Rethinking Free Trade

I have long supported free trade as beneficial. But I have also long derided utilitarianism, which is the doctrinal basis for claiming that free trade is beneficial. And I have long opposed the idea of open borders, in part because of the utilitarian claims of its supporters. It is time for me to resolve these contradictions.

Which way should I go? Should I sustain my anti-utilitarian position and oppose free trade as well as open borders? Or should I become a consistent utilitarian and support both free trade and open borders?

A digression about utilitarianism is in order. Utilitarianism, in this context, implies a belief in an aggregate social-welfare function (SWF) — a mystical summing of the states of happiness (or unhappiness) of myriad persons over an infinite series of points in time. It is the aim of utilitarians (who are mainly leftists and economists, though the categories overlap) to push SWF upward, toward (imaginary) collective nirvana. In so doing, the utilitarian makes himself the judge of whether an increase in A’s happiness at the expense of B (e.g., income redistribution) will result in an increase or decrease in SWF. An argument for this presumption (which is familiar mainly to economists), is based on the hypothesis of diminishing marginal utility (DMU) — a hypothesis that I have refuted at length. Suffice it to say that if A gains pleasure by poking B in the eye, no one — not even a Ph.D. economist — can prove that A’s pleasure outweighs B’s pain. In fact, common sense — which is embedded in eons of tradition — tells us that the act that brings pleasure to A should be punished precisely because of the way in which that pleasure is gained.

How does all of that pertain to free trade and open borders? Like this: Economists defend free trade and open borders because, in the aggregate, such things — in the long run — lead to greater economic efficiency and thus to greater total output (measured in constant dollars). And they are right about that. I have no doubt of it. But, to paraphrase John Maynard Keynes, in the long run we are all dead, and in the meantime some of us pay for the betterment of others.

Moreover, there are economists and others who like to conjoin the economic truth about the long-run consequences of free trade and open borders with statements about liberty: People ought to be free to exchange goods and services voluntarily. People ought to be free to live where they like.

Only a jejune anarchist will take such pronouncements as absolutes. Murder for hire is almost almost universally disapproved, as are many other crimes, even in this “enlightened”age. And I am unaware of a movement among affluent leftists to open their living rooms to the homeless, nor to repeal laws against trespass.

The question is, as always, where to strike a balance between the interests of those who benefit from free trade and open borders, and the interests of those for whom such things mean loss of income or higher taxes. How do the gains that accrue to some (e.g., less-expensive Lexi and abundant, low-priced nanny services) offset the burdens borne by working-class taxpayers whose jobs move overseas and whose school taxes rise to cover the costs of educating migrant children?

I ask these questions in connection with a broader issue: the purpose of our national government. It exists precisely for the reasons stated in the Preamble to the Constitution:

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

To put it bluntly but correctly, the national government exists not for the benefit of the people of the whole world or any part of it outside the United States, but for the benefit of the citizens of the United States.

Yes, some Americans benefit from free trade, and some Americans benefit from massive immigration. But not all Americans do. And it is the job of the national government to serve all of the people. A balance needs to be struck. And those who pay the price of free trade and massive immigration must be compensated in some way.

How and how much? Those are questions that I will grapple with in future posts.

Related posts:
Liberalism and Sovereignty
Utilitarianism, “Liberalism,” and Omniscience
Gains from Trade
Utilitarianism vs. Liberty
Diminishing Marginal Utility and the Redistributive Urge
Utilitarianism vs. Liberty (II)
Not-So-Random Thoughts (XVIII) – third item
Prosperity Isn’t Everything

Points of Agreement and Reinforcement

Scott Lincicome, Don Boudreaux, and Mark Perry continue their stalwart defense of free trade (latest entries here, here, and here). The controversy revolves around the notion prevalent in “liberal” circles that exports are “good” and imports are “bad.” This is an old view, which Henry Hazlitt addressed in Economics in One Lesson:

(From the 1952 edition. Originally published in 1946).

I couldn’t agree more with Lincicome, Boudreaux, Perry, and Hazlitt — as you will see if you go here, here, and here.

John Goodman keeps tabs on the abomination known as Obamacare. His many post-enactment observations about Obamacare include these:

Docs Declare “No Confidence” in AMA, Exercise as Anger Management, and the Upcoming Nursing Shortage
Doctors are Leaving Medicare
Who is Going to Provide the Extra Care?
Selling Health Reform to the Victims
The Coming Doctor Shortage
Victims of Health Care Reform

None of this comes as a surprise to me. I warned against Obamacare in several pre-enactment posts:

Rationing and Health Care
The Perils of Nannyism: The Case of Obamacare
More about the Perils of Obamacare
Health-Care Reform: The Short of It

Goodman also offers a tantalizing post about the idea of testing public policies before they are fully implemented. The idea of testing public policies is one of the arguments for true federalism, where the central government has a hands-off policy on economic and social matters (but not civil rights). Only true federalism — which this nation enjoyed (more or less) until the subversion of the Commerce Clause by the Interstate Commerce Act — will dispel the “anger” toward the central government that deeply, and justly, animates a large number of Americans.

Big-government advocate Linda Greenhouse now opposes broadly worded delegations of power to subordinate authorities, because the broadly worded power, in the present instance, would

authoriz[e] the secretary of Homeland Security to “waive all legal requirements” that the secretary, in his or her “sole discretion, determines necessary to ensure expeditious construction of the barriers and roads [comprising the border fence project].”

The writer of the quoted article notes the irony in Greenhouse’s present position. It puts her on the side of Judge Douglas Ginsburg, who argued against broad delegations of congressional authority in “Delegation Running Riot” (Regulation, 1995, no. 1), where he coined the term “the Constitution-in-exile”:

So for 60 years the nondelegation doctrine has existed only as part of the Constitution-in-exile, along with the doctrines of enumerated powers, unconstitutional conditions, and substantive due process, and their textual cousins, the Necessary and Proper, Contracts, Takings, and Commerce Clauses. The memory of these ancient exiles, banished for standing in opposition to unlimited government, is kept alive by a few scholars who labor on in the hope of a restoration, a second coming of the Constitution of liberty-even if perhaps not in their own lifetimes.

All of which reminds me of an old post of mine about the Constitution in exile.


Imagine two individuals, A and B, each of whom makes something different. Let’s say that A makes bread and B makes butter. If A wants butter for his bread, he buys some butter from B; if B wants bread to go with his butter, he buys some bread from A. This kind of exchange for mutual benefit, stripped of monetary measures, is the essence of economic activity.

What is special about trade if it happens to take place across international borders? Nothing. If I’m B (in Boston), and I have a choice between bread produced by A (in Alberta) and bread produced by C (in Chicago), I’ll choose A’s bread if I consider it a better value than C’s (e.g., same quality, lower price or higher quality, same price). Do I owe C a living? No. If C can’t compete with A in bread-making, he ought to try his hand at something else, but he shouldn’t use superior force (i.e., government) to force me to buy his product.

If B spends more on A’s bread than A spends on B’s butter, B is running a deficit. Isn’t that awful? No, it isn’t. B, to finance his deficit, can draw on his savings, borrow from A, or sell stock in his butter-making business to A. All of these are voluntary choices; none should be cause for alarm. If B draws on his savings, he’s getting something in return that he values: bread. No problem there. If B borrows from A, A is taking a risk and B is getting bread. No problem there. If A buys stock in B’s butter-making operation, A is taking a risk and B is getting bread. No problem there. (None of these actions is different, in principle, than allocating a portion of one’s savings to a down payment on a house, and financing the balance with a loan — which isn’t much different than selling the lender stock in one’s future earnings prospects.)

In each case, A and B are making informed decisions based on direct knowledge of their wants and the risks involved in satisfying them. The aggregation of such decisions into national accounts (e.g, the trade account) gives the impression that the transactions are collective, that “we” Americans in the aggregate are suffering at the hands of shifty foreigners, and that government ought to “do something” about it. Well, they aren’t collective decisions, the Americans involved aren’t being fleeced, and government efforts to “do something”  (e.g., raise tariffs on imported goods) invite the kind of disaster that followed enactment of the Smoot-Hawley Tariff Act.

What about unemployment that might result from trade? Well, yes, trade can cause transitional unemployment, but that’s true of domestic trade as well as international trade. If the U.S. government, as a matter of long-standing policy, had banned domestic and international trade because it might cause transitional unemployment, we wouldn’t have progressed from buggies to Model Ts to reliable Japanese cars, from parchment and quill pens to PCs, from face-to-face conversation to cell phones, and so on. In growing economies — as more-or-less laissez-faire economies are most of the time — temporary unemployment is soaked up by growth, that is, by the expansion of existing industries and the addition of new ones. It’s Schumpeter’s “creative destruction” at work.

The alternative to “creative destruction” (of which international trade is a necessary part) is the kind of insular, centrally directed economy that prevailed in Soviet Russia, where nominal “full employment” masked the wholesale misuse and real underemployment of land, labor, and capital. The same thing has happened by “democratic” means in most of Europe, and is happening by similarly “democratic” means in the United States. Witness, for example, the Environmental Protection Agency’s recent decree about “greenhouse gas” emissions.

In summary, trade is trade, whether domestic or foreign. When government acts in ways that stifle trade, the result is underemployment of land, labor, and capital. There are but two valid reason to stifle trade. One is to prevent, deter, or punish truly harmful acts. The other is to prevent, deter, or punish the easy acquisition of U.S. military secrets and technology by enemies and potential enemies.

For related posts, see these categories:

Economics – Fundamentals
Economics – Growth & Decline
Political Economy & Civil Society

Gains from Trade

I’ve been pondering a bunch of recent posts about international trade by Keith Burgess-Jackson. The posts (dated from March 11, 2009, to June 8, 2009) are at KBJ’s eponymous blog. In the posts, KBJ attacks international trade (or some of it), because (in his view) it affects certain aspects of life in the United States.

I’ve read and re-read the various posts, trying to make sense of them. But I have been unable to do so so because, at every turn, I am confronted by flawed logic and unfounded assertions. I’m left in awe at the chutzpah of a tenured associate professor of philosophy (with a law degree, to boot) who commits the kinds of errors for which (I hope) he would chastise his students.

Anyway, to begin at the beginning, there’s this (March 11):

Free trade has been, and will continue to be, a disaster for this country.

A “disaster for this country” would be an event (or a related set or sequence of events) that inflicts unmitigated harm on great masses of Americans. The Great Depression was a “disaster for this country,” as was 9/11. How is “free trade” a “disaster for this country” when, thanks to the lowering of barriers to trade, but not their abandonment (thus “free trade”), millions of Americans now own better automobiles, electronic gadgets, and other goodies than they had access to before “free trade.” Not only that, but they have been able to purchase those goodies to which they had access before “free trade” at lower real prices than in the days before “free trade.” On top of that, millions of Americans make a better living than than they did before “free trade” because of their employment in industries that became stronger or rose up because of “free trade.”

Okay, so KBJ issues a qualified version on March 12:

Dr John J. Ray, my polymathic friend Down Under, replies to my post about free trade. I should clarify my stance. I’m not saying there should be no trade. That would be crazy. I’m saying that we Americans should protect certain of our industries, such as steel and automobiles. Yes, there is a price to be paid for these protectionist measures, but I, like Pat Buchanan, deem it a price worth paying.

Having recognized that “free trade” may be good for many Americans, KBJ now wants to protect certain industries. But why? KBJ doesn’t say. And I’m at a loss to guess the answer. After all, if we protect an industry we are, in effect, subsidizing those who earn a living in that industry, from the loftiest chairman of the board to the lowliest floor sweeper. Why should Americans be forced, for example, to subsidize people who work for GM and Chrysler when “Japanese” auto makers employ Americans who also make cars?  Even if GM and Chrysler were to go out of business, there would still be an American auto industry — one whose “Big Three” would be Ford, Toyota, and Honda. I’m not so sure about Ford, but Toyota, Honda, and other “Japanese” makes have proved more than adequate to the task of delivering well-made autos at reasonable prices.

I would make the same argument even if “Japanese” cars truly were Japanese, from topsail to keel and stem to stern. Even then, it would not be entirely a question of favoring certain Japanese at the expense of certain Americans. It would also be a question of favoring certain Americans (those employed by auto companies of any stripe) over other Americans (those who would prefer Japanese autos for various reasons, not least of which is value for the dollar). KBJ seems to acknowledge as much in a post of March 16, where he gives a bit more ground:

Free trade is efficient, in the sense that it increases (or even maximizes) aggregate material welfare. The key words are “aggregate” and “material.” As for the first of these words, free trade produces losers as well as gainers. The gainers could compensate the losers, but they are not made to do so. I’m concerned about the losers. In other words, I care about justice (how the pie is distributed) as well as efficiency (how big the pie is). As for the second word, there is more to life than material welfare. Free trade has bad effects on valuable nonmaterial things, such as community, culture, tradition, and family. As a conservative, I care very much about these things.

There’s more of the same on March 17:

Here is a video that explains how free trade increases (or even maximizes) aggregate material welfare. Notice that there is no mention of two things that matter to conservatives: (1) how the increase is distributed; and (2) how free trade affects nonmaterial welfare.

KBJ focuses on American losers, but there are many, many American gainers from free trade, as discussed above. Are their communities, cultures, traditions, and families of no import to KBJ? It would seem so. On what basis does he prefer some Americans to others? Or, to put it more crudely, who died and left KBJ, Pat Buchanan, and their ilk in charge of defending the Rust Belt?

And why should we care whether autos and steel are made in the U.S.? Is it a matter of national pride? What price pride? Whatever the price, it seems that KBJ, Pat Buchanan, and their ilk are willing for millions of Americans to pay it.

Maybe it’s a question of national defense — the bogeyman that is so often conjured in relation to our supposed dependence on foreign oil. Just as those “Arabs” might cut off our oil (though to do so would be to risk our wrath and their wealth), perhaps the Russians, Chinese, or Hottentots will someday amass so much military power that they can cut off all our imports, leaving us poor and powerless — inasmuch as we would no longer possess an industrial base to mobilize for war.

So, maybe their reasoning goes like this: America would be (has been?) deprived of significant chunks of its industrial base by the migration of manufacturing overseas (ignoring the fact that auto-making has migrated mainly from one part of the U.S to other parts of the U.S., while the U.S. remains the number 3 steel-making country in the world). And if our industrial base disappears, we won’t be able to mobilize for a prolonged war — one that would require more military stuff than our puny (hah!) industrial base would be capable of emitting. But our industrial base isn’t disappearing, it’s just becoming smaller in relation to our service sector and far less labor-intensive (i.e., more labor-productive) than it used to be (thus the “loss” of manufacturing jobs over time). See, for example, these Federal Reserve graphs of U.S. industrial capacity and production from the mid-1960s to the present. (The main page is here.) In spite of dips related to recessions, the trends are upward.

Getting back to the question of defense, we already have much larger conventional forces and stockpiles of parts and munitions in relation to the forces and stockpiles of our potential enemies than was the case before we entered WWII. If that demanding war is the benchmark for preparedness, then we have plenty of time to convert existing industrial facilities to war production, and to build new war-production facilities. In any event, you would think that the prospect of a major conventional war would become evident in ample time for mobilization, despite the periodic decimation of our intelligence services.

If unpreparedness for a major conventional war is the bogeyman that haunts the dreams of KBJ and company, their real fear can’t be the loss of our industrial base because of “free trade,” inasmuch as we haven’t lost our industrial base and show no signs of doing so. No, their real fear must be the caliber of our political leaders. Sell-outs will sell us out even when we have strong defenses and the wherewithal to build and maintain those defenses, as we have learned in the decades since the Vietnam War, which devastated our resolve to deal with military problems militarily. Those decades were punctuated only briefly by Reagan’s defense buildup, Bush I’s mistakenly truncated Gulf War, and Bush II’s hamstrung war in Iraq. We are now preparing for future wars (not!) and fighting current ones (while retreating) on terms dictated by an obstructive Congress (one of whose members was our new, Chamberlainesque president), an over-reaching Supreme Court, and other Leftists (to call them American Leftists would be an insult to America). But none of that has anything to do with “free trade.”

Returning to the issue at hand, KBJ seems to ignore the fundamental fact of life that human beings try to better their lot in ways that often, and inescapably, result in change. Human beings do want economic progress, and they have proved that they are willing, at times, to pay for in in “nonmaterial ways,” that is, by allowing it do affect “community, culture, tradition, and family.”

But that fact has never kept sentimentalists from decrying the loss of the “good old days.” KBJ’s tune is an old one, a version of which goes “How ya gonna keep ’em down on the farm after they seen Paree?”

Perhaps (in KBJ’s view) it was a mistake for early man to have discovered fire-making, which undoubtedly led to new communal alignments, cultural totems, traditions, and even familial relationships. Methinks, in short, that KBJ has been swept away by a kind of self-indulgent romanticism for a past that was not as good as we remember it. (I’ve been there and done that, too.)

If “nonmaterial things” are so important, one wonders why KBJ ever left Michigan. And if he left Michigan for good reasons, as I’m sure he did, why is it bad for others to leave Michigan for the promise of warmth and employment? If “nonmaterial things” are so important, college attendance between ages 18 and 22 ought to be outlawed, for that is where (college) and when (18 to 22 years of age) large portions of the populace lose their attachment to “community, culture, tradition, and family.”

Anyway, how is it that economic dislocation — gradual as it is when an industry shifts its locus from one region to another — devastates “community, culture, tradition, and family”? If there has been any devastation of “community, culture, tradition, and family” in the Rust Belt — where auto- and steel-making once were dominant industries — it has been going on for decades, due to the combined influences of higher education; mobility (as the young seek greener pastures and the old seek warmer climes); the rise of impersonal entertainment and forms of communication (in lieu of family togetherness); and the natural breakdown of old-country cultures and traditions, as generation succeeds generation.

Shifting gears: On March 19, KBJ says this:

Those of you who consider yourselves conservative but support free trade might want to reconsider. The editorial board of the New York Times supports free trade. So does Barack Obama. So do the Clintons. So does Paul Krugman.

KBJ’s (risible) implication seems to be this: Something can’t be good if your political enemies think it’s good; or, you can’t really be a conservative if you agree with certain scurrilous liberals on a particular issue. By such reasoning, I wonder that KBJ can be against “free trade” when its opponents include Leftists:

I’m with Dennis Kucinich on free trade. (March 24)

On March 25, KBJ merely rehashes earlier posts:

There is no mention in this New York Times story of why people are losing their jobs. Can you say “free trade”? Jobs are being outsourced to China and other parts of the world, where labor is cheap. What good are cheap goods if you don’t have a job? Free trade will be the death of the West. A hundred years from now, if the West survives that long, people will look back at this time as the time of idiocy.

There’s more of the same old stuff on March 26, along with a couple of new assertions:

The editorial board of the New York Times is adamantly opposed to “protectionism.” In other words, it adamantly supports free trade. Note the reason given. The board—which is composed of cosmopolitans—is concerned about poor people in other countries. Free trade raises the standard of living for nonAmericans at the expense of Americans, many of whom are suffering terribly as a result of lost jobs, which adversely affects not just them but their families and communities. Free trade is a worldwide leveler of wealth. This is why conservatives (as opposed to libertarians) oppose free trade. In their view, Americans come first. Cosmopolitan progressives and libertarians support free trade, albeit for different reasons. The former support it because it redistributes wealth from rich nations to poor nations. The latter support it because they worship individual liberty. Free trade has been a boon to wealthy American entrepreneurs, who now have a worldwide pool of cheap labor. It has devastated working-class and middle-class Americans.

The notion that “[‘free trade’] redistributes wealth from rich nations to poor nations” is completely devoid of logical and empirical content. “Free trade” works because there are gains to all participants. If that weren’t the case, Americans wouldn’t buy foreign goods and foreigners wouldn’t buy American goods. Moreover, “free trade” has been a boon to American consumers and workers (though not always the workers KBJ seems to be worried about). To the extent that “wealthy American entrepreneurs” have gained from “free trade,” it’s because they’ve risked their capital to create jobs (in the U.S. and overseas) that have helped people (in the U.S. and overseas) attain higher standards of living. The “worldwide pool of cheap labor” is, in fact, a worldwide pool of willing labor, which earns what it does in accordance with the willingness of Americans (and others) to buy its products.

Finally, on June 8, KBJ says:

Europeans are starting to see the folly of free trade.

Actually, if you read the article, you’ll find that it portrays Europeans as wrong-headedly provincial — just like KBJ and company.

I may have left out a post or two, but I hope that, by now, you get the idea. “Free trade” helps Americans — perhaps not always the Rust-Belt Americans KBJ seems to be fixated on.

It might surprise KBJ to know that everyone’s income can grow, and grow faster, because of trade — not in spite of it. Foreigners earn more now than they used to, in part, because they are employed in more productive pursuits than they were before “globalization.”  The more foreigners earn, the more American-produced products they buy. Many of those same foreigners also help to underwrite our government’s deficits, thus reducing Americans’ taxes.

If “free trade” is such a bad thing, I wonder if KBJ buys anything that’s not made in Texas, where he lives. Trade between the States, after all, is about as “free” as it gets (except when government bans something, of course). Suppose Texas were to be annexed suddenly by Mexico. Would KBJ immediately boycott everything that’s made in the remaining 49 States? Would it have suddently become unclean?

Opposition to “free trade” — of the kind voiced by KBJ and company — is pure, unadulterated, mindless yahooism. It has no more validity than rooting for, say, the University of Texas Longhorns just because you live in Austin (as I do). People who have not the slightest connection with UT can be seen wearing burnt orange (UT’s colors for those of you who are blissfully unaware) and celebrating drunkenly after UT victories. It just makes me want to puke. And so does anti-international trade yahooism, which is like rooting for union-dominated firms like GM and Chrysler, which we are now subsidizing to the nth degree. (I’ll bet that makes KBJ puke.)

Putting an end to “free trade” would make Americans poorer, not richer. And I doubt that it would do anything to halt the natural evolution of “community, culture, tradition, and family” away from the forms sentimentalized by KBJ and toward entirely new but not necessarily inferior forms.

The biggest threat to “community, culture, tradition, and family” lies in the non-evolutionary imposition of new social norms bythe Left. That’s where the ire of KBJ and company should be directed.