Bryan Caplan  

Sumner's Free Trade Example

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I'm pleased to see that Scott Sumner's not just a cool macroeconomist; he also moonlights as an economic philosopher.  Here's a challenge Sumner poses to me inspired by my debate with Robin:

Assume that imports of Barbie dolls will eliminate 1000 jobs in South Carolina.  Each job loss will have a devastating effect on the lives of the former workers.  We'll put a monetary value on the loss at $100,000, but keep in mind that these costs also involve things like divorce, alcoholism, etc., and not just foregone wages.  Set against these losses, 60 million Americans will be able to go out and buy dolls at a "China price" that is $2 lower than the U.S. price.  How do we go about determining whether free trade is the way to go?

1.  Do a cold-blooded cost/benefit analysis.  (Note, I understand that in the real world these would be done on broad principles, not on a case by case basis, but it wouldn't change the logic of the argument.)

2.  Go with our moral intuition.  Which outcome seems worse?  Which outcome do we find more intolerable to think about?

I don't know about Bryan, but if I used the second procedure, I might end up on the anti-free trade side.
Frankly, I think this is a softball, because Scott's forgetting about all the Chinese who benefit!  When you factor foreigners' benefits (including reduced divorce, alcoholism, etc.) into the example, there is a chorus of unanimity from liberty, efficiency, and utilitarianism.

Furthermore, even if you share Sumner's moral intuition, I think it's pretty weak compared to this competing intuition: If you were a small businessman on the verge of bankruptcy, it would still be wrong to use or threaten violence against customers who take their business elsewhere.  And what is protectionism but a large-scale version of this?


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COMMENTS (18 to date)
Doug Colkitt writes:

Replace the Chinese workers with automated robots in the example. How about now? Would you come down on the side of Ludditism?

greenish writes:

I just realized, there's also the $2 extra in the hands of about 60 million people - most of these sorts of examples involve casually forgetting to figure out where that all goes.

The Snob writes:

Doug's point is apposite. While demand for robots leads to more very high-skilled manufacturing jobs in companies like Haas Automation (CNC machine tool building is something we still have a lot of in the US), automation and offshoring are roughly equal in their impact on jobs that require low-median cognitive ability.

The question I have as a free-trader is what effect this has on social cohesion. Aside from education and healthcare, where regulation inhibits the substitution of capital for labor, where are these people supposed to go? And even in those cases, what you get are jobs that are heavily preferred by women. Most men I know, regardless of education and social class, would prefer working in a foundry or machine shop to a nursing home.

Kevin Dick writes:

If you think Scott's is a softball question, I have a hardball one for you.

Aliens come and make a credible threat that they will destroy the planet unless we deliver them the lifeless body of a particular person within 24 hours. (For argument sake, say it's Tyler's because we all know him and his loss would be particularly hardfelt)

As I understand your position, Tyler would have the freedom to say no, resulting in not only the deaths of all current humans but the non-existence of all future humans. Robin's position is that Tyler goes whether he likes it our not. That "feels" like the right answer. So why is this nearly impossible counterfactual any less dispositive than your nearly impossible counterfactual.

kebko writes:

Aren't we just talking about the costs of dislocations? If Scott Sumner's question is about increasing protectionism from our current position, then doesn't that create its own dislocations (eg.Smoot-Hawley)? So at best, if your position is that any dislocation creates costs that are too hard to bear, then your policy should be that there shouldn't be any changes to the legal climate, for or against protectionism. In fact, further protectionism would be even worse because it's creating dislocations and destroying wealth.
And, if you are going to argue against dislocations that are the result of productivity increases, then don't you have to take the position that, in total, we'd all have been better off if we'd stayed in sod houses on the prairie? It seems like that position is just the result of picking & choosing among costs & benefits & lacking a decent imagination about the benefits.
If you had told the thousands of girls working in typing pools 40 years ago that they would lose their jobs unless we outlawed computers, but one cost would be that we would lose the internet, they would have said, "The inter-what? I want my job." That might have seemed reasonable at the time, but Robin Hanson & I would personally travel back in time to exterminate those typing-poolers to prevent them from making that choice, and we'd be right to.
Maybe a lack of imagination is why technology gets more of a pass than other forms of improvements in production. When we imagine new forms of technology, we think of it in terms of what it will do, and only when it's actually being installed on the factory floor do we worry about the jobs being lost. But, when we think about trade, the first thing we think about is the job loss.

Political Observer writes:

Not only is he forgeting about the Chinese who benefit he is also forgetting about the other Americans who can benefit. Where will the Chinese spend the new dollars from this production? Will they all stay in China or be spent on goods produced by other countries including the U.S. What about the freed up capital in the U.S. as a result of shifting production to the lower cost China. Will that freed up capital be invested in other areas where there is a potential for higher returns? Will that investment lead to more and potentially higher paying jobs in the US?

For someone who is evidently trained in economic thinking, Mr. Summer has a long way to do if he posits himself as an economic philosopher. He needs to examine the system not just a part in order to determine if this act is overall beneficial or not.

Josh writes:

We lose 1000 jobs but how many jobs will be created by the extra demand of that extra $120 million in consumer hands?

Alex J. writes:

Kevin,

Tyler goes. It's a crime, but the aliens are to blame.

Troy Camplin writes:

The intuition that leads to protectionism is also based on our inherent tribalism. And we're trying to work away from that. Also, the fact that benefits are widely distributed, but pain is concentrated also affects our decisions, because the pain is so much more obvious, which are here and now, than the benefits, which are distributed over time. Oddly (or so it would seem to our intuition), the cost-benefit analysis will actually lead you to making a more moral decision in this case.

James writes:

Bryan's final paragraph gets at the heart of the matter. None of us would ever entertain the possibility that an individual worker has a right to violently compel others to buy the products he makes. The worker could go on all he wants about how he'll become a divorced alcoholic bum and it wouldn't make a difference. But let Sumner talk about it in the language of government policy (Is free trade the way to go?) and people get confused.

Here's a topic for your next debate: Do some moral constraints pertain only to people not acting on behalf of governments?

Kevin Dick writes:

Alex,

I agree. It's a damn shame, but c'est la vie. I might take a bullet for Tyler, but I'm not going to let my kids take a bullet for him.

What I want to know is whether Bryan will make his kids take a bullet for Tyler in the name of freedom.

Steve Sailer writes:

I've got a great idea!

Let's outsource all our factories to China, then, when we're running a huge trade deficit with China, we'll get the Chinese to buy Fannie Mae stock and mortgage-backed securities so our former factory workers can get huge zero down mortgages on McMansions even though they only make $9 per hour stocking Chinese-made Barbies at Wal-Mart.

It's a fool-proof plan!

Oh, wait ... we already tried that.

Never mind.

kebko writes:

Steve, I think there's a hole in your theory. As I understand it, Wal-Mart also creates unemployment by driving out smaller retailers. So, not only are there no more factory jobs, but there are fewer retailing jobs, too. Plus, there are a bunch of Mexican illegal immigrants here taking what jobs are left.
Where in the world is anybody getting a job these days? It's a quandry. You know, there must be a lot of unmanned rice farms in China left in the wake of all the people moving to work in the factories. Could there have been a mass migration of Americans to rural China that nobody has noticed? That's the only place I can think of that would have jobs left. It's a mystery.

Rojyaa writes:

It's unrealistic and unfair to assume that "each job loss will have a devastating effect on the lives of the former workers." At least some will find better jobs and turn unexpected opportunities into positive outcomes. For some, even divorce might be a positive outcome.

rdonway writes:

Would anything change, morally, if the dolls were (in greater or lesser part) the products of coercion/violence, such as tax-provided subsidies or political favoritism? Would it be morally right for consumers to benefit and producers to suffer from the effects of such coercion?

jb writes:

If it were me that the aliens "called out", I would negotiate a pretty good deal with the rest of the world - namely a significant financial benefit for my children, and the agreement that my DNA be used to produce 125 additional children, with the associated financial benefit for them and their mothers as well.

Now realistically, given how unreliable and untrustworthy the US government and US taxpayers are, I would expect that they would default on most of this agreement, but at least some of it would be carried through, and the media loves pictures of crying widows and orphans.

---

Other notes - in the example given, a significant chunk of the 120 million "saved" by switching to Chinese barbies is actually the money that would have gone to the US company, so the total net benefit for investment, etc is considerably smaller.

Having said that, I'd still rather have robots in the US make our Barbies than Chinese laborers. Not because I hate Chinese laborers, but because people would stop using the trade deficit as an excuse for anti-market zealotry.

In other words, while we (and they!) are made better off financially by letting Chinese make our T-Shirts, we are worse off, liberty-wise, because central planners use protectionism as a wedge issue that lets them justify taking over larger and larger parts of our lives.


ws1835 writes:


Lets assume as a given that closing the factory in South Carolina will cause great disruption.

The only pure economic isssue at stake is the $2 reduction in the price of a Barbie doll, and we all assume the lower price will prevail in a free market. Hence, the factory will shutdown due to competition.

However, the premise of the question is a red herring. Competition for the factory is not limited to the Chinese. The competition could come from a more efficient factory located in a different state, say Mississippi. Would you make the same protectionist arguments in that case? In such a scenario, the shutdown occurs for the same economic reason and causes the same social damage, but generally produces a completely different social/political reaction. (consider the auto industry migration from the great lakes region into the south)

This is where the tribalism kicks in (Myth of the Rational Voter, anyone?). We have a knee jerk reaction to protect the factory against the Chinese because they are a 'foreign' interest, but traditionally there has been no outcry if an American factory stole the work. In fact, we have often celebrated the state that stole the work on the basis of being more business friendly, etc then the state that lost the work. This is an excellent example of how our economic policy is often governed by social considerations rather than economic principle.

GabbyD writes:

isnt the point that the $2x60M (or part of it) may be transfered to the displaced 1000 people. thats $120,000, which is almost 3 years pay per person.

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