Rethinking Free Trade III

From Part I:

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….

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.

From Part II:

[T]here will be in the short run (and sometimes even in the long run) a downward shift in the demand for labor in some sectors of the economy due to actions taken by foreign governments. Those actions consist of direct subsidies to industries that export goods to the U.S., and indirect subsidies in the form of tariffs and quotas on goods imported from the U.S.

I have seen “libertarian” economists justify direct subsidies because they benefit American consumers. (The same economists are glaringly silent about the disbenefits to American workers whose jobs are lost because of the subsidies.) It is jarring to read justifications of that kind from “libertarians”, who are usually quick to put Americans and foreigners on the same plane; for example, by promoting and praising “open borders” despite considerable disbenefits to some Americans. (I am thinking of  those whose neighborhoods are threatened by gangs of illegals. I am also thinking of those who pay higher taxes to subsidize the education, shelter, sustenance, and schooling of illegals — but who, unlike more affluent Americans, don’t engage the services of low-priced nannies and yard workers.)

And I must point out that those foreign-government subsidies aren’t free. They’re paid for, one way or another, by the citizens of foreign countries. Why would a “libertarian” transnationalist overlook such a thing? To justify “free trade” I guess.

It’s only fair to note that the U.S. government subsidizes American industries in ways that harm foreigners, that is, through direct subsidies, tariffs on imports, and import quotas. But any gains to workers in the industries thus subsidized do not offset the harm that foreign-government subsidies do to workers in other American industries.

All in all, international trade is a real mess. (So is domestic trade, given the myriad distortions wrought by taxes and regulations.) But it’s fair to say that some American workers are harmed by what can only be called unfair practices in international trade. The harm to them isn’t offset by the gains to other Americans. Only an economist or socialist would think otherwise.

In sum, I have come around to Mr. Trump’s view of this issue. Trade should be conducted on a level playing field. Given that that won’t happen soon — if ever — what should be done for American workers who are harmed by unfair trade? Stay tuned.

One thing that shouldn’t be done for American workers is to establish government-run “retraining” programs, which would enable civil servants and contractors to feed at the public trough while doing little or nothing for workers. What would the workers be retrained to do? Government entities are notoriously good at stasis, and notoriously bad at responding to market signals.

Then there is the challenge of identifying and quantifying the effects of unfair trade on specific American workers. I can see it now: quotas for persons of color, persons with gender dysphoria, persons of the female persuasion, etc., etc., etc. All of which would add up to another vast misallocation of resources.

What about vouchers instead of government programs? See the preceding paragraph.

Here’s how I would do it:

  • Estimate the amount by which the price of a foreign product or service is reduced by the actions of foreign governments or their proxies.
  • Add that amount to the price as a tariff.
  • Regularly review and adjust the schedule of tariffs.

All other trade would be unencumbered, excepting:

  • the importation of products and services otherwise restricted by U.S. law (e.g., tanks, artillery pieces)
  • the exportation of products and services that are used directly in the development, manufacture, and operation of sensitive military systems (e.g., fighter aircraft, anti-missile defenses).

Selective tariffs, based on actual costs of production, would encourage the efficient use of resources and protect American workers who would otherwise be victimized by unfair trade. But that’s it. Sweeping tariffs on imports — just to “protect” American workers — do more than protect them. They also penalize American consumers, most of whom are also workers.

No “solution” can be perfect in an imperfect (i.e., real) world. That’s the best I can do for now.

Rethinking Free Trade II

I ended “Rethinking Free Trade” with this:

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… 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 … must be compensated in some way.

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

I must first acknowledge some rather good points that I made in “Gains from Trade“, a nine-year-old post in which I address objections to free trade made by Keith Burgess-Jackson (KBJ):

How is “free trade” a “disaster for this country” [as KBJ puts it] 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.”…

… KBJ seems to acknowledge as much in a [later] post … , 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.

… 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?…

… 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….

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.)…

“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….

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 suddenly become unclean?…

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 by the Left. That’s where the ire of KBJ and company should be directed.

There are a few chinks in my argument.

First, there will be in the short run (and sometimes even in the long run) a downward shift in the demand for labor in some sectors of the economy due to actions taken by foreign governments. Those actions consist of direct subsidies to industries that export goods to the U.S., and indirect subsidies in the form of tariffs and quotas on goods imported from the U.S.

I have seen “libertarian” economists justify direct subsidies because they benefit American consumers. (The same economists are glaringly silent about the disbenefits to American workers whose jobs are lost because of the subsidies.) It is jarring to read justifications of that kind from “libertarians”, who are usually quick to put Americans and foreigners on the same plane; for example, by promoting and praising “open borders” despite considerable disbenefits to some Americans. (I am thinking of  those whose neighborhoods are threatened by gangs of illegals. I am also thinking of those who pay higher taxes to subsidize the education, shelter, sustenance, and schooling of illegals — but who, unlike more affluent Americans, don’t engage the services of low-priced nannies and yard workers.)

And I must point out that those foreign-government subsidies aren’t free. They’re paid for, one way or another, by the citizens of foreign countries. Why would a “libertarian” transnationalist overlook such a thing? To justify “free trade” I guess.

It’s only fair to note that the U.S. government subsidizes American industries in ways that harm foreigners, that is, through direct subsidies, tariffs on imports, and import quotas. But any gains to workers in the industries thus subsidized do not offset the harm that foreign-government subsidies do to workers in other American industries.

All in all, international trade is a real mess. (So is domestic trade, given the myriad distortions wrought by taxes and regulations.) But it’s fair to say that some American workers are harmed by what can only be called unfair practices in international trade. The harm to them isn’t offset by the gains to other Americans. Only an economist or socialist would think otherwise.

In sum, I have come around to Mr. Trump’s view of this issue. Trade should be conducted on a level playing field. Given that that won’t happen soon — if ever — what should be done for American workers who are harmed by unfair trade? Stay tuned.

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