Friday, September 23, 2016

Specialization and Free Trade Enhance Our Productivity—It’s Just That Simple

By Robert Higgs

In most cases people recognize that increasing productivity is a good thing. If we develop new technologies or make organizational changes that allow us to produce more output with the same inputs, we celebrate. If people acquire education or experience that allows them to produce more with their human capital, we regard this payoff as wholly beneficial. And so forth.

Yet in regard to one extremely important means of increasing our productivity, many people actually object strenuously. This bizarre case pertains to open international trade. Such trade is the simple and obvious means by which, for thousands of years, people have produced A, B, and C and exported it to buyers in other lands, using the proceeds to purchase X, Y, and Z from foreigners. Producing A, B, and C and exporting them is an indirect way of acquiring what we value more, namely, X, Y, and Z. For example, Americans produce software and soy beans and use them to acquire computers and automobiles from the Japanese and South Koreans. The process of exchange need not be bilateral, of course. Americans export a great variety of goods and services to many foreign nations and, in exchange, import a great variety of goods and services from many foreign nations. Yet producing and exporting goods is clearly always a means whereby the goods produced abroad and imported into the USA are acquired at lesser total resource cost than would be the case if those goods were produced domestically.

Many people fail to see the simple logic of this kind of exchange, yet in economic essentials it is no different from beneficial exchange that does not involve crossing national borders. The economically irrelevant borders are used by interested parties and economic nincompoops to muddy the waters of understanding—and to feather the nests of special interests who cannot or do not wish to compete openly for the business of American buyers. The outrageous upshot is, among other things, that aspirants for the presidency currently compete to promise the public that if elected they will carry out economically destructive anti-free-trade policies of various sorts.

Up in the Valhalla of Great Economists, Adam Smith and David Ricardo are shedding tears, as the rest of us might also be inclined to do. Gains from trade, whether domestic or international, lie at the very heart of sound economics, yet relatively few people and even fewer politicos have a clue about this foundational truth.

(The above originally appeared at the Independent Institute)

7 comments:

  1. . To believe this is to live in bizzarro world where everyone is full of peace
    love and understanding and there is no corruption, lies, or cheaters.
    Ahhh the authors perfect fair world, the people will all be fair
    and we will love happily.
    .
    To believe the author you must believe for example : The author reports the US should trade freely with North Korea.

    The author does not mind if the North Koreans are enslaved and killed to produce
    cheap goods, he is only thrilled that the US citizens can benefit from that enslavement.
    .
    To hell with the people of North Korea, and anywhere else, if we may take
    advantage of their suffering YES we must.

    Whether they exploit and kill labor, whether they exploit or slaughter a religion
    if it were 1941 let us trade with Nazi Germany. Free Trade means better goods for US.
    .




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    Replies
    1. Ah, being stupid, ain't we? It is precisely the isolation (and relentless propaganda enabled by this isolation) which keeps the NK regime in power. Any trade will by necessity increase contacts with the outside world resulting in more exposure to the reality (as opposed to propaganda), eventually creating enough opposition to the regime to crush it.

      Remedial reading: Etienne de la Boetie, Discourse on Voluntary Servitude.

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    2. Re: alexaisback2,

      ─ Ahhh the authors perfect fair world, the people will all be fair
      and we will love happily. ─

      Why would you think that this world we live in has to be *perfect* before we can enjoy our rights as free individuals?

      ─ The author does not mind if the North Koreans are enslaved and killed to produce cheap goods, he is only thrilled that the US citizens can benefit from that enslavement. ─

      Hello! It's called the "Hermit Nation" for a reason. There's little trade going in or out.

      ─ Free Trade means better goods for US. ─

      The government of the Soviet Union discouraged Western tourist from selling people their jeans. Why would you think that NOT trading with people suffering from authoritarian governments helps them? Your argument (laden with irksome appeals to emotion) is not that compelling.

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    3. To believe what you believe, you have to believe that elected politicians are only benevolent and businessman are only evil. You have to believe these same politicians will not take advantage of their position for their own benefit, while business owners will only think about profit.

      You Nazi Germany example is rather cartoonish. If a business in the US WAS trading with a business in Germany in 1940, does that mean they support GOVERNMENTS who are killing jews? No, wars are fought between politicians while business owners peacefully go about their daily lives. (except for those mercantilists who USE governments as a tool). In your nationalist view, there seems to be no distinction between a citizen and a ruler. That there can never exist a case where the citizens of two countries simply want to peacefully coexist while the leaders of these same two countries want to bash each other over the head. Hmm, that sounds like the world we live in today, except for the fools who believe the propaganda drilled into them.

      Talk about bizzaro world.

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    4. Alexa its okay no one ever wants to address the transnational oligarchy monopolies that make equitable exchange intrinsically impossible.

      Economists spew the party line no matter how big the elephant in the room is. Pftt and they want us to pay them serious attention. Idiots

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  2. ─ Many people fail to see the simple logic of this kind of exchange, yet in economic essentials it is no different from beneficial exchange that does not involve crossing national borders. ─

    Mr. Higgs, I've noticed that most people do not really care about the logic of this kind of exchange because their thinking is severely clouded by envy. An exchange between two individuals benefits *the two individuals* but no one else. Their thinking goes like this: if trade between A and B does not benefit the "American economy", or some imaginary worker C who happens to have an American birth certificate, or the anti-trade zealots themselves, then that trade cannot be good.

    Of course it becomes very difficult to discern the standard required for the trade to be *good*. Judging by the series of barriers and licensing schemes that interest groups lobby the government for, it is clear that there cannot be any GOOD trade except whichever happens to benefit THEM directly and not A or B.

    There are two types of anti-trade ideologues: Those who feign a concern for this imaginary worker C, usually economically illiterate. And those who expect to gain from protectionist schemes like old and dying businesses, trade unions and the like.

    ReplyDelete