But What The Hell Do I Know...

This 6 minute video (HT via Don Boudreaux) does a tremendous job of laying out why free trade is beneficial for the entire society, even in the face of mercantile subsidies by foreign nations of their producers that result in so-called “price dumping”. Watch and learn. Milton wisely points out that industries always seek advantage at the cost of consumers through government trade restrictions and that they are usually enemies of the free, competitive market. This is an important point. Protectionism is a mercantile, or pro-merchant, policy that is disguised as being “pro worker” by politicians. It isn’t. And that’s the other point Milton makes so effectively. We may see those who benefit from tariffs, but we don’t see the jobs that are destroyed because the costs of “protected" goods are higher and have consumed the potential demand for other goods and jobs.

Milton leaves aside here (or the editor has removed) the moral case for people having the absolute right to interact peacefully with each other regardless of arbitrary political boundaries, which I regard as equally important to the economic efficiency and consumer benefits case. Still, the case he has laid out here is absolutely irrefutable.

When you think about protecting certain industries with trade restrictions, especially in the name of preserving their employment, consider this: our modern prosperity is the direct result of the destruction of farming labor. Seriously.  Attacks on free trade are, in fact, indistinguishable from attacks on new technology. Technology and trade has transformed our society from one where the majority of people worked on farms providing food for themselves and their communities to one where less than 2% (I believe) of the population feeds 100% of us. Why did that unleash prosperity instead of simply producing mass unemployment? Because the fall in the cost of food (since labor is the majority of all the costs of production) freed people’s incomes to spend on other things. We now spend only a tiny portion of our incomes, relative to agrarian societies, on food. And the release of people from their family farms into the workforce provided the minds and hands to make new goods and services.

From Farmers to Fashionistas

Before you fall into a keynesian circular flow trap and ask “how can people have more income when their farming jobs are disappearing” consider how this works in a simplified economy. Imagine that we’re all farmers. We make our food to eat it. Then someone invents the tractor. They can suddenly produce and sell triple the food while spending the same time. They then start manufacturing tractors, selling them to the other farmers, and hiring former farmers, who are freed from farming by the tractors productivity improvement, to work in the tractor plant. Suddenly we see our simple economy go from all farmers to, say, a third farmers a third tractor-producers and a third (like the children) are free, and fed, to pursue new ends like going to school. 

Remember, we don’t work to work. We work to make or buy the things we need. With much more food for the same amount of work, there’s suddenly more people with more time to do other stuff… like improve medicine so that everyone can live longer or take time off to paint. We send our kids to school instead of having them work on the family farm, being taught by teachers who used to be farmers but no longer need to because the tractors help provide the food for everyone.

This is a simple story but it illustrates (i hope) the point. And the story is no different if you replace “tractors” with “cheap labor abroad”. There is always a tradeoff between labor and capital equipment. Just visit a Home Depot to see how self-checkout machines have reduced the amount of check-out clerks. If people are willing to do a job cheaper than the cost of machines, you go with people. They’re better off for the job opportunity they were seeking and the business is more profitable for the lower costs. 

Getting more because we need to work less

We have more doctors, researchers, artists, social workers, teachers, technologists, inventors, manufacturers, entrepreneurs and fashion designers precisely because we have fewer farmers. And, in the same way, as we have fewer manufacturers (replaced by cheap foreign labor or, increasingly and eventually by robots), we will have more of other kinds of producers and workers for as-yet-undiscovered inventions and increasing specialties in existing industries.

We have the iPhone precisely because Steve Jobs didn’t need to be a farmer or an auto worker. 

That’s not all. We have more leisure time. Again, work is a means, not an end. Much more of us (thought certainly not all of us) get to pursue our “dream” jobs. We need fewer members of our society to work in order to live comfortably. Child labor working 7 days a week was (and remains) the norm of agrarian, family farm life. People had kids explicitly to increase the size of their family workforce. In the industrial world that Adam Smith’s ideas built, we now have far fewer kids and shower them with far more love and attention than any time in human history. Tariffs that prevent trade arrest all of this development so that one group can live better (or at least maintain their current situation) at the expense of everyone else.

These, and many more, are the benefits of free trade and exchange and the spread of ideas and innovation that comes with interacting with more and more people...

…but what the hell do I know?

ps. while this video was clearly from the late 60s or early 70s, it might as well have been filmed in 2002. After all, President Bush put tariffs on Steel imports as a way of buying votes in the electorally crucial swing states of Pennsylvania and Ohio. It was an “investment” that paid off for Bush with his 2004 re-election (remember Ohio?), but didn’t help America’s consumers who footed the bill with higher prices. Obama’s tire tariff is the same repulsive special interest give-away, demonstrating that attacks on trade are clearly a bi-partisan problem.