a perverse way the protectionist is here correct. But the argument that even he recognizes as flawed when it is laid bare is merely his own.

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Quotation of the Day…

by Don Boudreaux on June 17, 2018

in Philosophy of Freedom, Science, Trade

… is from paragraph 3, Book 1 of Aristotle’s Nicomachean Ethics:

[I]t is the mark of an educated man to look for precision in each class of things just so far as the nature of the subject admits; it is evidently equally foolish to accept probable reasoning from a mathematician and to demand from a rhetorician scientific proofs.

DBx: It is likewise foolish to demand of an economist involved in public-policy discussions – or, indeed, of anyone who analyzes and proposes government policies – absolute assurance of any specific outcome. Society is simply too complex to permit any such assurances.

I welcome the freshmen and sophomores who challenge me in class with “What ifs?”. “What if this?” “What if that?” Testing the range of the possible is part of what sound thinking and good education do. But a far more important role of sound thinking and of education is to instill and cultivate the good sense to know the difference between possible and plausible, and between plausible and probable. Almost everything that is possible will never occur. As a practical matter, then, when discussing the operation of markets and of government interventions, pointing out that which merely possible is, at best, pointless.

Jim Buchanan (among others) emphasized throughout his life’s work the fact that social processes and government policies are best governed by rules rather than by moment-to-moment and instance-to-instance decision-making. Armed robbery is proscribed by a rule because, as a rule (!), the benefits that it yields to those who commit it are less than the costs to others. This rule – all agree – is sound and is not made less sound when a clever graduate student describes a theoretically possible set of circumstances under which armed robbery yields net benefits to society.

The same wisdom that nearly everyone has about the need for rules to proscribe coercive aggressions such as armed robbery, arson, and rape is largely absent when it comes to government policies. The rule that protective tariffs make most affected citizens of the government imposing such tariffs worse off is a rule as firmly established in theory and in historical fact as any in all of economics. As a rule it is rock-solid. Yet let some arid pedagogue or some politician or pundit carrying water for a special-interest group describe a bizarre scenario under which a protective tariff set just right will yield net benefits, and lots of people become enchanted by this sophistry.

The case for free trade is not that theoretical exceptions to it do not exist or cannot be imagined. Of course such exceptions exist; indeed, they are too many to count. But none of them is remotely plausible in reality and, much less, probable.

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