International exchangeAs is often said, there are winners and losers. American consumers are winners when they buy wine imported from France, while California winemakers are losers. that’s lifeeconomists advise. Nothing should be done about this situation. The reason is that it is also commonly accepted—at least among those of us who are versed in economics—that the gains to the winners of free international trade are easily demonstrable to exceed the losses to the losers, making trade efficient. Economists call this outcome “Kaldor-Hicks efficient.” Since the gains to the winners exceed the losses to the losers, the winners could in principle fully compensate the losers, wiping out the losses while leaving net gains to the winners. Therefore, even without any real compensation to the losers, free trade makes society more efficient. in its entirety better off despite the fact that some individuals suffer net losses.
Open any textbook on international trade and you will find that the author, when presenting the normative case for free exchangealmost certainly proposes a similar argument to that in the previous paragraph.
This argument is second-rate utilitarianism and therefore unconvincing. “Why should we tolerate policies that allow some people—or even a majority of people—to enjoy the benefits of others?” asks a serious trade skeptic. This is a question the author of the economics textbook cannot answer.
Fortunately, the common assertion that “trade has winners and losers” is categorically false. not correct.
One way to see the flaw in this claim is to recognize that trade is just one of countless sources of economic change. There is nothing unique or special about trading with foreigners that causes some firms to lose profits and some workers to lose jobs. Each Changes in economic activity have the following effects. If Americans have fewer babies, they buy fewer diapers, which leads to lost profits and jobs at American diaper producers. If Americans enjoy eating at home more, they buy fewer restaurant meals, which leads to lost profits and jobs at American restaurants. Improvements in automobile technology over the years have reduced the demand for neighborhood garage mechanics.
The polio vaccine has eliminated many jobs in factories making wheelchairs, leg braces and crutches.
In light of this reality, if someone wants to continue to describe trading as “having winners and losers,” that person—to be consistent—must describe each Economic changes, such as the introduction of the polio vaccine, have winners and losers. This description proves that international trade is not unique.
But there is a deeper reason why it is wrong to say that trade has winners and losers: namely, that losses are different from costs. costs to be borne by participating in a commercial company, but these costs are not losses.
Someone who really lose The worker whose job is destroyed by imports would have had a better life if he had never been part of a society where trade takes place. If the worker whose job is destroyed by imports would have had, given this job loss, a better life if he had lived in a country where there was no international trade, that worker might fairly be described as one of the losers from trade. But if that person’s life, even allowing for his job loss, is on balance better than the life he would have had if he had lived in a country where there was no foreign trade, he might be described as one of the losers from trade. losers It doesn’t make any sense. Living in a country whose economy is connected to the global economy ensures that his access to goods and services – and, presumably, to other employment – is almost certainly far greater than that access would be if his country had never had any commercial contact with foreigners.
It may be true that if the particular imports which destroyed her job had never been admitted into the country, she would have been better off than she is now with the imports allowed. But if, as is almost certainly the case, her life as a whole is so enriched by trade that her life, taken as a whole—even allowing for her loss of employment—is better than it would have been if her country had been self-sufficient, then she is not a loser by trade.
One reason why free and innovative markets produce such an abundance of material goods and services for ordinary people is that consumers, not producers, call the shots. One of the fundamental rules of the market economy is that consumption is an end and production is a means to an end. Anyone who wants to enjoy the (many) benefits of a market economy must agree to play by this rule. But playing by this rule has its costs, including the risk that, as a producer, you will have to adapt to consumer demands.
The worker in a market economy who loses his job because of imports – or because of labor-saving technologies, or simply because of changes in consumer tastes – pays a high price. cost of admission and participation in this economy. Of course, this worker would prefer not to pay this cost. But all advantages in our valley of eternal scarcity come at a cost. Paying this particular cost is no more a loss than, say, paying my monthly mortgage bill: I would prefer to be freed from the obligation to make that payment. But I am nevertheless glad that I had the opportunity to agree to bear this monthly cost, because otherwise no one would have lent me the money to buy my house.
My mortgage payments are not losses, but costs incurred for the benefit of borrowing to buy a house. Similarly, a worker whose job is destroyed by economic change suffers no loss, but pays the cost of participating in an economy that promises material wealth unmatched by any other form of economy. This worker, even if he has lost a good job, is still much better off in a trade-based economy than if he lived in an economy cut off from the rest of the world.
Donald Boudreaux is a professor of economics at George Mason University. He blogs at Café Hayek (www.cafehayek.com).
