This is Part 3 of a slow long essay on the reasons free trade exists. Parts 1 and 2 were posted all at once few days ago,
Now, forget about Luis and me for the time being.
Just imagine a word where people everywhere are allowed to do what they want with respect to how they spend their resources. The first resource is their time, of course. Some people, not everyone by all means, will try to earn more. Note that I am not saying that everyone will act rationally. Some are too lazy; some are too stupid; some simply like what they are doing at low earnings. That’s fine. It does not undermine the explanation of free trade I am stretching out for you in small steps.
A farmer in Quebec thinks he is not earning enough herding and milking cows. He is thinking he would do better growing bananas. His friends point out that Quebec is not a good place to grow bananas because it’s cold much of the time and winter days are short there. If he is smart, he will follow their advice and look for some other improvement. If he is too dumb or obstinate and he goes on, reality will soon hit him on the head. He will find that he has no income from Canadian bananas most months, or even most years. Or his electricity bills will drown any profit. Either way, the unhappy cow farmer will have to try something else. He may discover that growing big pink organic-certified raspberries for the Montreal market, or for the New York City market, pays better than either cows or bananas. Or he may fail and return to cows. Or, he may become unemployed. The process is messy.
Remember though than when Luis and I switched to other jobs, we experienced big advances in earnings within a credible scenario. Some win some lose. If those who win win more than those who lose lose, the relevant society ends up richer. This statement does not exclude social dislocation, individual misery or a fair amount of personal failure. This admission raises another issue. It’s a value issue. There is no particular reason why I should divulge my preferences about it; expertise does not matter here. I can set it up for you though.
Would you rather be poor or unemployed in a society where almost everyone is poor and many are unemployed or in a prosperous society with low unemployment?
In Germany, there is this young man named Hans. He works at a sandwich shop for a wage slightly above the legal minimum, about $10 / hour. Hans is not miserable or anything because this is Germany where even the poor are not poor. However, he is tired of his monotonous work and he would like to buy a big Honda motorcycle. Hans has a good voice and some imagination. He tries his luck as a rapper. He does not go very far because, in fact, hardly anyone wants to listen to rap in German, not even Germans. Hans swallows his disappointment but he still want the damn motorcycle so he can travel around. So, he finds an entry job in a factory making widgets.
The widget job pays far above the minimum wage, In fact, it pays the US equivalent of $16/hour plus big benefits and long vacations. There is a good reason for this: Germany is a great place to make many kinds of widgets. It’s a compact country where plants are not far from their suppliers and from other plants that are their customers. (That’s true in general: Most manufactured products are sold to manufacturers rather than to end-users.) Germany also benefits from having an excellent educational system for turning out highly qualified workers and low-level supervisors through formal apprenticeships. Hans is not one of those but he benefits from the fact that those highly qualified workers make German manufacturing very productive. They raise his wages.
So, here we are again. Like me and like Luis in the US, like the Canadian farmer, Hans in Germany has improved his earnings. This, by a large amount. He can afford more stuff, including a motorcycle, and even imported organic raspberries, if he happens to like those. If he has never tasted any, he is in a better position to experiment than he used to be. He may try them and like them. He too is now in a better position to sleep late, or to take music classes, or to take other classes to improve his qualification. Hans has cheated no one; he has not harmed anyone at all. Note that he now pays more taxes, in all likelihood. Like Luis’, Hans’ upward move seems to leave a job unfilled. My story does not tell you who is going to make sandwiches now that Hans has left. The answer here has to do with escalators again.