In this recent Times OpEd, Rochester economics professor Steve Landsburg points out how easily John Q. Public overlooks cause and effect in 21st century markets.
Let’s review: 1) goods and services require labor and capital to produce; 2) the price of labor and capital impact an item’s ultimate price; 3) factors of production are much less expensive in the developing world; 4) a decades-long public war on inflation in the developed world has prevented the price of goods from increasing in step with wages; however, 5) wage growth is now slowing and inflation has reached a 17-year high; thus 6) in their quest to find the lowest price, consumers who rebel against off-shoring jobs are simply biting the hand that feeds them, because; 7) free markets can’t produce wealth, they only facilitate transfers of wealth in a zero sum game; and 8) as prices grow faster than inflation, any repatriation of manufacturing capacity or protectionist trade policy will only make matters worse.
In a nutshell, America can’t produce a $1 flashlight or a $2,500 car, but as long as consumers expect these price points to endure, the market will continue to reallocate factors of production over the hills and far away. The lesson is simple: trade isn’t inherently evil, but hyper-consumerism sure brings out its claws…
What to Expect When Youâ€™re Free Trading
By STEVEN E. LANDSBURG
ROCHESTER–IN the days before Tuesdayâ€™s Republican presidential primary in Michigan, Mitt Romney and John McCain battled over what the government owes to workers who lose their jobs because of the foreign competition unleashed by free trade. Their rhetoric differed â€” Mr. Romney said he would â€œfight for every single job,â€ while Mr. McCain said some jobs â€œare not coming backâ€ â€” but their proposed policies were remarkably similar: educate and retrain the workers for new jobs.
All economists know that when American jobs are outsourced, Americans as a group are net winners. What we lose through lower wages is more than offset by what we gain through lower prices. In other words, the winners can more than afford to compensate the losers. Does that mean they ought to? Does it create a moral mandate for the taxpayer-subsidized retraining programs proposed by Mr. McCain and Mr. Romney?
Um, no. Even if youâ€™ve just lost your job, thereâ€™s something fundamentally churlish about blaming the very phenomenon thatâ€™s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside?
I doubt thereâ€™s a human being on earth who hasnâ€™t benefited from the opportunity to trade freely with his neighbors. Imagine what your life would be like if you had to grow your own food, make your own clothes and rely on your grandmotherâ€™s home remedies for health care. Access to a trained physician might reduce the demand for grandmaâ€™s home remedies, but â€” especially at her age â€” sheâ€™s still got plenty of reason to be thankful for having a doctor.
Some people suggest, however, that it makes sense to isolate the moral effects of a single new trading opportunity or free trade agreement. Surely we have fellow citizens who are hurt by those agreements, at least in the limited sense that theyâ€™d be better off in a world where trade flourishes, except in this one instance. What do we owe those fellow citizens?
One way to think about that is to ask what your moral instincts tell you in analogous situations. Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonaldâ€™s, should you compensate the owners of the diner next door? Public policy should not be designed to advance moral instincts that we all reject every day of our lives.
In what morally relevant way, then, might displaced workers differ from displaced pharmacists or displaced landlords? You might argue that pharmacists and landlords have always faced cutthroat competition and therefore knew what they were getting into, while decades of tariffs and quotas have led manufacturing workers to expect a modicum of protection. That expectation led them to develop certain skills, and now itâ€™s unfair to pull the rug out from under them.
Once again, that argument does not mesh with our everyday instincts. For many decades, schoolyard bullying has been a profitable occupation. All across America, bullies have built up skills so they can take advantage of that opportunity. If we toughen the rules to make bullying unprofitable, must we compensate the bullies?
Bullying and protectionism have a lot in common. They both use force (either directly or through the power of the law) to enrich someone else at your involuntary expense. If youâ€™re forced to pay $20 an hour to an American for goods you could have bought from a Mexican for $5 an hour, youâ€™re being extorted. When a free trade agreement allows you to buy from the Mexican after all, rejoice in your liberation â€” even if Mr. McCain, Mr. Romney and the rest of the presidential candidates donâ€™t want you to.
Steven E. Landsburg, a professor of economics at the University of Rochester, is the author, most recently, of â€œMore Sex is Safer Sex: The Unconventional Wisdom of Economics.â€