International trade, it is often said, has winners and losers. Consumers in the US benefit when they buy imported wine from France while California winemakers lose. I’est la vie, advise economists. Nothing should be done about this situation. The reason is that it is often said – at least among those of us who know economics – that the gains of the winners in free international trade can easily be seen to outweigh the losses of the losers, thus making trade a success. Economists call this effect the “Kaldor-Hicks efficiency.” Because the gains of the winners outweigh the losses of the losers, the winners can often fully compensate the losers, erasing the losses while leaving the net gains to the winners. Therefore, even without real compensation for the losers, free trade makes society completely better despite the fact that some people are missing the point.
Open any book on international trade and you will find that the author, when presenting the general case for free trade, is likely to present an argument similar to the one in the previous section.
This argument is sophomoric utilitarianism and, therefore, unconvincing. “Why,” asks a serious critic of trade, “should we tolerate policies that allow some people – even the majority of people – to gain at the expense of other people?” It’s a good question. It’s one that no economics textbook writer can answer.
Fortunately, the common claim that “there are winners and losers in trading” is more emphatic not it’s okay.
Another way to see the flaw in this claim is to realize that trade is just one of many different sources of economic change. There is nothing unique or special about trading with foreigners that causes some businesses to lose profits and some workers to lose their jobs. Always a change in economic activity has these effects. When Americans have fewer babies, Americans buy fewer diapers, thus causing profits and job losses among American manufacturers of diapers. If Americans are going to enjoy more food at home, they are buying less restaurant food, thus causing profits and job losses in American restaurants. Advances in automotive technology over the years have reduced the need for neighborhood garage mechanics.
The polio vaccine eliminated many jobs in the industries that made wheelchairs, braces, and crutches.
Because of this fact, if someone wants to continue to define trading as “having winners and losers,” that person – to be consistent – should explain. all of them economic change, such as the introduction of the polio vaccine, as having winners and losers. This definition proves that there is no exception for international trade.
But there is a deeper reason why it is wrong to say that trade has winners and losers – that is, losses differ from costs. They really exist costs which must be borne by participating in the commercial community, but these costs are not losses.
An honest person you lose who comes from commerce is a person whose life would be better if he had never been a part of the community where commerce takes place. If the worker who is eliminated by the work that is lost by imports, because of this loss of work, would have been better off if he lived in a country without international trade, this worker may be described as among the people who lose their jobs. But if this person’s life, even if he lost his job, is much better than what he would have experienced if he lived in a country without foreign trade, he is described as one of the traders. they are not defeated it doesn’t make sense. Living in a world economy connected to the world economy ensures that his access to goods and services – and, possibly, to other work – is much greater than it would be if his country had never been connected to trade with other countries. .
It may be true that if certain things from other countries that destroyed his work had not been imported into the country, he would have been better off than what he found himself importing goods from other countries. But if, as it is, his whole life is like that. enriched by trade that his life, taken as a whole – even taking into account the loss of his job – is better than it would be if his country had not made sense, so he does not lose from trade.
One of the reasons why advanced free markets produce more goods and services for ordinary people is that consumers, not producers, say so. The basic rule of the market economy is that consumption is an end, and production is a means to this end. Anyone who wishes to enjoy the (many) benefits of a market economy must agree to play by this rule. But playing by this rule has its costs, one of which is the risk that, in your role as a producer, you have to adapt to the needs of consumers.
A worker in a market economy who loses his job because of outsourcing – or labor-saving technology, or simply changing consumer preferences – pays costs of acceptance and participation in this economy. Of course, this employee would prefer not to pay these costs. But all the gains in our valley of perpetual scarcity come with a cost. The payment of these costs is no more a loss than, say, my monthly mortgage payment: I would like to be released from the obligation to make this payment. However, I am glad that I had the opportunity to agree to pay these monthly expenses, because otherwise no one would have given me a loan to buy my house.
My monthly payments are not a loss; It is a cost-effective way to get a home loan. Similarly, a worker whose job is destroyed by economic changes does not lose; that worker, instead, pays the cost of participating in an economy that promises material benefits unmatched by any other type of economy. This worker, although he has lost a good job, is still much better off living in a trading economy than he would be if his economy were cut off from the rest of the world.
Donald Boudreaux is Professor of Economics, George Mason University. Register at Café Hayek (www.cafehayek.com).
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