Protectionism and Job Loss: Part Nine of a Nine Steps Series (And Last, I Think.)

Jacques Delacroix Liberty , , ,

This is the last installment of a series of nine short essays in which I attempted to explain a topic that is both important and misunderstood by many intelligent people: protectionism and its obverse, free trade. 

[…]

When economic actors, people and organizations, switch from doing what they don’t do very well to what they do better, production increases everywhere, the pie gets bigger. There is no injustice involved, just a general rise in the standard of living.

For such virtuous change to achieve maximum effect, there must be economies of scope and scale. It’s not always obvious in big countries such as the US which has a large internal market (many people most of whom are rich by world standards.) It’s pretty clear when you think of small prosperous countries such as Switzerland. How efficient would Nestlé be if it made chocolate only for eight million Swiss rather than for hundreds of millions of consumers worldwide? And would the smelters of Luxembourg do a good job making steel only for the half-million Luxembourgers?

So, it stands to reason that any barrier to import limits severely the benefits of switching from mediocre to good or from good to excellent. But, the basic rule of international trade is reciprocity. (It’s a little more complicated than this in everyday life but the complications do not affect the basic soundness of my reasoning.) Countries’ governments say to each other: “ If you impede the entry on your territory of stuff made by my economic actors, I will impede access of my territory of stuff made by yours.” This is no bluff. So-called “trade wars” erupt frequently, involving different kinds of tit-for-tat. The most notable thing about every round of tit-for-tat is that it impoverishes everyone. See above.

Trade barriers, different ways of impeding access, come and go. Although it’s difficult to find a coherent argument in favor of any trade barrier, governments will often yield to interest groups and provide “protection” from imports for this or that good. They do so usually not because of some abstraction such as the “national interest,” but because of political necessity or to distribute political favors. Two interesting remarks about this poisonous practice. First, more democratic governments should be expected to be more likely to yield such favors. Second, by “protecting” domestic producers, they also lower the standard of living of domestic consumers. Naturally, the two categories of consumers and domestic producers overlap somewhat which only underscores the absurdity of protectionism. Incidentally, developing and enforcing trade barriers requires a large technical and inspection apparatus. The more trade barriers, the larger the government relative to the national economy.

All this being said, it’s clear that the removal of trade barriers will cause job losses in the affected sectors of the economy. It’s also obvious that some of those who lose their jobs will not find equivalent or better jobs. Here, individual fates diverge in small but humanly significant ways from collective well-being.

Let’s take the case of Canadian vintners. Yes, they exist. Would I make up anything so absurd? Do I have sufficient imagination? As you might imagine, Canadian wine-producing firms exist inside a network of government protectionist measures. If they were left to their own devices, most would soon be swept away by the wines of thousands of producers from twenty different places, from California to South Africa. Now, imagine that the Canadian vintners lose their muscle with the Canadian federal government and that all the protective measures are withdrawn within one year.

Under such a scenario, two things would happen. First, as I have explained step by step, many Canadian resources, including labor would eventually be switched to more productive endeavors. Because of this switch, Canadians in general but also the whole world would be a tad richer. But no one would expect the switch to be instantaneous. There would be some social dislocation, for sure.

The second consequences would be, starkly, that some people working in wineries and in wine-related businesses would lose their jobs. The fifty-five year old wine-maker of a small British Columbia winery with thirty years experience in the same winery would almost certainly have to retire. It’s extremely unlikely that he would qualify for one of the many advanced jobs open in the new, and now marginally more productive Canadian economy. An old wine-maker will not become say, a software writer, under almost any imaginable circumstance. Instead, the middle-aged wine maker will either become unemployed or he will have to take one of the lower-end jobs freed by the escalators described before.

Free trade, and opposition to protectionism have acquired a bad name, I think in part because of economists’ reluctance to face squarely this particular human implication of such policies.

I defend free trade while recognizing the wine-maker’s painful problem by pointing to the overall, collective consequences of protectionism: It’s always an economic disaster. We know this from two different sets of observations, First, other things being equal, countries that follow national policies of free trade grow faster than those that don’t. That’s true equally for poor countries and for rich countries. Similarly, when countries that have implemented protectionist policies open up even a little, they experience a quick surge in their GDP. Second, there is no part of the world where unemployment figures track free trade’s ups and downs. As an example, the sudden upsurge of unemployment in the US 2007-2009 had nothing to do with any increase in imports. This tells me that the sad middle-aged Canadian vintner’s case does not account for much of unemployment.

Other things being equal, I think it’s better to be unemployed in a relatively more prosperous country that in a poor one. The benefits are more generous, and the next job opportunities richer and more varied. Training programs are also more common and more accessible in richer than in poorer countries. And capital to start one’s own business is normally cheaper and more accessible, the more prosperous the country. I will go further: Economically, it’s better to be unemployed in a rich country than employed in a poor country. (I understand there are non-economic downsides to unemployment. This is another topic I can’t deal with here. A single thread, the economic thread, is difficult enough to follow.)

In conclusion to this whole series on free trade and protectionism in nine small steps: protectionism remains the royal road to collective poverty and it does not do much for anyone, not even for those who stand to lose their jobs when national borders open.

[Editor’s note: Part 8 can be found here]

Ron Paul Visits UCLA: the Recap

Brandon Christensen Current Events, Politics

It was great.  We had the largest crowd yet for a Ron Paul rally.  The applause and the loudness made Ron Paul’s wife and granddaughter, who were sitting just off to the side of Ron Paul, giggle a lot.  Los Angeles is wild!

He kept it short and simple.  He talked about the decline of the dollar, the need for reform in the area of currency, and the threat to our economic freedom that the Federal Reserve poses.

He stuck it to both parties when it came to civil liberties, and excoriated the PATRIOT Act and NDAA.  He bashed on the TSA and explained to the crowd of mostly college students the dire necessity of legalizing drugs.  He explained that pharmaceutical drugs are much more dangerous than marijuana, and that they get subsidies from the federal government and are behind prohibition.

He denounced the military-industrial complex.  He talked about the need to bring our troops home from around the world.  From Japan.  From South Korea.  From Germany.  From Uganda.  And from the Middle East.  He talked about engaging the world through free trade and the need to treat other nations as we would like to be treated.  Unlike South Carolina, Los Angeles went wild with applause for his calm argument in favor of a rational and humble foreign policy.

He talked about the freedom to choose, the importance of tolerance, and about the need to abolish – outright – the 16th Amendment.

While waiting around for Ron Paul to speak, the crowd did the wave for a while, and chanted on and off again ‘President Paul’, ‘Ron Paul’, and of course ‘End the Fed’.  While I am loosely associated with the libertarian groups on campus (I have to work if I am not studying; I am paying my own way through college), it was great to see their hard work pay off.  These guys spent months working to get enough signatures from around LA County to bring Ron Paul to UCLA.

It was a night to remember, that’s for sure.  I can’t believe the Republican Party had repudiated this man (I can totally believe that an intellectually bankrupt Left could do such a thing, though).  The times are a’changin’ though, and change is in the air.  The younger generation of Americans are fiscally conservative and socially liberal, and this is the libertarian fountain of progress.

Best of all, hearing Ron Paul speak replenished my thirst for individual liberty and justice for all.

Ron Paul to Visit UCLA

Brandon Christensen Liberty

To all you Angelinos, Ron Paul will be in Westwood tonight at 8:30 pm.

Here is the link to free registration.  Hope to see you all there!

The Escalators (Part Eight of Eight so Far on Protectionism)

Jacques Delacroix Liberty

Ninth and probably last installment soon: Do people lose their jobs because of free trade?

In the story in seven episodes some of you had the patience to read, I kept pushing aside the question of what happens to the work done by those who move upward. If you will recall, I abandoned half of my dish-washing work, Luis stopped blowing leaves and carting away garden leavings, and Hans quit his sandwich-making job. Of course, those are bottom jobs garnering the lowest pay. So, the easiest and most general answer is that people and organizations move upward is they are allowed to do so. Both individuals and organizations become more productive. Under even moderately competitive conditions, this means that they earn more money.

The question arises toward the bottom of the pyramid of productivity, as in my story. I mentioned briefly that the answer has to do with escalators. There are four answers to this question that are not mutually exclusive. I mean by this that you can witness all four solutions being implemented in the same national society at the same time. I take them up in turn.

1 Some of the lowly jobs remain undone. This is so rare that it’s difficult to come up with examples that are not so exotic as to be distracting.

2 Within almost all national societies, a combination of unemployment and of under-employment is the rule. In poor societies, many people don’t work much because there is no work for them. (That’s one of the main sources of underdevelopment: people don’t work much.) In rich societies, there is a reliable rate of unemployment in the potential labor force. some of which is voluntary. In such societies, there is also massive under-employment of young people, of older people and of women. When dishwashers are leaf-blowers are hard to come by, wages rise and some of the unemployed and some of the under-unemployed become motivated to do them. That’s true in both rich and poor societies.

3 If the shortage of dishwashers and of leaf-blowers becomes severe enough, history tells us, the miracle of mechanization revs up. Within a short time of a labor shortage of olive pickers in the northern Mediterranean countries, someone invented and effective olive-tree shaking machine. It is driven by a single person and replaces the work of about half a dozen hand pickers. Here is another telling anecdote. Everyone knows that the French love dogs better than they love children, with the kind of results for the sidewalks you might expect. I have seen with my own eyes, within a few years, small armies of low-skill African immigrants armed with twig brooms disappear from the streets of Paris. They were replaced by extraordinary, powerful motorcycles with booms extending ten feet on each side. The booms support both powerful jets and rotary brushes. The uniformed city employees who drive them on the sidewalks have the serious mien and they show the pride of sea-captains. Incidentally, workers who control machinery usually earn more money that those who rely on primitive hand-tools.

4 There are huge reserves of able-bodied men and women in the less developed countries ready to jump at the opportunity to wash dishes in my stead and to take over Luis’ leaf blowing. (That’s how Luis came to California in the first place.) Of course, immigration is often controversial, for a variety of reasons, but in pure economic terms, the case for the free movement of labor is bullet-proof. And, yes, ideally, the reserve of third world labor is ultimately finite but I am not going to worry about this for the next hundred years.

All in all, the answer to the question of who will do the work of those who move upward, is that there are several escalators that take care of almost all of this problem.

[Editor’s note: Part 7 can be found here. Part 9 can be found here]

Links From Around the Web

Brandon Christensen Links , , , , , , , , , , ,

Co-editor Fred Foldvary on the destruction of the Libertarian Party.

Newest member of the consortium, Warren Gibson, writes in the Freeman about GDP.

Ninos Malek on associating in peace.

Jacques Delacroix questions Ron Paul’s credibility.

And writing over in the Atlantic, Conor Friedersdorf celebrates the failed boycott attempts of Rush Limbaugh’s show.

I just started school today, so if you don’t hear from me for a while, you now know why.  Have a great spring!

Economies of Scale and Economies of Scope, Bane of Protectionism. (Part Seven of Seven so Far. More Coming.)

Jacques Delacroix Liberty , , , , ,

Because I have decided to go one little step at a time, there are six previous installments of this series. All comprise the word “protectionism” somewhere in their titles.

Because, we are all richer, Luis, I , the Quebec farmer and Pierre are in a better position to buy German manufactured goods than we were before. In Pierre’s case, that could be a Mercedes (although what he really wants is a specific Japanese car). In the Canadian farmer’s case, it could also be a Mercedes, or a BMW motorcycle. In Luis’s case and in mine, it would be a small piece of either a Mercedes or a BMW motorcycle. All the same, it’s a start.

I, and Luis, and Hans, and Pierre are all more likely to buy a basket or two of organic raspberries than we were before.

If Pierre follows through with his intention to send his son to a pricey MBA program in the US, it could be in my area. The son will go to restaurants once in a while, on his newly rich father’s dime, of course. More dishes for Luis to wash.

It’s not obvious that my main occupation, selling at the flea market will improve at all, except through Luis, of course. Remember he earns more money. He might spend some of it buying a ten-dollar used bike from me at the flea market. Pierre’s son, studying for an American MBA, might buy a used desk from me at the flea market, making me richer.

Now, we need to make a small, very modest technical switch. Here is a generalization that is more often valid than not: The more you make or sell of something the lower the cost of making it or of selling it. A lower cost of something is equivalent to a pay raise for the consumer, or for the producer, or for both. The technical terms here are “economy of scale “ (production) and “economy of scope” (marketing defined broadly). Continue reading →

Two More Days!

Brandon Christensen Economics, Liberty, Links , , ,

Two more days to sign up for the Independent Institute’s summer seminar scholarship offer.

I first became interested in libertarianism during the 2008 presidential campaign, when Ron Paul gained national prominence for his tangle with Rudy Giuliani on foreign policy.  In the summer of 2009, just after the presidential primaries wrapped up, I embarked on a nationwide journey to learn more about the concept of liberty.

My first stop was the Independent Institute’s summer seminar, an from that experience I not only learned a lot about how markets work (I just spent the afternoon going over my notes from the seminar), but I was also able to make some great connections as well.  Indeed, the co-editor of this blog, Fred Foldvary, was a lecturer at the seminar, and Brian Gothberg, who is incredibly good at teaching basic economic subjects, are just some of the fantastic people that I have been able to count over the past three years for intellectual support.

If you want to spend a week in one of the San Francisco Bay Area’s most beautiful locales, learning about liberty, history, civil society, and the market process, then I highly suggest checking out their seminar.  It is absolutely fantastic.

National Specialization, the Virtuous Obverse of Protectionism (Part Six of a Series)

Jacques Delacroix Liberty

Luis, I, the Canadian farmer, Hans, and Pierre have all improved our productivity. We all earn more. We have increased our ability to buy anything at all, stuff, leisure, occupational training, or anything we want. We did this without working more than we used to. We have helped the world become richer. None of us, except maybe Pierre, has achieved any stupendous success. Even Pierre’s bold killing on the Chinese wine market ranks far below other successes we read about in the newspaper everyday. His success barely rates the local newspaper. It’s not Google, or Apple, or Craig’s List or even Fred’s List. It’s pretty conventional stuff.

We have all done this without cheating, without despoiling anyone, without doing any damage to anybody. Now think of what we have not done: I have not improved my technical ability; it’s doubtful whether Luis has done anything of the sort. In fact, it would not be absurd to argue that blowing leaves is more skillful than washing dishes. Same for the Quebec farmer. Hans may have augmented his training; he did it on the job if he did it at all, at the expense of his manufacturing employer. Pierre knows more than he did when he was still at his hum-drum government job. He learned what he learned under his own power, on his own dime, at no perceptible cost to anyone else. Here is the main factor that accounts for our joint improved production: Continue reading →

Equal self ownership

foldvary Liberty , , ,

John Locke in his Second Treatise of Government had two premises for natural moral law: independence and equality. Independence means that we think and feel individually. Equality is about moral worth. There is no inherent master/slave status in human nature. There is no inherent superiority or inferiority among the races, sexes, or other categories of human beings. The moral default is therefore equality.

This is the concept recognized by Thomas Jefferson, when he wrote that all persons are created equal. This is the concept of equality before the law. Human equality is a premise for natural moral law, or the universal ethic.

When one person imposes coercive harm on another, he makes himself master, and the other is a slave. This is inconsistent with equality. The universal ethic begins with our subjective values, and then provides a moral production function resulting in moral rules for the universal ethic. One’s personal ethic or subjective value that being coercively harmed is evil gets passed as a universal ethic moral rule that coercive harm to others is evil. But mere offense becomes transformed as morally neutral, since one has not been invaded.

For the full treatment, see my book The Soul of Liberty.

Some Great Links From Around the Web

Brandon Christensen Economics, Links , , , , , , , , , , , , , , , ,

A fascinating blog post on Indian domestic politics and foreign policy by a Ph.D. student living in New Delhi and studying at Jawaharlal Nehru University.

Alex Warren, a journalist with extensive experience in the Middle East, writes about Libya’s decentralization.

“The Current Models Have Nothing to Say.” That is economist Robert Higgs’s analysis of modern, orthodox economics.

Might regionalism help solve Central America’s woes?  Be sure to check out the rest of the blog, by Seth Kaplan, too.

Conor Friedersdorf of the Atlantic has a penetrating look at the logic of a drug warrior (h/t Brian Aitken)

Co-editor Fred Foldvary, writing in the Progress Report, explains that value is subjective.  This is an important concept when it comes to understanding economics.

From the Comments: A Note on Property Rights

Brandon Christensen Comments , , , ,

A couple of very thoughtful comments have been posted in regards to property rights over the past couple of weeks, and I want to single them out for their thought-provoking content.  JuanBP writes:

Libertarian socialists (no, my dear American friends, that is not an oxymoron) believe in freedom of speech, association,religion and all other liberties cherished by Libertarians. Where we differ profoundly is in our understanding of what constitutes economic liberty – for we tend to consider that property, the very foundation of capitalism, is theft.

And from Benjamin David Steele:

There is one general difference I see between the left and the right which also would refer to the general difference between left-libertarians and right-libertarians. Those on the left tend to see human rights as prior to property rights. And those on the right tend to see property rights as prior to human rights. It is a difference of emphasis, but a very big difference in terms of practical application. As a left-winger with libertarian tendencies, I see no evidence that defending property rights inevitably leads to defending human rights.

Both of these comments provide great insights into one of the many myths espoused in political discourse throughout the world: that property rights are somehow different from any other human right. Continue reading →

Selgin on Bernanke

Jeffrey Rogers Hummel Current Events , , , , ,

Some of you have probably already seen Roger Lowenstein’s overly laudatory, but still useful and interesting, article on Ben Bernanke in the March 2012 Atlantic. As a good antidote, you should check out George Selgin’s thorough and informed critique of Bernanke’s first of four lectures on the Federal Reserve. Bernake seemingly unreflectively repeats many gross myths about the history of banking. Although these myths are widely believed by mainstream economists who who are abysmally ignorant of history, Bernanke has specialized in monetary history and should really know better.

Jeffrey Rogers Hummel

Some Musings on China: Why We Need Not Fear Beijing

Brandon Christensen History, Politics , , , , , , , , , , , , , ,

The recent ouster of Bo Xilai from the Communist Party can provide an interesting glimpse into the political mechanisms of the Chinese state. The fact that Mr. Bo was dismissed for “corruption” charges means that he was probably doing something right, or that he was too sloppy with his privileges and embarrassed the wrong people. We all know that socialism, in all its forms, leads to benefits for the few at the expense of the many (remember the bailouts of Western financial institutions?), but Mr. Bo’s ouster deserves a closer look, because he was a fairly prominent politician, and was actually slated as a possible successor to Hu Jintao, the Communist party’s current boss.

What I want to focus on is the fact that Mr. Bo was ousted at all. This move means that Beijing is becoming increasingly responsive to the demands of its citizens. Indeed, as China continues to liberalize its markets, democratic initiatives, whether real or appeasing, will continue to bubble up throughout the fascist state. This is because democracy is the natural political order that arises out of market-based institutions (private property, international trade, etc.). The world will have to be careful with China’s democratic transition though. Democracy is not a good thing in itself, especially democracy that is based upon an allegiance to a state. I am thinking of France in the 19th century and Germany in the 20th, although the democracies that sprung up during the post-colonial revolutions can also be good examples.

The main ideas behind the post-colonial revolutions were state sovereignty and democracy – not liberty – and the results, I think, speak for themselves. Continue reading →

Luis, I, the Bananas of Quebec, Hans, and Pierre (Protectionism – continued)

Jacques Delacroix Liberty

Next step coming soon. I have been unusually busy. It’s all in my head. Stay with me. Don’t forsake me yet. [Part Four; Part Six]

A Few Fun Links

Brandon Christensen Liberty, Links , , , , , , , , , ,
  1. Europeans: anti-Semitic violence is okay as long as it’s done in the name of Palestine
  2. Five reasons to withdraw from Afghanistan by Malou Innocent in the National Interest
  3. Speaking of Afghanistan, Justin Raimondo wonders if the murderer acted alone
  4. In USAToday (!!) there is a great piece on libertarianism and science. Be warned all ye religious libertarians! (ht Wilson Mixon)

Okay! Okay! Perhaps they’re not that fun, but enlightening I hope.