Monday, December 19, 2016

On Being Too Rigid & Dogmatic & Inflexible on Free Trade

A Don Boudreaux letter to a new correspondent:
Mr. Mel Glenn
Mr. Glenn:
Thanks for your e-mail.
You accuse me of being “too rigid & dogmatic & inflexible” in my support of free trade.
Here’s a question for you.  Suppose that you want to make a new sofa for your family.  If you use work-method A, it will take you 500 hours to produce a sofa.  If you use work-method B, it will take you 50 hours to produce an identical sofa.  Which method will you choose, A or B?  The answer is obvious: method B.  And if I ask this question ten or ten-thousand times, the answer, I trust, will not change.  Would you, therefore, be “too rigid & dogmatic & inflexible” in your support of work-method B?  If you answer “no,” then you’re well on your way to understanding why I am in fact not too “rigid & dogmatic & inflexible” in supporting free trade.
Trade, you see, is simply a method of production.  You can produce a sofa directly, constructing it with your own hands.  But if you aren’t a specialized furniture producer, the number of hours that it will take you to construct a good sofa will be enormous.  Fortunately, you have available an attractive alternative method – a roundabout method – for constructing a good sofa: you can work at whatever it is you specialize in and then transform through trade some of your income into a sofa that you buy from a furniture maker.  The amount of time that it will take you to earn the income necessary to buy a sofa from the furniture maker is much less than the amount of time that you need to construct a sofa with your own hands.
Do you believe that anyone has a right to force you to make your own sofa directly, and at greater cost, in opposition to your wish to make your sofa indirectly by working at your specialty and then transforming through trade some of your income into a sofa?  And would you accuse someone who consistently defends your right to always choose whatever peaceful method of production is, for you, the least costly of being “too rigid & dogmatic & inflexible” in offering this defense?
If you again answer ‘no,’ then all you now need to understand is that when consumers buy imports, they are simply choosing to make things for themselves and their families using the lowest-cost methods of production available to them: they ‘make’ their consumer goods using the roundabout method of working at their specialties and then transforming through trade some of their incomes into these goods.  Sometimes consumers trade with fellow citizens; other times they trade with foreigners.  But in all cases the trades are the lowest-cost methods of production available to consumers for provisioning themselves and their families with the goods and services that they desire.
Why should the making of such choices ever be blocked?
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030
The above originally appeared at Cafe Hayek

10 comments:

  1. It's the nationalists/protectionists who are being "too rigid & dogmatic & inflexible" in their insistence that exchange can only be beneficial when it occurs entirely within the confines of the US government's regulatory sphere, and that someone who trades with the remaining 95% of the world's population is somehow "hurting the country."

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  2. What are you going to do when China makes all the sofas and the U.S. makes nothing?

    /sarc

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  3. The analogy of a person buying from an expensive source or a less expensive source ignores one thing. No doubt the explosion of international trade led to deflation of prices for American consumers, but the American consumer did not get the benefit of lower prices because the Fed fought deflation tooth and nail with ZIRP and quantitative easing. Hence banks and financiers got the benefit of free money while the consumer got static prices. In essence the USG insured that the financial sector and big borrowers got the advantage from international trade and the average American got a pink slip.

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    1. @douglas,

      ─ The analogy of a person buying from an expensive source or a less expensive source ignores one thing. ─

      I have the feeling the ignorance comes from the other direction. Let's see how this goes...

      ─ the American consumer did not get the benefit of lower prices because the Fed fought deflation tooth and nail with ZIRP and quantitative easing. ─

      What the *heck* does that have to do with the points made by professor Boudreaux? when it comes to Opportunity Costs, people will rationally choose to trade than to make all things themselves, as a person who is more productive [his or her effort is more profitable] doing thing A and then trading his or her income for thing B or C, than it is for him/her to make B or C with his/her bare hands. You're not addressing that point at all, merely fixating on "prices".

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    2. The Fed cannot tolerate deflation because the US economy is so over leveraged that mass defaults and insolvancy would result from any systemwide decline in prices (including asset prices). For that reason when international trade exploded essentially China exported deflation - ie they produced at lower cost, and this was repeated with other countries. In response the Fed started extraordinary efforts to inflate the US dollar. The Fed produced inflation used up some of the trade gain in added efficiency.

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    3. by the way you could criticize a comment without calling someone "ignorant". I said a post ignores some fact in my opinion not that the poster was ignorant.

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    4. Douglas, I agree with your main points!

      This election has warped every perception of anything controversial, even here!!!

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  4. ─ You [Mr. Glenn] accuse me [professor Boudreaux] of being "too rigid & dogmatic & inflexible" in my support of free trade. ─

    This exact accusation seems to be the favorite among anti-market ideologues on the left, as well: "You are just too committed to the gods of the free market". In yet another iteration of the notion that up is down and freedom is slavery, there's the notion that advocacy for economic freedom is reactionary to add to the list of contradictory positions. Leftists and Trumpistas alike love to dwell in this binary world they constructed for themselves where everyone else but them are wrong or "too rigid and dogmatic."

    ─ they 'make' their consumer goods using the roundabout method of working at their specialties and then transforming through trade some of their incomes into these goods. ─

    Sure, but for Trumpistas and anti-market ideologues on the right or left, these roundabout methods should be considered immoral if they do not benefit their favorite trade guilds or some mythical "American Worker"(TM) they would normally not care about. Most of these romantics do not want to let go of the idea of "making things here" (which makes no more economic sense than making things yourself with your own bare hands) primarily because it makes them feel like "good people" or "patriotic".

    Many years ago, Mexican poet and Nobel prize-winner Octavio Paz quipped that in Mexico "we don't have intellectuals, but rather we have sentimentals." And precisely that is what the "make it here" idea is: pure sentimentality.

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