January 12, 2004

A Reply to Schumer and Roberts

Excellent article by George Reisman on the benefits of free trade:

To understand what is present, all one need do is to generalize the situation. Imagine that in case after case Americans are confronted with lower-cost competitors, which causes a decline in their money incomes. But the decline in their money incomes is always less than the reduction in costs achieved by the competitors. Now all one need do is realize that the cost reductions achieved by the competitors show up as price reductions in the things Americans buy. And those price reductions, founded on cost reductions greater than the decline in American incomes, will also be greater than the decline in American incomes. In other words, American real incomes, as opposed to their nominal incomes, rise. Ricardo's principles both of comparative advantage and the distinction between value and riches are at work.

Of course, if one looks only at the situation of an isolated group, such as software engineers or radiologists, the decline in income is far more pronounced than any decline in the prices the members of these groups must pay. But by the same token, in every such isolated case the immense majority of Americans gets the benefit of some reduction in costs and prices with no reduction in income—for example, all the patients who earn their livings other than as software engineers or radiologists and who can now get their MRIs less expensively.

(...)

The economic development of China, India, and all other areas of the present-day third world, their full integration into a system of global division of labor and their attainment of "first-world" status, is earnestly to be desired not only by the populations of those countries, whose standards of living would obviously be enormously increased, but no less by the populations of today's first-world countries, whose standards of living would also be very greatly increased. What would be achieved, along with the benefits of comparative advantage, is the maximum possible economies of scale in every branch of production, given the world's population. Above all, every branch of science, technology, invention, and business innovation would be pursued by a far larger number of highly intelligent and motivated individuals than is now the case. The result must be far more rapid economic progress across the entire globe, raising the living standards of all far above the living standards of today's most advanced countries.

The fear of other people's intelligence and ability applied to the production of goods we consume is not only profoundly wrong but also extremely dangerous. If we follow the line of Schumer and Roberts, and their avowed mentor, Keynes, and instead of allowing ourselves to benefit from the competition of the rest of the world, seek to impede others' progress, we should not be surprised if we end up finding much of that intelligence and ability turned against us, in producing the weapons of future wars rather than the better and more economical consumers' goods it can and wants to produce and which we want to consume.

Let Schumer, Roberts, and all other advocates of state intervention restrain their desire to unleash the Polizei and the troops to stop people from doing what benefits them. They need to read more of Ricardo, and Mises and Bastiat, before urging such policies.