Are Barriers to Trade Compassionate?

When Gregory Mankiw, President Bush’s Chairman of the Council of Economic Advisors recently noted the benefits of outsourcing jobs, politicians crawled over one another to be the first to denounce his idiocy. Senators Clinton, Kennedy and Schumer, for example, wrote “[we are] troubled by the astonishing statement of…Gregory Mankiw, that ‘outsourcing is just a new way of doing international trade’.” Read the story here.
I must give the press some credit. The media have not let the senators get away with their blithe dismissal of Mr. Mankiw. After all, Mr. Mankiw is hardly some right wing nut (Look at what he named his dog!). What’s more, the Chairman is in rather good company. On his side are the vast majority of Ph.D. economists (for evidence on the extent of the profession’s faith in free trade see the Survey of Americans and Economists on the Economy, 1996). Luckily, the press has actually picked up on this. See, for example, this story by the AP, and this one in our own Albuquerque Journal.
The basic economic story is not terribly complicated: barriers to trade do two things: they raise profits for a select few (steel workers, farmers, etc.) and they raise prices for consumers at large. What is more, it can be shown with minimal recourse to graphing paper that when we add up all the price increases and compare them with the profit increases, the price increases outweigh the profit increases.
Unfortunately, most economists want to stop the story there, assuming they have won over the skeptic. They should not assume so. I suspect that when he or she hears this story, the average America says “So what? If we remove the trade barrier, someone will loose their job. I’d rather have 50,000 consumers pay one extra dollar for a product, than have one worker loose a $30,000 job. I don’t care that the barrier is more expensive, the benefits are everything to the worker.” This is actually a good point.
But there is a better counter point. The economy is constantly changing. Ninety percent of Americans were once farmers. Now a tiny fraction of Americans work on the farm. Thousands were once blacksmiths. Now almost no one is. These changes had to come. And they will have to come for other industries too. But every year we leave steel tariffs and farm subsidies in place is another year that we encourage 18 year olds to go into the steel and farm industries. We are lulling millions of workers into industries that cannot support them.
The inevitable result will be too many steel workers and too many farmers. When those industries collapse, millions will lose their jobs at once. Is that compassion?
My compliments to Anthony J. Evans of The Filter for pointing out Mankiw’s Animal Spirit.

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2 Replies to “Are Barriers to Trade Compassionate?”

  1. Why did this controversy arise? Because President Bush appointed a non-Republican to his Council of Economic Advisers.
    Mankiw is right in his economic analysis, but no one with any interest in President Bush’s reelection could have presented these comments on outsourcing ungarnished by the right political wording.
    Mankiw’s 500 page book on macroeconomics devotes only two sentences to supply side economics. Isn’t this a clue to his outlook?

  2. Framing the Argument

    It is noble to let history be your judge, but irresponsible to permit ruinous events to unfold without engaging in attempts to stop them. Public relations is not a dirty concept (unlike ‘feltching’) and perhaps the reason such a wide

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