Trading Up

A reader has just emailed me a link to a Washington Post story about North Carolina workers losing their jobs to foreign competition. Presumably he believes there’s a larger moral here, because his subject line is “Wrong again, Steve”. Here is a slightly edited version of my emailed response:

It would be dishonest for me or anyone else to defend free trade by pointing to its advantages while ignoring its disadvantages.

It is equally dishonest to oppose free trade by pointing to its disadvantages while ignoring its advantages.

What you need is a framework that accounts for all the advantages and disadvantages, together with enough of a logical structure to instill confidence that nothing imporant has been overlooked. Thats what economic theory supplies. You can find that theory in the economics textbooks. You can also find (I think) a pretty good summary of it in The Big Questions.

My correspondent wrote back with a pointer to a website with fifty years of what he calls “extrapolatable stats” that he thinks supply the necessary framework. This misses the point entirely. There is no way a hodgepodge of numbers can settle the question of whether something’s been left out. For that you need a theory.

Here, in brief, is the theory: If Joe the American sells blankets to Mary the American for $15 each, and if an opening to trade allows Mary to buy Chinese blankets for $5 each, then three things happen:

  • Mary is better off by $10.
  • Joe is worse off by at most $10—because Joe can always match the Chinese price if he wants to, taking a $10 hit. On the other hand, he also has the option of getting out of the blanket business, which he’ll choose only if he prefers it to taking that hit.
  • Frieda, another American, who might not have been willing to pay $15 for a blanket, picks up a Chinese blanket for $5 and goes to bed warm tonight.

Of these, only the second effect is bad for Americans, and it’s got to be outweighed (or at least matched) by the first effect. The third effect is pure gravy.

That, in essence, is the argument for free trade. There are plenty of obvious objections, and plenty of somewhat less obvious responses—again, all easily found in textbooks. But if you’re going to argue that trade is bad, then this is the argument you’ve got to confront, because this is the argument on which the vast majority of economists rest their case.

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43 Responses to “Trading Up”


  1. 1 1 Ben Alexander

    Well, there’s also pointing out a small amount of hypocrisy in your story: If Joe from San Antonio wants to sell a blanket for $15 and Mary in Houston wants to buy a blanket for $10 from Charlie in Chicago, doesn’t the argument against free trade (putting ‘locals’ out work) apply equally well? But your story sweeps this under the rug by only considering the ‘American-ness’ of all.

    If you prefer Mary buying her blanket from Chicago rather than from China because we are all ‘American’ then you’ve left yourself open to a big attack:

    Aren’t we all human too? A free exchange of goods (according to your theory) involves a marginal improvement on both sides of the exchange. So what exactly is the reason to be against improving an unknown Chinese worker’s life by buying a blanket from them? And especially, to *prefer* improving an American’s (but not a Texan’s) worker’s life AND worsening a Texan’s consumer’s life (by $5).

  2. 2 2 RL

    Ben, I’m confused. Do you think your argument opposes Prof. Landsburg or supports it? Your language suggests the former, but your actual argument suggests the latter.

  3. 3 3 JLA

    Ben – Professor Landsburg has previously argued that it is morally ugly to care more about strangers in America than strangers in Mexico.

    http://www.youtube.com/watch?v=6hd8eUzwmqY

    The point of this post was almost surely not to argue that we should care more about improving the lives of Americans over improving the lives of the Chinese. Rather, the point was merely to demonstrate that, on average, the gains from trade outweigh the losses to a specific group of people.

  4. 4 4 Josh W.

    Ben,

    I don’t mean to sound completely rude, but your rhetoric and arguments are very confusing.

    Your first paragraph doesn’t make sense.

    In your second paragraph, you assume that economists prefer people take a specific action. That’s quite absurd. In this case, Steve considers the benefits and losses from a transaction.

    Your third paragraph doesn’t make sense.

  5. 5 5 Snorri Godhi

    JLA: thank you for the link. The interviewer was pretty clueless. I am not against free trade, but if I had been the interviewer I’d have felt duty bound to play devil’s advocate, and would have asked: what is the difference between our government putting the interest of Americans first, and the management of GM putting the interests of shareholders first? (This only addresses the moral issue, of course.)

    Actually, the extreme consequence of the principle that governments should not discriminate between citizens and foreigners, would be that all welfare spending should be converted to foreign aid (in rich countries, of course).

  6. 6 6 Snorri Godhi

    It would be dishonest for me or anyone else to defend free trade by pointing to its advantages while ignoring its disadvantages.

    That reminds me of an article published last year, in which an economist defended open borders by pointing to their advantages while ignoring their disadvantages:

    http://commentisfree.guardian.co.uk/philippe_legrain/2008/04/bordering_on_clueless.html

    Note also that it begins with an ad hominem argument.
    The listed advantages will be obvious only to those with some background in economics, but I admit that Legrain could not have crammed 9 advantages into the article if he had to justify all of them.

  7. 7 7 SteveJ

    I’m not going to argue against trade, but I will argue against the idea that Joe being worse off by $10 and Mary being better off by $10 is necessarily good (or at least neutral) for “Americans”.

    Time after time, Americans vote for redistributive taxes. Americans do not not accept your system of utility. But even if you don’t accept democracy as a proper means of determining public policy, every philosopher of all time, except for a minority of economists and utilitarians, has refused to accept the premises that (a) money is utility, and (b) the utility of the whole is the sum of the utility of the parts.

    If you’re going to justify (or restrict) trade on the basis of benefits and costs, then you have to actually weigh those benefits and costs against each other, in a way which society accepts as a reasonable comparison. Who gains? Who loses? Do we care? What are the additional costs and benefits to society of Mary having an extra $10 (which perhaps she spends on American goods), and Joe losing $10 (which perhaps means he chooses crack dealing as an alternative career, at additional cost to other Americans)?

    Then again, if you’re happy that it’s neutral for America if $10 is transferred from Joe to Mary, then I’m sure you won’t be wasting police (and hence America’s) time and money if cash is taken from your wallet. Unless you suspect the thief is a foreigner, of course – maybe that becomes a matter of public interest.

  8. 8 8 SteveJ

    “Americans do not not accept your system of utility”

    Heh, possible Freudian slip there. I just can’t bring myself to say that the typical American is not a committed Libertarian…

  9. 9 9 Steve Landsburg

    SteveJ: Suppose we open the borders, that this causes Mary to gain $10, and it causes Joe to lose $5.

    Suppose we don’t like this outcome, because we put more weight on a dollar in Joe’s pocket than a dollar in Mary’s.

    One solution is to close the borders again. A different solution is to take, say, $6 from Mary’s windfall and give them to Joe.

    If we transfer the right number of dollars then both Joe *and* Mary prefer the second solution to the first. When the pie is bigger, you can always give everyone a bigger piece.

    Should we in fact make that transfer? That’s a separate issue. But we have three policies to choose among here:

    A. Open borders, no transfer.
    B. Open borders, with transfer.
    C. Close the borders.

    Since everyone prefers B to C, I think we can eliminate C. Then we can argue about A versus B.

  10. 10 10 SteveJ

    Thanks for the response, and so quickly. Like I say, I’m not going to argue against the trade itself.

    I think replacing “it’s got to be outweighed (or at least matched) by the first effect”, with “after suitable state intervention it can always be outweighed (or at least matched) by the first effect”, then I this is the fundamental case for foreign trade as I see it.

    Like you say, the question of who should have that $10 is independent of the question of whether we want cheaper blankets for Frieda (which everyone does). Any argument against foreign trade has to outweigh this benefit with some cost of Chinese blanket manufacture that is external to their price. At the extreme, it’s clear that if China were kidnapping Americans and putting them to work as slaves in their blanket mines, then America would have a good reason to restrict trade. But that’s a case for restricting trade with particular countries, not for general protectionism wherever American jobs are threatened.

    My concern about the subtly restated argument, is that the most obvious way to make that $6 adjustment would be to stick a $6 tariff on Chinese blankets. That’s frequently what economists are arguing *against* when they caution that trade is being obstructe. I’d not expect a hardline free trader to accept that “trade with tariffs” is “free trade”, or to immediately settle for B if their real goal is A.

    But I guess it depends partly on how Joe is given the $6 – if it’s used to subsidise the American blanket industry then the benefits of trade are undermined as Joe continues making overpriced blankets. If it’s just given to Joe as compensation (or commiseration) for the loss of his job, then he will continue in future to maximise his reward under market forces. If there were a working system of social security and/or insurance in place to begin with, then no special measures would need to be taken whether Joe loses his job because of foreign trade, an industrial accident, or any other reason already accounted for. No special transfer need take place, and Mary and Frieda in particular need not bear the cost of America’s disappearing blanket industry.

  11. 11 11 Stephan

    “What most economists don’t realize is that when they say that free trade is good for the country as a whole, they’re adding an ethical layer almost unthinkingly,” (Dani Rodrik)

    So basically it’s an ethical decision whether to choose A or B. There are very good arguments to choose B. The trade proponents rally behind the point, that overall a free trade US is better off. I agree, that the gain for a lot outweighs the loss for some.

    And because nobody gave economists a mandate to choose winners and losers they cook up the “compensation principle”. The only problem here is: This compensation doesn’t have to actually occur. It must solely be theoretically possible.

    So I do also understand critics of free trade. It’s not really sexy to promote free trade with a hidden promise to the losers and then not deliver to them.

  12. 12 12 S.V.

    It seems like the only purpose of B is to eliminate C. Once C is eliminated, A is chosen.

    So I suggest we could begin with the dispute between A and C.

  13. 13 13 Tony Castaldo

    For me at least, this model is insufficient to address most of my argument against open border trade. These arguments have nothing to do with patriotic fervor; my argument is more democratic: As a country we have established certain laws that produce costs in manufacturing blankets and the vast majority of Americans agree with these laws. There are minimum wages, OSHA requirements, safety and unemployment insurance and labor laws and sexual harassment all of which add, in one way or another, to the cost of manufacturing blankets in the USA.

    Businesses in China, India and Mexico do not have to follow these rules, and this is one reason they can produce goods at a quarter of our costs. Using them to produce our goods is a way to circumvent what we have Democratically agreed upon as fair labor practices. Thus it is inherently hypocritical, saying fair labor practices and even human rights apply to Americans but not to foreigners.

    I have no problem with free trade on a relatively level playing field; say with Canada or the European Union. Free trade with China or Mexico effectively endorses exploitation that would be considered both criminal and sociopathic in the USA, and that is the problem. Any model that fails to address *that* issue is just as fundamentally dishonest.

  14. 14 14 Steve Landsburg

    Tony Castaldo: You are right that this point merits a response, so here it is: In 1840, Americans did not have minimum wages, OSHA requirements, safety and unemployment and sexual harassment laws. We didn’t have them because we couldn’t afford them. We were poor, and we placed a higher priority on not starving than on preventing sexual harassment in the workplace. Today, many Third World Asians and Africans are roughly as poor as Americans were in 1840. It seems to me to be callous in the extreme to punish them (by refusing to buy their products) for making exactly the same choices that our ancestors made in their situation—and that you and I would probably make in that same situation as well.

  15. 15 15 Tony Castaldo

    Steve: That argument won’t work, because at some point it breaks down. Our ancestors also engaged in slavery; and certainly in their situation we probably would have too, and for good economic reasons if we restrict our consideration to the cost of production. By your argument, we should have no problem with slave labor producing our goods if the prevailing economic conditions in a foreign country approximate the economic conditions of America circa 1780 or so. Economic conditions are not an excuse for immoral behavior.

    In any case, rather than go down the rabbit hole on subjective judgments, I would be more inclined (although I do not have the data) to tally the costs of what we could call “moral compliance,” the added cost of products to comply with the legal ramifications of what are essentially moral decisions we have made as Americans. Virtually all of the laws we pass that prohibit behaviors by employers were not theoretical, but passed as a result of outrage over employers actually endangering or otherwise exploiting workers. What should interest us in a model is the net inflationary cost of this outrage at the cash register.

    On the subjective front, I don’t see this as callous at all. Some of the “savings” modern Americans enjoy are at the expense of permitting what we would regard as criminal were it to happen to us or our family. So sure, the more criminality we permit among our suppliers, the lower our prices. Lower prices do not justify criminality, and ignorance concerning human exploitation by our ancestors does not warrant ignorant human exploitation by us.

    The argument that you and I would make the same decisions in that economic situation doesn’t fly. Were I raised in that time, I wouldn’t be me and I’d be as ignorant as them; if I time-travelled as myself, I would not be as ignorant and callous as them and I would not make the same choices.

  16. 16 16 Cos

    Your remarks are, I think, misleading: A theory can’t actually tell you if you’re leaving something out. A theory only gives you a framework within which you can look at what the overall picture might be, but if the theory itself leaves something out, looking at everything within that framework isn’t going to tell you that. Having a theory is clearly better than just looking at numbers without pulling together a storyline to make sense of them, but you might still get it wrong – and worse, with a theory, you’d be more convinced that you got it right.

    We also have another mechanism: testing against reality. What I believe we’ve seen is that – contrary to some economic theories – sometimes “walling off” smaller islands of trade from the larger global system actually does help them ramp up, to the benefit not only of the people in that island, but to the greater good of everyone in the global system once the walls slowly come down. Why does this happen? And should it be applied to a place like the United States?

  17. 17 17 RL

    “Our ancestors also engaged in slavery; and certainly in their situation we probably would have too”

    Really, Tony? So you wouldn’t have been among the group of abolitionists seeking to expand the promises of the Declaration to all men? It was a large group, and played a key role in eliminating slavery. OK. I’ll take you at your word.

    You don’t see a difference between being poor (the natural condition of mankind, which must be endured while working to accumulate wealth) and owning slaves (never necessary and not even always profitable; there’s a large literature on that)?

  18. 18 18 AC

    How about a brief list of the obvious and non-obvious objections to the basic case for free trade? I know there is the big country (market power) argument for theoretically being better off as a whole from protection.

  19. 19 19 RL

    Testing against reality, Cos, for many years assured us the earth was flat. You need a theory to understand reality.

  20. 20 20 Tony Castaldo

    @RL: I think the majority of people raised with slavery a given were conditioned to believe slavery was an acceptable condition. Were we raised in that time, there is simply no telling how susceptible we would be to the prevailing views, *especially* if our economic livelihood *depended* completely upon slavery.

    I am not inclined to over-estimate some innate repulsion to the idea of slavery; my direct ancestors quite likely included Romans entertained by the disembowelment of petty criminals and staged fights to the death between gladiators. Although I like to identify with the heroes in that story as much as anybody, I can also see that statistically the chances for *anybody* being one of them is small.

    As for the difference between being poor and owning slaves; my point to Steve was that slavery was definitely on one end of the spectrum of things we would not tolerate even if there *were* economic circumstances that seemed to compel it, as there was for the Southern crop growers.

    His unqualified argument would apply across the entire spectrum, and therefore obviously doesn’t work. So where does it stop working?

    Why is it okay in China to expose workers to volatile fumes and carcinogens that we know will cause respiratory diseases or lung cancer, but not okay to do the same in the USA? This is being done on behalf of American retailers in the plastics and industrial fibers industries. The excuse that “they need the money,” or “we did it fifty years ago,” do not seem like adequate excuses because they can be used to justify *anything*.

  21. 21 21 Steve Landsburg

    Tony Castaldo:

    I quite fail to grasp your analogy. Slavery is something we impose on *other* people. Choosing to work long hard hours in difficult working conditions is something we impose on *ourselves*. And it’s something that poor people, in all places and all times, have chosen to impose on themselves. To deny them that choice, from the comfort of our middle class living rooms, still strikes me as callous as cruel.

  22. 22 22 Clayton

    @Tony Castalado: I think you are implicitly assuming that criminality and efficiency are positively correlated, that is, that by committing crimes, producers can always make products cheaper. on the face of it, this seems plausible because I would work a lot harder if I knew my boss could legally get away with whipping me any time he thought I wasn’t working hard enough. But, anecdotes aside, what is actually occurring is redistribution. Coercion does not produce anything, it only redistributes production from some individuals to others. So, if I enslave you and make you work for me at no cost, I am actually redistributing the wages I otherwise would have had to pay you to myself. To argue that producers with the legal power to redistribute property to themselves that would not be theirs in a just society is to argue that coercive redistribution is more efficient than voluntary exchange. But it is well known that voluntary exchange is more efficient since both parties to a voluntary exchange benefit, whereas only one (or zero) parties benefit from coercive exchange.

  23. 23 23 Snorri Godhi

    Steve Landsburg makes an excellent point in his last reply to Tony Castaldo, an unexpected insight for me. However, my main objection to Castaldo would be more along the lines of the first reply by RL and the reply by Clayton. Specifically, I disagree with Castaldo’s assumption that poor working conditions in poor countries are the reason why their exports are cheaper. The fact is that labor productivity in poor countries is much lower than in rich countries (as I remember reading in The Economist a long time ago): labor in poor countries is cheap because it produces little, not because of “exploitation” of the workers. This also follows from the logic of comparative advantage: the Chinese sell blankets to Mary, not to stuff dollars under their mattresses, but to buy American goods. If Chinese products were cheaper in every market, then the Chinese would not bother to sell to Americans: they would just sell and buy to/from each other. They would have no use for US dollars.

    Having said that, my understanding is that the theory fails because the Chinese government (which still largely controls the Chinese economy) is indeed stuffing dollars under the mattress; or buying US government bonds, which is pretty much the same thing. But the theory still holds for trade between free-market economies.

  24. 24 24 Steve Landsburg

    Cos: Your point is well taken—a theory can of course leave something out. The advantage, though, of a well-established theory, is that it’s been around a long time and lots of people have had opportunities to point out what’s missing and other people have had lots of opportunities to think about whether those things are important. Those well-vetted theories tend to be the ones that make it into the textbooks.

    With regard to your small islands of walled-off trade, I am not aware of any example in which a substantial number of economists believe that the walling off has been beneficial on balance. But maybe you know an example that I don’t know.

  25. 25 25 Bennett Haselton

    Let me suggest two posits that might be enough to create a theory explaining why many people are instinctively opposed to sweatshops, despite the fact that people choose to work there:

    1) Should people be able to sell their labor for any price they want? For the sake of argument, let’s say yes. If they work all day for a dollar and feel like they’ve come out ahead, why not? They know what a dollar buys them.

    2) Should people be able to sell their *safety* for any price they want? A pure libertarian hands-off theory would say yes. I would say no. Suppose a very poor person would accept a payment of $1,000 for risking a 10% chance of death. Even if they *want* to make that deal, I would say a company should not be allowed to offer them that deal anyway, because under no circumstances should a company be allowed to get away with paying $10,000 (on average) for every death they cause. This is basically the deal that companies are offering third-world workers to work in dangerous sweatshop conditions, although the numbers are different.

    So suppose that you allowed American companies to build products overseas and import them tariff-free under these conditions: They can pay foreign workers whatever they want, but if a worker is injured or killed, the company has to pay a fine equal to what they would probably have to pay out in civil penalties if the same thing happened in an American workplace. Thus, you are allowed to set up factories in poor countries to take advantage of the cheap value that local workers put on their labor, but you can’t take advantage of the cheap value that local workers place on their own lives.

    (You wouldn’t want the fine going to the victim’s family because that might motivate workers to kill or injure themselves deliberately in order to get a windfall like that. Maybe just have it donated to African poverty relief in general, to drill some water wells or something.)

    Would this alleviate some people’s opposition to sweatshops? Possibly for some of them. It depends on whether their opposition to sweatshops is based on the moral theory articulated above, or some other theory. (Or maybe their opposition to sweatshops is not based on any “theory” at all and amounts to simply repeating what they’ve heard from their peers.)

  26. 26 26 Steve Landsburg

    Bennett: I think you should account for the fact that Third Worlders are selling their safety in pretty much the same amounts, and at pretty much the same prices, that equally poor people have sold their safety in all times and places that I’m aware of. This, I think, should give us a fair amount of confidence that these prices and quantities are not being imposed on these people from outside; they are well within the limits of what ordinary people in impoverished circumstances choose consistently. As I’ve said before, it takes a lot of hubris for middle class westerners who have never faced these problems to decide that nearly everyone who *has* ever faced them has made the wrong choices.

  27. 27 27 Bennett Haselton

    I’m not saying their choices are wrong, in the sense that they would make different choices if they thought more carefully. I’m saying more that we have a moral obligation to provide better choices. When Americans were working under those conditions, there were no comparatively super-rich countries that could have bailed us out by coming here to build relatively safe factories for us to work in. But now, we have that option.

    Phrasing it in terms of the question: “If a poor person would accept $1,000 to take a 10% risk of death, should you be allowed to pay them that?” I said “No”, but perhaps the real answer is: If there are people who are actually prepared to accept that deal, then the question is moot — we should lessen the inequalities that cause people to be that desperate in the first place. (This is the conclusion that you were edging towards at the end of “The Big Questions”.)

  28. 28 28 Ben Alexander

    Sorry for the delay; the conversation seems to have moved on, but I’ll still respond to the open questions and comments about my original post.

    @RL I was trying to suggest an alternative argument that Prof. Landsburg could use to further the discussion with his correspondent.

    @JLA I’ll have to watch that clip later, but your summary is exactly the point I was trying (alas, unclearly) to make.

    @Josh I’m sorry I didn’t make sense. The ‘you’ in my second paragraph was intended to be the anonymous correspondent that Landsburg exchanged emails with. I assume he isn’t an economist (I dunno why) so I think you’ve misread my second paragraph. Do my other comments clear up what I intended to mean?

    Now for some new comments of my own…

    @Steve Lansburg: You offered three scenarios, one of which interests me: Option B. Open borders, with transfer. SteveJ said his approval is contingent of how you effect that transfer. I’m very curious what options you know of.

    Re: slavery. I suppose it’s natural for us to think of the racial-based, inherited form of slavery that existed in North American. However, slavery has been common in many different contexts. I’m not enough of an historian to know whether they are all equally repugnant to a modern, liberal citizen of the Western World today. My guess is also that when people describe working conditions in China as the equivalent of ‘slave-labor’ they are painting with too broad of a brush. For example, the tight control of workers in the mill towns using the Waltham-Lowell System in the early 19th century would not confirm to modern employment law, but if we saw that in China today would it get painted as ‘slave-labor’ conditions?

    Re: Selling saftey. Steve Landsburg makes the point that Third Worlders are selling their safety in pretty much the same amount at the same prices as the poor have during all times and places. I’d really like a reference for that! But I completely agree that there is a problem with middle class westerners coming out against trade with the poor because of the working conditions. The biggest problem is that it keeps the poor impoverished!

    @Bennett You think that safety shouldn’t be bought or sold; in particular you suggest that a poor person shouldn’t be able to take a payment of $1000 for a 10% chance of death. But you say that a company should not be able to pay $10,000 for a life.

    Tell me, do you have life insurance? You are taking a chance of death in many, many occupations, despite the best safety equipment available. You risk getting hit by a bus crossing the street, after all. Insurances companies pay for lives in exactly the way you object to, but in lump sums to individuals instead of in smaller payments to members of larger groups. But pay they do, on average, though I suspect it is more than $10,000 for a life.

  29. 29 29 Ben

    I’m very curious to hear Steven’s response to SteveJ’s characterization of the most likely method of transfer being a tariff; that sounds like a good argument to levy tariffs on imports so that the import+tariff price is just below the market price in America, and then distribute the proceeds to the American industry in question. The tariff would then ratchet down over time. So, the way we should make free trade fair is by imposing tariffs.

  30. 30 30 Stephan

    @Ben Alexander
    I think you’re right that imposing Westen rules of working conditions on the “3rd world” would impoverish people and prevent them to make the first step on climbing the development ladder. But at least here in Germany there’s a strong movement in favor of exactly doing that. For instance ATTAC (Join ATTÀC – a world with poverty is possible :-)

    So to counter such an attack on free trade and the poor people in the world economists need to come up with a little bit more than the old pro-trade arguments. I would suggest some basic rules like no slavery, no child labor and freedom to associate. Especially the last would be an important step to improve working conditions on the long run.

    Here it started with Lassalle, Bebel et al. and it was a long and hard struggle. Maybe by insisting on freedom to associate as a condition sine qua non for no trade barriers we can shortcut that struggle and avoid some of the uglier things coming with it. That said however our EU and US chamber of commerce immediately cried wolf once China started discussing some basic labor laws.

  31. 31 31 Steve Landsburg

    Bennett Haselton:

    I’m saying more that we have a moral obligation to provide better choices.

    But that’s *not* what you’re proposing. You’re proposing a system that will lead to lower wages and less employment in exchange for more safety. That’s not a tradeoff that people in that situation have ever wanted to make, and it’s cruel to impose it on them.

  32. 32 32 Steve Landsburg

    Ben Alexander:

    @Steve Lansburg: You offered three scenarios, one of which interests me: Option B. Open borders, with transfer. SteveJ said his approval is contingent of how you effect that transfer. I’m very curious what options you know of.

    The obvious option for the transfer is to spend general tax revenues on programs that specifically benefit displaced workers, e.g. retraining programs.

    I am in general opposed to such transfers, for reasons I detail in ##tbq (pages 195-197), but I certainly prefer the option of free-trade-plus transfers to the option of no free trade at all.

  33. 33 33 Bennett Haselton

    @Steven: When I say “better choices” I am assuming (axiomatically, I guess) that it is wrong to pay someone $1,000 to accept a 10% risk of death, even if they *want* to take that option — and therefore it is “better” to take that choice off the table, forcing the employer to provide alternatives if they want to take advantage of the cheap labor.

    It’s true that if you got rid of the workplace safety requirements (or, equivalently, the requirement to pay a huge fine if an employee dies), then wages would rise. But that’s essentially like paying people to accept a 10% chance of death.

    Perhaps my axiom — that it’s wrong to pay someone $1,000 to accept a 10% chance of death, even if they want to take it — leads to some sort of contradiction or absurdity, but I can’t think of one immediately.

  34. 34 34 Steve Landsburg

    Bennett Haselton: Of course nobody is paying anybody $1000 to accept a 10% chance of death; I take it that your numbers are arbitrary and for illustration only. But it matters what the numbers are. The actual amounts that people are being paid, and the actual working conditions they’re accepting, are not remotely out of the ordinary for developing countries. They are what people in such countries always and everywhere have wanted to accept. And I continue to think they’re in a whole lot better position to decide these things than you are.

    PS—you persist in characterizing your proposal as “offering better choices” but of course you’re doing exactly the opposite: you’re taking choices away. If substantial numbers of workers will accept (even) lower wages for more safety, employers will offer that. So that option is there already, if anyone wants it. All your proposal can do is *eliminate* the choice that most of them seem to prefer.

  35. 35 35 SteveJ

    People with guns held to their heads, or who face starvation because they have inherited no capital, will “choose” to do a lot of things if they’re ordered to do them.

    Obviously (to me) the proper response is to remove the threat of death. But even given it’s there, I don’t think we should accept the proceeds of the labour that a person “prefers” to perform when he has a gun to his head and is ordered to work. I think it’s correct to say that citizens in a poor country who refuse to work due to unacceptable conditions, quite often would be in worse trouble than they would be in should there be no work available and charity or the social security system (such as it is) were to take over. As such, offering low-quality jobs may or may not improve the options available to those workers. We can’t make a full generalisation.

    But then, I believe that it is illegitimate in the first place for comfortable capitalists (in the West or elsewhere) to maintain a class which has no capital and no right to a minimum standard of living, and therefore is coerced into labour under threat of death. Whether we maintain and exploit this class at home or abroad is morally irrelevant. Others would perhaps counter-claim that it is right that if your parents are rich, and choose to make you rich, then that power should be inherited; and that it it right that through accident of birth some people are protected from certain kinds of coercion under threat of death, while others face it their entire lives.

    There is of course a moral distinction between holding a gun to someone’s head and ordering them to perform some service, as against bricking them up in a desert and offering them water if they perform a particular service before they die of thirst. But it’s a pretty meagre distinction, especially for those born in the desert.

    It may be callous for us to turn down the results of sweatshop labour, risking actual harm to those workers. As against that, having actively cultivated this class and asserted that our right to property trumps their right to life, it is quite monstrous to lock them in factories, work them to the bone, subject them to sexual harassment, and whatever other working conditions we consider criminal when they happen in our home countries, and claim that not doing so would deny them opportunities.

    As I say, the right action would be to constitute a society which is less coercive in the first place. Our power to do so is of course very limited, but still anything short of that can be made to look callous, because it is. All sides can accuse the others of causing great harm, because that is exactly what is happening, and continues to happen wherever people interact where one has vastly superior legal rights to the other.

    All that said, I’m *still* not against free trade. The distribution of property and power is the problem, not trade. Trade will make those poorer countries richer, and eventually they will provide their citizens with more rights and better standards of living. Trade allows us to distinguish between better and worse employers abroad, and to exclude those we believe to be using the threat of death illegitimately. We just shouldn’t pretend, while there are still people who will die if they can’t negotiate working conditions, that any of this is noble or that what we do is other than coercive.

  36. 36 36 SteveJ

    I should add that these are entirely sophomoric arguments, which I don’t expect to affect the views of a professor of economics. Still, they may help other sophomores work out what it actually is they want from an economy, and how they want to prioritise “fundamental” rights such as property, life, freedom from threats of violence or death when forming contracts, and so on, which provide the conditions necessary for what we call a “free choice” and hence a “free market”.

  37. 37 37 Snorri Godhi

    SteveJ: since you describe your arguments as sophomoric, I assume that you will accept my sophomoric answer.

    People with guns held to their heads, or who face starvation because they have inherited no capital, will “choose” to do a lot of things if they’re ordered to do them.

    People with guns to their heads will indeed follow orders (most of the time). As for people who have inherited no capital: I have inherited very little capital so far, but even before inheriting that, I never felt that I had to follow orders: I also had the option of changing job.

    It is true that, in centrally-planned societies, people might starve if they do not take the job that they are offered. It is also true that, in a racist or caste-based society, some groups might have only one job on offer. It is also true that, in a village or small town with a single employer, people have to either take the job on offer or leave town; but people are prevented from leaving town only in a feudal society.

    In conclusion, your argument would seem to apply only to our trade with centrally-planned, caste-based, or feudal societies. (I am making sweeping generalizations, of course; but then, so did you.) Maybe this is the point that you wanted to make all along: in this case, I am sorry for missing it.

  38. 38 38 David Hamaker

    Eliminating jobs with a risk of death completely destroys the coal mining, timber, and fishing industries, which are fairly important to the current american economy. Those jobs also pay quite a bit higher wages because of that. I’m not really in favour of outlawing jobs just because they have a risk of death, considering my family have been coal miners for at least three generations.

    I’ve considered becoming a lobster fisherman, even knowing the risks, because the wages are a lot better than the low wage safe jobs I’ve been able to acquire so far in life.

    Nobody is holding a gun to my head. I’m fairly intelligent. I know these jobs hold a risk of death or injury or lung cancer. Nothing is without risk, it’s just a choice of how much risk you want versus the potential advantages.

    I’m still undecided on how much risk I want, but I certainly don’t want anyone removing my options “for my own good” unless they are prepared to compensate my potential losses, and I only accept payment in dollar format. :D

  39. 39 39 Paul

    I don’t trust non-behavioral economists. Until I see a case that takes into account that we are not robots but instead have ape brains, I think the argument is a case of Platonic ideals, in the pejorative sense. Really, what about Detroit? All those lost jobs don’t just mean lost money, they mean a completely different culture. When you take into consideration the effect that loss of male income and employment has on incarcerations rates, drug abuse, violence, and bastardy, I really do think that freer trade with mercantilist developing nations may be a net loss to the U.S.

  40. 40 40 Douglas Bennett

    SteveJ,

    I don’t understand how it is that ‘we’ have created the poor conditions elsewhere in the world. Were these people always wealthy until we came along and took something from them? The natural state of mankind is poverty- isn’t it possible that no one has ‘coerced’ these people into poverty, but rather that they have not yet left the natural state?

  41. 41 41 Ben

    It seems that the implicit assumption here that wealth equals utility is obviously false — since wealth yields diminishing returns for individuals, the status of Mary and Joe matter a great deal. Suppose instead of Mary, it’s Bill Gates reaping an $8 benefit from free trade and Joe is a hard-working laborer just trying to overcome the outrageous marginal tax rates at his low bracket. Surely in this case Joe’s $8 loss vastly exceeds Bill’s $8 gain. Of course, this situation could be rectified by having Bill compensate Joe (leaving just the Friedas of the world), but wouldn’t that act of compensation be best facilitated by a tariff?

  42. 42 42 SteveJ

    Douglas, of course there’s a lot of diffusion of responsibility in that “we”. I personally have never engaged in gunboat diplomacy, colonised Africa, entered into a war in order to protect the narcotics trade, nor made it a criminal offence for Indian farmers to dry and gather salt. Neither have I assassinated an elected leader in order that he be replaced by a dictator more sympathetic to my interests, planned a civil war, nor trained and equipped terrorists.

    I doubt you have either, unless you’ve been a member of your county’s military or its diplomatic corps (whatever country that is). Most likely not even then.

    However, it’s quite clear that others have done these things in the past, and continue to do several of them in the present. I think such actions can reasonably be said to have disturbed the “natural state” of the countries in which they took place. I, personally, have inherited a society which was created by those actions. So have the inhabitants of most African nations, China, India, Chile, Iran, Congo, Nicaragua, Afghanistan, Pakistan and others. It will be quite some time before there are no longer specific and identifiable effects on living individuals.

    My claim is not that this totally de-legitimises trade, but that Western societies, bristling with weaponry, force other nations at gunpoint to do as we say. It is then laughable hypocrisy to pat ourselves on the backs for “giving them options” as we watch them go where they’re pushed. I doubt that we’re any worse thieves and thugs than the privileged classes who have gone before us throughout history. Quite probably less bad. But an economic theory which refuses to consider this extent is a self-serving lie.

    The poor need more freedom, of course, if they are to be less poor. The idea that it is freedom merely to compete in a game in which we’re born ahead, and will kill to protect our lead, is pablum, designed to help economists and generals sleep at night.

    There are a great many ways in which western countries restrict the freedom of action of people in less wealthy nations, and worrying about sweatshops and other forms of forced labour is not principle among them. I imagine that almost everyone reading this blog is sat comfortably in an armchair. But if one is to serve freedom at all, even in a small way from a position of privilege, then it must be by opposing tyrants, not by loudly defending the right to send guns to tyrants in return for T-shirts.

  43. 43 43 SteveJ

    Snorri. Yes, my arguments apply most obviously in countries where physical coercion is easiest to see. If the “tyrant” is some snarling dictator whose police carry machine guns, whose detractors disappear, and whose favourites act with impunity, then clearly his people’s labour is coerced.

    I happen to believe that it is also coercive to choose people at random and make some of them “rich” and others “poor”. “Poor” people are those who will die unless some “rich” person gives them permission to live. The mechanism by which this permission is granted is money. If you haven’t faced starvation then, OK, you are not one of the global “poor”. You’re lucky. Just because you haven’t had a house and a cash sum from an elderly aunt doesn’t mean you haven’t inherited anything.

    The accident of your birth has given you an eduction (unless you borrowed money, starting aged 5, to pay all your own school fees. That’s legally impossible in most countries, since 5-year-olds generally cannot assume debt), and opportunities, and a particular level at which your society will support you if you can’t find a job with at least particular minimal pay and conditions. Others have a worse education, fewer opportunities, and lower standards of support and of minimal conditions. The choice of someone whose minimal conditions are much worse than our own, is not comparable to our choice.

    So the “tryant” could just as easily be some guy running a factory, who knows that if he fires his workers they’ll be hungry that night and dead before they have time to walk back to the farm they came from. He might have lied to or misled them when he first employed them, or stolen from them once they got there, all that matters to him is that now they’re at slightly more risk of death if they leave than if they stay. The society might just be poor and unable to afford better standards of law or policing (in which case we can argue whether society is improved by us buying stuff from that factory, coercive as it is); or it might be corrupt or dictatorial; or it might have been threatened into its employment policies by Western governments keen to acquire labour at cheaper than the previous going rate. Western companies do deals with such factories on a continual basis, and I cannot see that by doing so, they always and only increase the choices available to those employees.

    A support for free trade on the principle of personal freedom for all must say, “only if certain employment conditions are met”. The fact that people can be tricked or coerced into doing something does not mean they’re better off than they would be had that not happened, so “certain conditions” requires defining what we mean by deceit, and coercion. There may come a point where I genuinely think that something constitutes coercion, and a hard-core free-trader genuinely thinks it isn’t. But I think the current state of the world is far from that point, and that things are going on, which we encourage, and which the hard-core free traders would think were pretty coercive if they were happening to their mothers.

  1. 1 Landsburg on Free Trade « Daniel Joseph Smith
  2. 2 The Liberal Order
  3. 3 Krugman: The Flip Side at Steven Landsburg | The Big Questions: Tackling the Problems of Philosophy with Ideas from Mathematics, Economics, and Physics
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