YouGov's Antony Wells of UK Polling Report links to a new Scottish poll conducted by Panelbase for the Sunday Times.
Asking about free trade and immigration in the context of the UK having left the EU, by 65% to 11% (20% were neutral and 4% didn't know) Scots were overwhelmingly in favour of companies in other EU countries remaining free to sell goods as easily in Scotland as in their own countries.
The view isn't quite as rosy for immigration, with people favouring free immigration from other EU countries by just 40% to 36% against (19% were neutral and 4% didn't know). Still, that's a net +4% approval rating for a free movement policy.
I hope Holyrood are paying attention.
Showing posts with label free trade. Show all posts
Showing posts with label free trade. Show all posts
Wednesday, 1 February 2017
Monday, 23 May 2016
On Burdens of Proof
This post, like several other recent posts was inspired by Scott Alexander’s Slate Star Codex blog and some of the discussion in the comments there.
In one particular exchange there, I attempted (albeit poorly) to advocate the position that there is nothing special about the presence of an international border which changes the fundamental nature of trade.
I.
Here’s a hypothetical example:
Alice and Bill both live in Wonderland. Alice produces apples. Bill makes burgers. Neither Alice nor Bill wish to live on apples or burgers alone. So, they decide to trade with one another. Let’s say they agree to an exchange rate of 5 apples per burger. Each week they meet up and Alice gives Bill 35 apples; Bill, in turn, gives Alice 7 burgers. Both are extremely satisfied with this arrangement.
Now, let’s change the example slightly:
Alice lives in Wonderland. Humpty Dumpty lives in Mirrorland. Alice produces apples. Humpty makes burgers. Neither Alice nor Humpty wish to live on apples or burgers alone. So, they decide to trade with one another. Let’s say they agree to an exchange rate of 4 apples per burger. Each week they meet up and Alice gives Humpty 28 apples; Humpty Dumpty, in turn, gives Alice 7 burgers. Both are extremely satisfied with this arrangement.
The question that must be answered by advocates of protectionism, in it’s various forms, is:
What about the fact that Humpty Dumpty resides in Mirrorland, rather than in Wonderland, changes the fundamental nature of the above trade?
Or, asked another way:
What is it about the fact that Humpty Dumpty resides in Mirrorland that makes the trade between Alice and Humpty different from the trade between Alice and Bill in a way that justifies placing certain restrictions on the former, but not placing the same restrictions on the latter?
These questions are not rhetorical. And despite the lighthearted appearance of my examples, they are serious questions that require serious answers by advocates of protectionism.
In numerous discussions of these issues with advocates of protectionism, I have not yet received satisfactory answers to such questions. I find this somewhat baffling.
II.
In one such exchange, I asserted that, as the ones proposing that the government actively intervenes by imposing trade restrictions – thereby restricting the freedom of individuals and businesses to conduct peaceful, mutually beneficial exchange – the burden of proof falls on advocates of protectionism to back-up their calls for such trade restrictions with evidence that they are either necessary or desirable.
One response I got to this was that my appeals to ‘burden of proof’ were a red herring.
In one sense, this is quite correct.
The protectionist claims: ‘There is a substantive difference between intranational and international trade that justifies the imposition of certain restrictions on the latter that do not apply to the former.’
The free-marketeer claims: ‘There is no substantive difference between intranational and international trade that justifies the imposition of certain restrictions on the latter that do not apply to the former.’
This is analogous to Matt Dillahunty’s jar of gumballs example.
The protectionist is claiming the number of gumballs is even.
The free-marketeer is claiming the number of gumballs is odd.
In both cases, we have two equal and opposite – and mutually exclusive – claims being made.
As explained on Wikipedia [emphasis added]:
So, the sense in which ‘burden of proof’ being a red herring is correct is:
If a protectionist wants to claim there is a substantive difference between intranational and international trade that justifies the imposition of certain restrictions on the latter that do not apply to the former, they ought to be able to back-up such a claim with some kind of evidence.
Of course, this is symetrical. If a free-marketeer wants to claim there is not a substantive difference between intranational and international trade that would justify the imposition of certain restrictions on the latter, but not on the former, they also ought to be able to back-up such a claim with some kind of evidence.
In short, advocates of either position ought to be able to back up their position with evidence and reasoning. Appeals to ‘burden of proof’ (i.e. pointing to the lack of evidence for the opposing position) are not sufficient and are kind of a cop-out. Just because the evidence for the opposing position is weak or nonexistent doesn’t mean the evidence for your position is any better.
III.
In another sense, however, I don’t think the ‘burden of proof’ is entirely a red herring. Maybe it’s only an orange herring? That is to say, I think it may at least hint at something important.
In order to convince someone who doesn’t agree with me, I have to show her such-and-such evidence according to her standards. If she wants to convince me, she has to show me such-and-such evidence according to my standards. This is the philosophic burden of proof that we’ve been discussing thus far.
But what if we're discussing the passing of legislation?
Consider the example of drunk driving. Driving whilst intoxicated is a crime in the vast majority of countries around the World. Why? What’s the moral justification for outlawing drunk driving? I think it has something to do with there being a general consensus that the benefits that society gets from not having lots of drunk people driving around, causing chaos on the roads, getting into car accidents and killing lots of people, outweighs the costs to potential drunk drivers of not being able to drive home from the pub, having to catch a lift or have a designated driver with them, take a taxi or public transport home, or not have that second pint with dinner.
That is, laws that prohibit drunk driving pass some sort of cost-benefit test.
Sure, we can quibble about the finer details of some of the exact costs and benefits. Maybe you could argue that the optimal level to set the drink-drive limit at should be 0.06% BAC (Blood Alcohol Content) instead of 0.05% or 0.08% BAC. I don’t know precisely what the optimal limit is, viewed in terms of its total costs vs. its total benefits to society.
Some countries take a zero tolerance approach* – any amount of alcohol detected in your breath/blood/urine will be met with sanctions of some sort – this is probably too strict. On the other hand, there are a handful of countries** that don’t appear to have any limit on how much alcohol you can drink before getting behind the wheel and this is almost certainly too permissive.
What I don’t think is in much doubt, is that it makes sense to have some sort of limit.
Asking what the appropriate limit is, is partly an empirical question and partly a values question. There is no objectively ‘right’ answer, there is only a range of broadly socially tolerable answers.
This is similar to the example used by Steven Landsburg in one of his books*** when he asks what the optimal level of pollution is? The answer depends on your values and on how you define ‘optimal’, but is almost certainly not zero.
IV.
In English common law – which forms the underlying basis for much of the English speaking world's legal codes – there is a presumption in favour of individual freedom. That is, anything not expressly prohibited by law is permitted.
So, for example, driving drunk wasn’t illegal in the UK until 1967 when the Road Safety Act was passed, prohibiting it.
It may be a red herring to talk about burden of proof in a philosophical sense, but in order to enact legislation that restricts individual freedom it should be incumbent on advocates of that legislation to prove – to themselves at least as much as anyone else – that that legislation is worthwhile having.
If someone advocates a certain policy, call it ‘X’, that person should be able to provide some sort of justification for their belief that policy ‘X’ is either necessary or desirable.
It seems crazy to me that anyone would advocate for any particular policy without also holding the belief that said policy is necessary or desirable. And presumably they have reasons for holding those particular beliefs. And if I ask them ‘what are your reasons for holding those particular beliefs?’ and they can’t articulate an answer to me. And they instead respond with ‘well, what are your reasons for NOT holding these particular beliefs?’ that’s not very helpful, nor is it conducive to productive discourse.
Part of my reasons for not holding those particular beliefs may be because no-one has ever been able to present to me any strong evidence or articulate any good reasons for doing so.
* These are mostly majority Muslim countries where there are strong social norms against alcohol consumption and alcohol is typically more strictly controlled. e.g. Afghanistan, Azerbaijan, Comoros, Indonesia, Iran, Libya, Turkmenistan, and the UAE. Although the Czech Republic, Hungary, Nepal, Paraguay, Romania, and Slovakia all also take a zero tolerance approach.
The list gets even longer when one takes into account countries that take a zero tolerance approach for certain types of drivers (but not all drivers), such as learners or newly qualified drivers, commercial and professional drivers. This includes Australia, Germany, Macedonia, New Zealand, Palau, Serbia, Slovenia, Tanzania, and Thailand.
This list is by no means complete or definitive.
** I’m looking at you Guatemala, Kenya, Niger, Togo, and The Gambia.
*** It was either ‘The Armchair Economist’, ‘More Sex is Safer Sex’ or ‘The Big Questions’, I can’t remember which, but read them all, they’re all excellent.
In one particular exchange there, I attempted (albeit poorly) to advocate the position that there is nothing special about the presence of an international border which changes the fundamental nature of trade.
I.
Here’s a hypothetical example:
Alice and Bill both live in Wonderland. Alice produces apples. Bill makes burgers. Neither Alice nor Bill wish to live on apples or burgers alone. So, they decide to trade with one another. Let’s say they agree to an exchange rate of 5 apples per burger. Each week they meet up and Alice gives Bill 35 apples; Bill, in turn, gives Alice 7 burgers. Both are extremely satisfied with this arrangement.
Now, let’s change the example slightly:
Alice lives in Wonderland. Humpty Dumpty lives in Mirrorland. Alice produces apples. Humpty makes burgers. Neither Alice nor Humpty wish to live on apples or burgers alone. So, they decide to trade with one another. Let’s say they agree to an exchange rate of 4 apples per burger. Each week they meet up and Alice gives Humpty 28 apples; Humpty Dumpty, in turn, gives Alice 7 burgers. Both are extremely satisfied with this arrangement.
The question that must be answered by advocates of protectionism, in it’s various forms, is:
What about the fact that Humpty Dumpty resides in Mirrorland, rather than in Wonderland, changes the fundamental nature of the above trade?
Or, asked another way:
What is it about the fact that Humpty Dumpty resides in Mirrorland that makes the trade between Alice and Humpty different from the trade between Alice and Bill in a way that justifies placing certain restrictions on the former, but not placing the same restrictions on the latter?
These questions are not rhetorical. And despite the lighthearted appearance of my examples, they are serious questions that require serious answers by advocates of protectionism.
In numerous discussions of these issues with advocates of protectionism, I have not yet received satisfactory answers to such questions. I find this somewhat baffling.
II.
In one such exchange, I asserted that, as the ones proposing that the government actively intervenes by imposing trade restrictions – thereby restricting the freedom of individuals and businesses to conduct peaceful, mutually beneficial exchange – the burden of proof falls on advocates of protectionism to back-up their calls for such trade restrictions with evidence that they are either necessary or desirable.
One response I got to this was that my appeals to ‘burden of proof’ were a red herring.
In one sense, this is quite correct.
The protectionist claims: ‘There is a substantive difference between intranational and international trade that justifies the imposition of certain restrictions on the latter that do not apply to the former.’
The free-marketeer claims: ‘There is no substantive difference between intranational and international trade that justifies the imposition of certain restrictions on the latter that do not apply to the former.’
This is analogous to Matt Dillahunty’s jar of gumballs example.
The protectionist is claiming the number of gumballs is even.
The free-marketeer is claiming the number of gumballs is odd.
In both cases, we have two equal and opposite – and mutually exclusive – claims being made.
As explained on Wikipedia [emphasis added]:
“Either claim could be explored separately; however, both claims represent the same proposition and do in fact ask the same question. Odd in this case means ‘not even’ and could be described as a negative claim.
Before we have any information about the number of gumballs, we have no means of checking either of the two claims. When we have no evidence to resolve the proposition, we may suspend judgment. From a cognitive sense, when no personal preference toward opposing claims exists, one may be either skeptical of both claims or ambivalent of both claims.
If there is a claim proposed and that claim is disputed, the burden of proof falls onto the proponent of the claim.”
So, the sense in which ‘burden of proof’ being a red herring is correct is:
If a protectionist wants to claim there is a substantive difference between intranational and international trade that justifies the imposition of certain restrictions on the latter that do not apply to the former, they ought to be able to back-up such a claim with some kind of evidence.
Of course, this is symetrical. If a free-marketeer wants to claim there is not a substantive difference between intranational and international trade that would justify the imposition of certain restrictions on the latter, but not on the former, they also ought to be able to back-up such a claim with some kind of evidence.
In short, advocates of either position ought to be able to back up their position with evidence and reasoning. Appeals to ‘burden of proof’ (i.e. pointing to the lack of evidence for the opposing position) are not sufficient and are kind of a cop-out. Just because the evidence for the opposing position is weak or nonexistent doesn’t mean the evidence for your position is any better.
III.
In another sense, however, I don’t think the ‘burden of proof’ is entirely a red herring. Maybe it’s only an orange herring? That is to say, I think it may at least hint at something important.
In order to convince someone who doesn’t agree with me, I have to show her such-and-such evidence according to her standards. If she wants to convince me, she has to show me such-and-such evidence according to my standards. This is the philosophic burden of proof that we’ve been discussing thus far.
But what if we're discussing the passing of legislation?
Consider the example of drunk driving. Driving whilst intoxicated is a crime in the vast majority of countries around the World. Why? What’s the moral justification for outlawing drunk driving? I think it has something to do with there being a general consensus that the benefits that society gets from not having lots of drunk people driving around, causing chaos on the roads, getting into car accidents and killing lots of people, outweighs the costs to potential drunk drivers of not being able to drive home from the pub, having to catch a lift or have a designated driver with them, take a taxi or public transport home, or not have that second pint with dinner.
That is, laws that prohibit drunk driving pass some sort of cost-benefit test.
Sure, we can quibble about the finer details of some of the exact costs and benefits. Maybe you could argue that the optimal level to set the drink-drive limit at should be 0.06% BAC (Blood Alcohol Content) instead of 0.05% or 0.08% BAC. I don’t know precisely what the optimal limit is, viewed in terms of its total costs vs. its total benefits to society.
Some countries take a zero tolerance approach* – any amount of alcohol detected in your breath/blood/urine will be met with sanctions of some sort – this is probably too strict. On the other hand, there are a handful of countries** that don’t appear to have any limit on how much alcohol you can drink before getting behind the wheel and this is almost certainly too permissive.
What I don’t think is in much doubt, is that it makes sense to have some sort of limit.
Asking what the appropriate limit is, is partly an empirical question and partly a values question. There is no objectively ‘right’ answer, there is only a range of broadly socially tolerable answers.
This is similar to the example used by Steven Landsburg in one of his books*** when he asks what the optimal level of pollution is? The answer depends on your values and on how you define ‘optimal’, but is almost certainly not zero.
IV.
In English common law – which forms the underlying basis for much of the English speaking world's legal codes – there is a presumption in favour of individual freedom. That is, anything not expressly prohibited by law is permitted.
So, for example, driving drunk wasn’t illegal in the UK until 1967 when the Road Safety Act was passed, prohibiting it.
It may be a red herring to talk about burden of proof in a philosophical sense, but in order to enact legislation that restricts individual freedom it should be incumbent on advocates of that legislation to prove – to themselves at least as much as anyone else – that that legislation is worthwhile having.
If someone advocates a certain policy, call it ‘X’, that person should be able to provide some sort of justification for their belief that policy ‘X’ is either necessary or desirable.
It seems crazy to me that anyone would advocate for any particular policy without also holding the belief that said policy is necessary or desirable. And presumably they have reasons for holding those particular beliefs. And if I ask them ‘what are your reasons for holding those particular beliefs?’ and they can’t articulate an answer to me. And they instead respond with ‘well, what are your reasons for NOT holding these particular beliefs?’ that’s not very helpful, nor is it conducive to productive discourse.
Part of my reasons for not holding those particular beliefs may be because no-one has ever been able to present to me any strong evidence or articulate any good reasons for doing so.
* These are mostly majority Muslim countries where there are strong social norms against alcohol consumption and alcohol is typically more strictly controlled. e.g. Afghanistan, Azerbaijan, Comoros, Indonesia, Iran, Libya, Turkmenistan, and the UAE. Although the Czech Republic, Hungary, Nepal, Paraguay, Romania, and Slovakia all also take a zero tolerance approach.
The list gets even longer when one takes into account countries that take a zero tolerance approach for certain types of drivers (but not all drivers), such as learners or newly qualified drivers, commercial and professional drivers. This includes Australia, Germany, Macedonia, New Zealand, Palau, Serbia, Slovenia, Tanzania, and Thailand.
This list is by no means complete or definitive.
** I’m looking at you Guatemala, Kenya, Niger, Togo, and The Gambia.
*** It was either ‘The Armchair Economist’, ‘More Sex is Safer Sex’ or ‘The Big Questions’, I can’t remember which, but read them all, they’re all excellent.
Monday, 25 April 2016
The Price of Steel in India
This is a follow up blog post to this one here, summarising some more thoughts I’ve had on Scott Alexander’s ‘The Price of Glee in China’ post and inspired by some of the discussion in the comments there.
I know this is a conversation from a month ago, so is now ancient history in blogging terms. This is why I’m not a very good blogger.
There’s a comment in the middle of my post that I sort of regret making because it was poorly worded and it’s not really crucial to the point I was trying to make, but lots of people who are presumably sympathetic to protectionist arguments seem to have fixated on it.
The phrase in question is this one: “there is nothing economically or morally relevant about political boundaries”
I have to apologise for the extremely poor wording on my part here. This phrase is not what I intended to say at all. That was sloppy. Sorry.
As pointed out by several other commenters on Scott’s post, politics does have a substantial effect on the economics of a country. In the most obvious ways, politics and politicians influence tax (and subsidy) rates and hiring practices / regulations (e.g. occupational licensing, minimum wage laws, the EU working time directive, etc. etc.). They also have a less direct influence through things such as health and education policy.
I don’t debate any of this. If someone got the wrong end of the stick from my previous post, I can totally understand why and again can only apologise for my sloppy phrasing.
Anyway, this all detracts from the main point I was trying to make in response to Scott’s post. So let me try to make that point again, hopefully in a clearer and more succinct way:
Scott summed up his argument as:
“If we were to actively try to keep the Indians from industrializing, that would be pretty awful. But that’s not the argument at hand here. The argument at hand is ‘are we morally required to sacrifice our own economy in order to help the Indians industrialize?”
My response to that is:
But that is the argument at hand here.
Put aside for the moment whether protectionist policies are generally a net positive or a net negative for the population (as a whole) of the country that enacts them. Put aside also whether protectionist policies are, in general, even effective at bringing about their stated aims. These are debates for another day.
Let’s assume, for the sake of argument, that tariffs imposed by the US Government on imports of Indian steel helps American steelworkers, with no offsetting cost to any other Americans whatsoever. In other words, the tariffs are a net positive if we consider only the welfare of Americans.
The cost of this policy is paid entirely by Indian steel companies, who now find it more difficult to compete in the American market.
What is this policy if not an active intervention by the US Government which retards industry in India and harms the Indian economy?
Saturday, 26 March 2016
Paul Krugman on Trade
Writing in 2016:
"But it’s also true that much of the elite defense of globalization is basically dishonest: false claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits of trade liberalization and the costs of protection, hand-waving away the large distributional effects that are what standard models actually predict. I hope, by the way, that I haven’t done any of that; I think I’ve always been clear that the gains from globalization aren’t all that (here’s a back-of-the-envelope on the gains from hyperglobalization — only part of which can be attributed to policy — that is less than 5 percent of world GDP over a generation); and I think I’ve never assumed away the income distribution effects.
...
So the elite case for ever-freer trade is largely a scam, which voters probably sense even if they don’t know exactly what form it’s taking.
...
But it is fair to say that the case for more trade agreements — including TPP, which hasn’t happened yet — is very, very weak. And if a progressive makes it to the White House, she should devote no political capital whatsoever to such things."
Writing in 1995:
"I believe that if the rhetoric that portrays international trade as a struggle continues to dominate the discourse, then policy debate will in the end be dominated by men like [James] Goldsmith, who are willing to take that rhetoric to its logical conclusion. That is, trade will be treated as war, and the current system of relatively open world markets will disintegrate because nobody but a few professors believes in the ideology of free trade.
And that will be a shame, because for all their faults the professors are right. The conflict among nations that so many policy intellectuals imagines prevails is an illusion; but it is an illusion that can destroy the reality of mutual gains from trade."
And in 1994:
"Most worrisome of all is the prospect that disguised protectionism will eventually give way to cruder, more open trade barriers. For example, Robert Kuttner has long argued that all world trade should be run along the lines of the Multi-Fiber Agreement, which fixes market shares for textile and apparel. In effect, he wants the cartelization of all world markets. Proposals like that are still outside the range of serious policy discussion, but when respectable voices lend credence to the wholly implausible idea that the Third World is responsible for the First World’s problems, they prepare the way for that kind of heavy-handed interference in world trade.
We are not talking about narrow economic issues. If the West throws up barriers to imports out of a misguided belief that they will protect Western living standards, the effect could be to destroy the most promising aspect of today’s world economy: the beginning of widespread economic development, of hopes for a decent living standard for hundreds of millions, even billions, of human beings. Economic growth in the Third World is an opportunity, not a threat; it is our fear of Third World success, not that success itself, that is the real danger to the world economy."
And these two from 1993:
"What is true in the Washington view, at least in broad terms, is the belief in the virtues of free markets and the evils of protectionism. There are qualifications to that view, but they are minor compared with the essential correctness of this position."
"One of the most popular, enduring misconceptions of practical men is that countries are in competition with each other in the same way that companies in the same business are in competition. Ricardo already knew better in 1817. An introductory economics course should drive home to students the point that international trade is not about competition, it is about mutually beneficial exchange."
Emphasis added.
Hat tips to Don Boudreaux and Scott Alexander/Noah Smith for the quotes/links.
"But it’s also true that much of the elite defense of globalization is basically dishonest: false claims of inevitability, scare tactics (protectionism causes depressions!), vastly exaggerated claims for the benefits of trade liberalization and the costs of protection, hand-waving away the large distributional effects that are what standard models actually predict. I hope, by the way, that I haven’t done any of that; I think I’ve always been clear that the gains from globalization aren’t all that (here’s a back-of-the-envelope on the gains from hyperglobalization — only part of which can be attributed to policy — that is less than 5 percent of world GDP over a generation); and I think I’ve never assumed away the income distribution effects.
...
So the elite case for ever-freer trade is largely a scam, which voters probably sense even if they don’t know exactly what form it’s taking.
...
But it is fair to say that the case for more trade agreements — including TPP, which hasn’t happened yet — is very, very weak. And if a progressive makes it to the White House, she should devote no political capital whatsoever to such things."
Writing in 1995:
"I believe that if the rhetoric that portrays international trade as a struggle continues to dominate the discourse, then policy debate will in the end be dominated by men like [James] Goldsmith, who are willing to take that rhetoric to its logical conclusion. That is, trade will be treated as war, and the current system of relatively open world markets will disintegrate because nobody but a few professors believes in the ideology of free trade.
And that will be a shame, because for all their faults the professors are right. The conflict among nations that so many policy intellectuals imagines prevails is an illusion; but it is an illusion that can destroy the reality of mutual gains from trade."
And in 1994:
"Most worrisome of all is the prospect that disguised protectionism will eventually give way to cruder, more open trade barriers. For example, Robert Kuttner has long argued that all world trade should be run along the lines of the Multi-Fiber Agreement, which fixes market shares for textile and apparel. In effect, he wants the cartelization of all world markets. Proposals like that are still outside the range of serious policy discussion, but when respectable voices lend credence to the wholly implausible idea that the Third World is responsible for the First World’s problems, they prepare the way for that kind of heavy-handed interference in world trade.
We are not talking about narrow economic issues. If the West throws up barriers to imports out of a misguided belief that they will protect Western living standards, the effect could be to destroy the most promising aspect of today’s world economy: the beginning of widespread economic development, of hopes for a decent living standard for hundreds of millions, even billions, of human beings. Economic growth in the Third World is an opportunity, not a threat; it is our fear of Third World success, not that success itself, that is the real danger to the world economy."
And these two from 1993:
"What is true in the Washington view, at least in broad terms, is the belief in the virtues of free markets and the evils of protectionism. There are qualifications to that view, but they are minor compared with the essential correctness of this position."
"One of the most popular, enduring misconceptions of practical men is that countries are in competition with each other in the same way that companies in the same business are in competition. Ricardo already knew better in 1817. An introductory economics course should drive home to students the point that international trade is not about competition, it is about mutually beneficial exchange."
Emphasis added.
Hat tips to Don Boudreaux and Scott Alexander/Noah Smith for the quotes/links.
Thursday, 24 March 2016
The Confused and Backwards Thinking of Protectionists
Scott Alexander’s latest post, about the link (or apparent lack thereof - the Easterlin Paradox) between wealth and happiness, on his Slate Star Codex blog is interesting and thought-provoking as always. I recommend reading the whole thing.
Scott makes some good points and I find myself in complete agreement with his conclusion that:
“...I am forced to acknowledge that happiness research remains a very strange field whose conclusions make no sense to me and which tempt me to crazy beliefs and actions if I take them seriously.”
I do have one objection to his argument. Specifically, it’s with the way he discusses free trade and protectionism in part II of his post.
Here’s Scott:
“Suppose that some free trade pact will increase US unemployment by 1%, but also accelerate the development of some undeveloped foreign country like India into hyper-speed. In twenty years, India’s GDP per capita will go from $1,500/year to $10,000/year. The only cost will be a million or so extra unemployed Americans, plus all that coal that the newly vibrant India is burning probably won’t be very good for the fight against global warming.
Part of me wants to argue that obviously we should sign the trade pact; as utilitarians we should agree with [Scott] Sumner that lifting 1.4 billion Chinese out of poverty was ‘the best thing that ever happened’ and so lifting 1.2 billion Indians out of poverty would be the second-best thing that ever happened, far more important than any possible risks. But if Easterlin is right, those Indians won’t be any happier, the utility gain will be nil, and all we will have done is worsened global warming and kicked a million Americans out of work for no reason (and they will definitely be unhappy).”
Part of me wants to argue that obviously we should sign the trade pact; as utilitarians we should agree with [Scott] Sumner that lifting 1.4 billion Chinese out of poverty was ‘the best thing that ever happened’ and so lifting 1.2 billion Indians out of poverty would be the second-best thing that ever happened, far more important than any possible risks. But if Easterlin is right, those Indians won’t be any happier, the utility gain will be nil, and all we will have done is worsened global warming and kicked a million Americans out of work for no reason (and they will definitely be unhappy).”
I think Scott’s thinking here is confused. I don't mean to pick on Scott here, he’s not alone, I think this is an issue where many people's thinking is very confused. For now, let’s put aside the question of whether or not raising people’s income can make them any happier or not; as this is not relevant to the point I wish to make here.
The way he words this is as if:
- The US government has the option to take some action X (in this case signing a free trade pact).
- Positive consequences of X are: a >6 fold increase in the material well being of over a billion people, who are mostly extremely poor by US standards, in just 20 years. (Additional positive consequences not identified by Scott include some combination of reduced prices, improved quality, better selection and/or improved availability of certain goods and services to American consumers - and to other American producers not in the protected industries.)
- Negative consequences of X are: 1 million people, who are mostly well off by global standards, lose their jobs and additional fossil fuels are burned, contributing to global warming. (Note that most of these 1 million people will eventually find other work; some will take early retirement; some may set up businesses of their own.)
Should the government take action X?
I think this gets things backwards. Here’s what I think is a more accurate way to look at this:
- The US government has the option to take some action Y (in this case imposing tariffs, quotas and/or outright bans on US imports from India).
- Positive consequences of Y are: 1 million people, who are mostly well off by global standards, can remain in their current jobs and don’t have to be forced to retrain, find other work, or be forced into early retirement. Also, less fossil fuels will be burned, leading to less global warming.
- Negative consequences of Y are: severely retarding the improvement in the material well being of over a billion people, who are mostly extremely poor by US standards. Higher prices, worse quality, more limited selection and poorer availability of various goods and services to American consumers - and to other American producers not in the protected industries.
Should the government take action Y?
Some people will look at the above and ask what’s the difference?
The difference is free trade is what would happen anyway unless the government actively goes out of it’s way to prevent it from happening, if it didn’t erect barriers to trade between people who happen to live in different countries. Free trade does not require a free trade pact to happen, it just requires that government doesn’t get in the way.
Here’s Scott again, later in the post:
“If we were to actively try to keep the Indians from industrializing, that would be pretty awful. But that’s not the argument at hand here. The argument at hand is ‘are we morally required to sacrifice our own economy in order to help the Indians industrialize?’”
I think many (most?) people would answer 'no' to the above question. However I think this question is a red herring. Even more than that, I think the quotation above perfectly highlights what is so confused about many people’s thinking on international trade, globalisation and protectionism.
What does the phrase "our own economy" mean? It seems from the context and from common parlance that it means "the US economy". However, it needs to be emphasized there is nothing economically or morally relevant about political boundaries. Trade between someone in New York and someone in New Delhi is no different, in any economically or morally relevant way, than trade between someone in New York and someone in New Jersey.
Or, as one commentator, j r, put it:
“We don’t use these sorts of rationales to restrict trade between California and Utah or to stop a white American from going to a Chinese American dry cleaner.
What’s the basis for using the nation state as an intrinsically valid moral or ethical unit?”
What’s the basis for using the nation state as an intrinsically valid moral or ethical unit?”
It seems to me that the argument at hand really does revolve around actively trying to keep less developed countries from industrializing. Consider the question: what is protectionism? Protectionism is the active effort of government to prevent, limit or restrict trade across political boundaries. No active efforts are required on the part of government to allow mutually beneficial free trade. All this requires is that government doesn’t stop it from happening by erecting artificial barriers to trade.
Contrary to the implication of the question: “are we morally required to sacrifice our own economy in order to help the Indians industrialize?”, free trade does not involve any sacrifice. It is what would naturally happen if governments and others were to refrain from butting into other people’s business. Protectionism is an active attempt to retard the economies of the countries which it is directed against (not to mention the adverse unintended consequences on the economy of the country imposing the protectionist measures).
I would rephrase the argument at hand as: “can we morally justify sacrificing the Indian economy in order to help a minority of domestic producers?”
I think many (most?) people would answer 'no' to the above question. However, our political system often produces outcomes that would appear to suggest an affirmative answer to this question. I think this is largely a result of the confused thinking about these issues. Many people’s intuition causes them to get this issue precisely backwards.
Thursday, 18 December 2014
Quotation of the Day...
From Don Boudreaux:
and to file under sentences I wish I'd written:
"… is from the abstract of Solomon Polachek’s and Carlos Seiglie’s important 2006 paper, “Trade, Peace and Democracy: An Analysis of Dyadic Dispute“:A slice from the rest of Prof. Boudreaux's post, which is well worth reading in it's entirety [emphasis added]:At least since 1750 when Baron de Montesquieu declared peace is the natural effect of trade, a number of economists and political scientists espoused the notion that trade among nations leads to peace…. The greater two nations’ gain from trade the more costly is bilateral (dyadic) conflict. This notion forms the basis of Baron de Montesquieu’s assertion regarding dyadic dispute. This paper develops an analytical framework showing that higher gains from trade between two trading partners (dyads) lowers the level of conflict between them…. Crosssectional evidence using various data on political interactions confirms that trading nations cooperate more and fight less. A doubling of trade leads to a 20% diminution of belligerence."
"When people trade they must engage with others, mostly strangers; when people trade across political borders they must engage with greater numbers of strangers still. This trade, though, makes the strangers less strange to each other, because each learns better what the other is like and what the other likes and dislikes. Trade is peaceful, and so it reveals to each trader the other’s humanity; war reveals the other’s brutality. Each party to every trade gains; with war, one party certainly losses, and even the ‘winner’ might well, in the end, have lost so much to have made the entire activity a losing proposition."
and to file under sentences I wish I'd written:
"The retaliation incited by war is negative-sum and stupid: “You killed someone whose passport is issued by the same agency as that issues my passport, so I’ll kill someone whose passport is issued by the same agency that issues your passport. That’ll teach you!”"
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