Arnold Kling  

Trade and the National Good

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Robert Driskill writes


First consider the assertion that "nations generally gain from trade, however, it is quite possible that international trade may hurt particular groups within nations... ." What could the authors [Krugman and Obstfeld, in a leading international economics textbook] mean by this?...

In my undergraduate trade classes, I ask students this question of what criterion they think is being applied to determine if some change in economic circumstance is "good for the nation." Many say they think the authors must mean something along the lines of: more people are helped than are hurt. Students with a smidgen of economics sometimes phrase their answer as "it provides the greatest good for the greatest number," "it increases total utility," or "it increases GDP."


Dani Rodrik sees this as pointing out that economists do not have as solid a case for free trade as it appears. Instead, I see it as pointing out that the concept "good for the nation" is empty and misleading.

Imagine (cue John Lennon) that there were no nations--in fact, no governments capable of enforcing trade restrictions. With no government, arguing against free trade would amount to trying to talk someone out of making an otherwise voluntary exchange.

The world without government simplifies the free trade argument. To demonstrate that free trade is good for you, I just have to demonstrate that you are better off with unrestricted trading options than if you were constrained in your trading opportunities.

Of course, it is always possible that you might benefit by restricting someone else's trading opportunities. It is particularly likely to benefit you to restrict others from buying goods and services that compete with what you have to sell.

Now, bring government back into the story. What government creates is an opportunity for party A to restrict party B's ability to trade with party C. When economists argue for free trade, what we are saying in effect is that government should not exercise this power. Obviously, we can only say for sure that free trade benefits parties B and C, not necessarily party A.

I think that the case for free trade is simply that it is immoral to allow party A to interfere with voluntary exchange between party B and party C. Moreover, once party A gets preferential restrictions, we expect that parties B and C will seek preferential restrictions. One set of trade restrictions can make one party better off, but with enough trade restrictions you can make everyone worse off.

The whole notion of "national good" serves only to confuse the issue here. It comes into the discussion only because the unit of government is national. The political leaders invoke "the national good" as a way of papering over the reality that A is imposing his will on B and C. That does not mean that we should buy into such a concept.


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CATEGORIES: International Trade



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The author at Club for Growth in a related article titled Today's Pearl of Wisdom writes:
    From Arnold Kling: I think that the case for free trade is simply that it is immoral to allow party A to interfere with voluntary exchange between party B and party C. Moreover, once party A gets preferential restrictions [from the government], we expe... [Tracked on September 24, 2007 10:40 AM]
COMMENTS (17 to date)
Josh H writes:

I'm concerned that basing the case for free trade solely on moral grounds really weakens what should be a powerful one-two punch. To a good libertarian, almost everything the government does is immoral, but there are many who don't see things that way, especially when the restrictions can be presented as being against foreign companies.

The realization that unfree trade really hurts every consumer in the restricting country and is a major drag on growth is, I think, an argument that shouldn't be relinquished.

General Specific writes:

Good post. All true. But...

Your argument is sound in many ways--but also utopian. A few mistaken assumptions that I see: (1) It assumes--by omission--that free exchange is the only basis of morality. This is not necessarily the case. (2) It assumes that all peoples in the world have the same values--e.g. if an Asian country wants to export sex, another country must not interfere with the desire to import it. (3) It soundly ignores the movement of people. Israel as a nation, for example, would likely disappear if the borders were opened for free immigration tomorrow. They would be swamped--and not for economic reasons. (4) I believe it ignores the economic and technological bootstrapping that has demonstrably taken place in Asian countries.

The argument is utopian because it is top down. It ignores the true state of the world. From a bottom up perspective, the world is roughly as follows: individual, family, employer (means of survival), community, states (of one level or another), then world. At each of these levels, there are conceptions of morality and good. Trade is only one of them.

In the end, it would be nice if the world were united. And trade does break down barriers of miscommunication, it is a good. But it is only one good of many, and has to take into account historical conditions, the nature of the human animal, and other matters. My studies indicate that libertarians cannot even put property onto a sound deductive grounding, so I'm not sure it is possible to elevate the morality of trade over other matters.

dearieme writes:

I hope you fail the ones who witlessly say "it provides the greatest good for the greatest number".

Matt writes:

Large economic entities excercise trading power. Lage economic entities correlate actions and create national eonomies. Our large economic entities are famous for sending lobbyists to the federal legislature. What are we going to do?

Bruce G Charlton writes:

Perhaps the free trade debate resolves down to being either pro- or anti-*trade* (I refer to trade in the economic domain).

People who raise objections and complications about free trade are, I think, almost always doing so for strategic reasons of subordinating *trade* to another imperative: for example religious or moral strictures, or an over-riding priority of equality.

By contrast free traders are those who regard the economy as autonomous, in the sense of properly having its own distinctive rules and procedures.

MT57 writes:

I don't think that economic policy should be analyzed from a "moral" persepctive, whether it is an analysis proffered from the left or the right. The cross-cultural ambiguity that others have identified are a small part of my reasoning but more generally, numbers are unambiguous and mean exactly the same situation to situation but moral principles don't, they vary based on differences in situations. Consider the example given -- if B is paying C on an arm's length basis to murder A, then obviously A is right to ask the state to interdict their free transaction and no one would dispute that -- unless A is extremely evil and an enemy of all mankind, in which case, of course many of us would endorse the transaction. The morality of the transaction can vary with the situation. (Please note that this is not the same as saying that each situation has unique moral principles, just that universal moral generalizations usually do not hold up).

Autonomy is a moral principle, as is fairness, but I am not sure there is a perfect connection between either principle, standing alone, and optimal economic policy for all situations. At most, I think one could express an argument that one principle or another will tend to lead to a greater number of better economic outcomes over the long run than the alternative,and then make an argument about the benefit of consistency over ad hoc decisionmaking, but to generalize beyond that, I think, runs the classic danger of losing an argument because one has overstated what is capable of proof.

liberty writes:

I agree with the other comments that the moral response is out of place. It's answering the wrong question. The question was how to prove that free trade somehow improves everybody's welfare.

Nations are not a completely arbitrary bounding. It may not make sense to ask only whether the welfare of the individuals in one nation is improved, that is true. But the fact that trade is between two nations - or individuals from two different nations - and not only between any two individuals with no borders, is important.

Why? Because we must ask what the policies in those two nations must be in order for it to be true that free trade between the individuals in those nations will be beneficial for all.

So, as others have mentioned, some of the questions might include *what* is sold (sex? drugs? slaves? hits?) and some might include who sells (what if they call it free trade, but in fact it is the state in one country that owns all the goods?) or how it is produced (gulag labor?)

You can start with "imagine no nations" and then you can talk about "imagine two perfect libertarian states" but then you must move to "okay, we have two states, now for free trade to be good, what of the previous examples must we retain?"

My suggestion is that you need to retain the protection of life (no selling hits), liberty (no selling slaves or using slave labor) and property (the state can't own all the stuff).

Ashley writes:

Arnold Kling states that in order "to demonstrate that free trade is good for you, I just have to demonstrate that you are better off with unrestricted trading options than if you were constrained in your trading opportunities." Proof of this exists in absolute and comparable advantage. With unrestricted trade options, each party can focus on producing the product that they have an absolute advantage over. Even if they're trading with someone with a comparable advantage, both parties are still benefiting. Free trade allows nations to find other nations that they have that absolute advantage over in order to increase their profits and production.

General Specific writes:

Ashley: The world is full of goods, and much of life is dealing with the tradeoffs. Arnold Kling only mentions this one good--trade--omitting all the others. It's a "hold all other things equal" or "in the best of all worlds" argument. Makes good points. An interesting perspective. But some people don't consider a comparative advantage in child prostitution to be a good. That's what other commenters are saying. And, in addition, there is the issue of no nations. If no nations, no control on immigration. Bye bye state of Israel. True? I think it could be a problem for them.

We are not just homo-exchangicus.

Josh H writes:

General Specific, I sense some circular logic in your argument. If no nations, bye bye Israel (and the USA, and France). Immigration (to where?) would hardly be relevant.

Lauren writes:

I agree with Driskill that restricting free trade is an attempt by party A (the government) to restrict parties B and C (the buyer and seller). My question is economically should party A be able to involve themselves within a transaction that they are not part of. A competitive market is made up of sellers and buyers; in basic economics we learn that the market will maintain a point of equilibrium. By party A entering the market sellers and buyers enter into an imperfect market. Unlike typical imperfect markets, this market restricts buyers and/or sellers from accessing all services and products available. If we are truly concerned with the buyers and sellers in a market we should allow the market to operate competitively - meaning trade freely without third party restrictions.

Lauren writes:

I agree with Driskill that restricting free trade is an attempt by party A (the government) to restrict parties B and C (the buyer and seller). My question is economically should party A be able to involve themselves within a transaction that they are not part of. A competitive market is made up of sellers and buyers; in basic economics we learn that the market will maintain a point of equilibrium. By party A entering the market sellers and buyers enter into an imperfect market. Unlike typical imperfect markets, this market restricts buyers and/or sellers from accessing all services and products available. If we are truly concerned with the buyers and sellers in a market we should allow the market to operate competitively - meaning trade freely without third party restrictions.

General Specific writes:

Josh: Funny you should mentioned that. I came back to make that correction. Because you are absolutely right.

What I meant by referring to Israel is the ethnically Jewish people who inhabit that region. There is a great deal of debate, whether right or wrong, about the role of the state of Israel, and a Jewish electorate in that state, in supporting, continuing, or nurturing the Jewish culture (notwithstanding the fact that there is a larger Jewish population in the US, though evidence indicates that younger generations tend to identify more with the religion than the culture here in the US). And part of this debate is a concern about what happens to the Jewish culture if they are swamped by other ethnicities.

These are intersting and valid considerations. I'm not maligning them. In fact, the opposite. I think they need to be considered.

My only point is that the state is not always nor should it be considered arbitrary or artificial, nor only an economic entity. The state may support values--and in particular cultural values--that need to be considered in any discussion of values.

Like I said: I agree with Kling's ideas in principle. But it is not necessarily valid to pose an argument as he does in a vacuum. It ignores too much.

Kimmitt writes:

The assumption of no externalities is interesting.

Gary Rogers writes:

There are some good arguments that I would buy, but they are neither specific enough nor convincing enough for someone who has lost their job to off-shoring or who knows someone in a similar situation. Consequently there are millions of potential irrational voters out there ready to believe the next populist candidate that comes along. Not to be overly dramatic, but our economic future may well depend on whether or not someone is able to come up with a convincing argument that will turn this thinking around. I wish I had the answer.

Pareto writes:

The best defense I have read of globalization comes from one who stands to lose his job from it.

If we are ignoring morality concerns here, then the next argument would involve looking at consistency. As Kling puts it, "once party A gets preferential restrictions, we expect that parties B and C will seek preferential restrictions. One set of trade restrictions can make one party better off, but with enough trade restrictions you can make everyone worse off." If we allow for restrictions on industry X, isn't it inconsistent to not restrict industry Y? Doesn't the same argument apply? (Certain situations notwithstanding.) Being consistent would then lead to everyone directly losing out.

But when did most people ever bother to be consistent in their thinking?

There might be the rebuttal that certain jobs are more important than others. However, "importance" of jobs is not only vague (important to what?), but also requires imposing a value judgment on these jobs (which we've forbidden here, right?).

Neal Piwowarski writes:

Free trade is only 'good' for any nation when there is a certain degree of equal opportunity between countries trading within the international marketplace. It seems unethical, if not downright immoral, for one party to impede the trading opportunities of another. There are genuine needs associated with any country's involvement in international trade. Since no single country can conceivably produce all of the goods that it either needs or its ctizens want / consume, there ought to be some recognition that there is a symbiotic relationship between trading nations. This way, free trade will be 'good' for all nations. Hindering one country's trading opportunities could potentially strike an economic death blow to it's citizens. However, while I'm looking out for the economic underdog by advocating recognition of the needs met unimpeded international trade options, it is also the responsibility of any nation relying upon trade to seek out as many trading partnerships as possible. Thus, if one trading opportunity disappears. it will have other alternatives to fall back upon.

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