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Alright so here's my problem with this view: free trade is not pareto efficient, it's kaldor-hicks efficient which is to say that everyone is only better off if

Alright so here's my problem with this view: free trade is not pareto efficient, it's kaldor-hicks efficient which is to say that everyone is only better off if we take some of the winnings from the winners of free trade and distribute it to the losers. What would this look like in practice? Textile Company ABC Corp. sells shirts for $20 at a low profit margin. To increase profits it moves its shirt factory from America to Cambodia for cheaper labor and now they can sell shirts for $15. Because of the Kaldor-Hicks efficiency of trade what we should do in this instance is tax that shirt back to say $18 and give that tax money to the now unemployed american workers (at least for a while as a stop-gap) and boom everyone is better off. This way shirts are cheaper and the textile workers are the same as they were (but now with $2 cheaper shirts as well). But is what we're talking about even free trade anymore? Essentially we're taxing cambodian shirts but not american ones! But that's what our theory tells us is the way you do it to actually make everyone better off as a result of free trade. And then of course we don't live in magic, frictionless econ land so in the real world everybody now gets a shirt for $5 cheaper improving their lives a barely tangible amount but the american textile workers have had their lives totally upended and no redistributive tax is ever implemented and some politician who got an econ minor while earning his Business degree gets on TV and says: "Free trade makes everyone better off, it's just economics." And that's why I say it's a case-by-case scenario. In my example above we've added like two or three real-world factors and ended up so far from the simple world of comparative advantage that we're barely even talking about the same hypothetical anymore. I don't mind protectionism in some instances because I know that we won't implement our economically perfect, kaldor-hicks tax and because of that free-trade has had and will continue to have distinctly negative effects on real people and real families. EDIT: apologies about the textwall.

civilian 9y ago
Textwall is fine =] I wasn't actually familiar with Kaldor-Hicks improvement by name, but that was definitely the idea I was getting at! Kaldor-Hicks improvement is defined in a funny way (i.e. could taxes be added such that we have no losers), but it seems like a proxy for "there is a net benefit / overall people are getting wealthier". There is also now excess money in the wallets of the consumers. Consumer savings rates are pretty steady, so they're still going to spend money. The rest of the economy will benefit from that, and should be able to find a good use of our unemployed american t-shirt maker. America exports a lot of machines, especially those machines used in developing world factories. I'm okay with there being losers, as long as the gains are more. Because in every industry this choice between "a sliver more wealth for everyone and a few losers" builds in aggregate. And I'm in favor of global improvement-- I have no (nationalistic/whatever) allegiance to the people who happen to be living near me. Your problem is that there are losers at all. Do you feel like we should have banned the car, for the sake of stablehands and horseshoe cobblers? Do you think we should have banned the light bulb, for the sake of candle makers? I know these examples are about technology improvements rather than laws, but it's the same principle-- greater good, with the side benefit of free choice.
- frgtpsswrdlame 9y ago
  And I'd say you misunderstand my point which is not that I have a problem with some people losing, I have a problem with a few losers losing almost everything. It's almost a negative lottery, where if you come up snake-eyes your job is deported and now you're competing with thousands of other laid off individuals with almost exactly your same experience to find the few applicable jobs that are available. Except that even in a negative lottery you could choose not to play. >should be able to find a good use of our unemployed american t-shirt maker. This is just a total handwave though. There's nothing in your economic theory that says these people are going to find good employment, it's just wishful thinking. We had jobs, we sent them somewhere else, now there's less jobs. Plenty of people who worked at the car plants will never have another job as good. I don't know the history but I'd say that there probably plenty of cobblers who never found as good of employment again either. >I have no (nationalistic/whatever) allegiance to the people who happen to be living near me. That puts you in a tiny minority though. Most people aren't true globablists. >Do you feel like we should have banned the car, for the sake of stablehands and horseshoe cobblers? No, because then most of us lose (we don't get cars), I feel we should have taxed cars and redistributed that money to unemployed stablehands and cobblers though. Then we all win! Let me pose to you a hypothetical example. ABC Corp sells $20 shirts in America. It moves its shirt factory from America to Cambodia. It still sells its shirts for $20. Its new profits are greater than the lost wages of the americans it laid off. If all that profit were distributed to one person, say the CEO would you still think it morally good? I think that example might get at the heart of our disagreement.

civilian 9y ago

Textwall is fine =] I wasn't actually familiar with Kaldor-Hicks improvement by name, but that was definitely the idea I was getting at! Kaldor-Hicks improvement is defined in a funny way (i.e. could taxes be added such that we have no losers), but it seems like a proxy for "there is a net benefit / overall people are getting wealthier". There is also now excess money in the wallets of the consumers. Consumer savings rates are pretty steady, so they're still going to spend money. The rest of the economy will benefit from that, and should be able to find a good use of our unemployed american t-shirt maker. America exports a lot of machines, especially those machines used in developing world factories. I'm okay with there being losers, as long as the gains are more. Because in every industry this choice between "a sliver more wealth for everyone and a few losers" builds in aggregate. And I'm in favor of global improvement-- I have no (nationalistic/whatever) allegiance to the people who happen to be living near me. Your problem is that there are losers at all. Do you feel like we should have banned the car, for the sake of stablehands and horseshoe cobblers? Do you think we should have banned the light bulb, for the sake of candle makers? I know these examples are about technology improvements rather than laws, but it's the same principle-- greater good, with the side benefit of free choice.

frgtpsswrdlame 9y ago
And I'd say you misunderstand my point which is not that I have a problem with some people losing, I have a problem with a few losers losing almost everything. It's almost a negative lottery, where if you come up snake-eyes your job is deported and now you're competing with thousands of other laid off individuals with almost exactly your same experience to find the few applicable jobs that are available. Except that even in a negative lottery you could choose not to play. >should be able to find a good use of our unemployed american t-shirt maker. This is just a total handwave though. There's nothing in your economic theory that says these people are going to find good employment, it's just wishful thinking. We had jobs, we sent them somewhere else, now there's less jobs. Plenty of people who worked at the car plants will never have another job as good. I don't know the history but I'd say that there probably plenty of cobblers who never found as good of employment again either. >I have no (nationalistic/whatever) allegiance to the people who happen to be living near me. That puts you in a tiny minority though. Most people aren't true globablists. >Do you feel like we should have banned the car, for the sake of stablehands and horseshoe cobblers? No, because then most of us lose (we don't get cars), I feel we should have taxed cars and redistributed that money to unemployed stablehands and cobblers though. Then we all win! Let me pose to you a hypothetical example. ABC Corp sells $20 shirts in America. It moves its shirt factory from America to Cambodia. It still sells its shirts for $20. Its new profits are greater than the lost wages of the americans it laid off. If all that profit were distributed to one person, say the CEO would you still think it morally good? I think that example might get at the heart of our disagreement.