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It's basically an argument in favor of trade protectionism at the local level. To be fair, it's not a bad idea, nor is trade protectionism as dirty a word as ec

It's basically an argument in favor of trade protectionism at the local level. To be fair, it's not a bad idea, nor is trade protectionism as dirty a word as economists make it seem. The unfortunate truth is that free trade naturally results in income/wealth inequality, on individual and geographic levels, because it highly incentivizes economies of scale. Rather than 30 different widget makers selling widgets at $5 each, you get one widget maker selling widgets at $4.80 each, because it's more efficient (less overhead per widget). Everybody gets more/cheaper widgets, but the communities containing those other 29 widget makers may lose significant portions of the money coming into their communities - while the community with the remaining widget maker becomes wealthier than ever. And instead of 30 small business owners becoming wealthy, you may get one extremely wealthy widget business owner along with slightly wealthier stockholders. When this happens to all industries all at once, it increases mean economic wellbeing, but decreases median economic wellbeing - and because goods become more efficient to produce due to economies of scale, it also puts downward pressure on wage labor, increases public spending on social assistance, etc. That mostly applies to industry as opposed to retail, but to me that's the other half of the story: most communities aren't able to keep bringing as much into their community because of the consolidation/outsourcing of industry. And then the corporate retailer model increases the rate at which money leaves the community too. I know someone who took a couple introductory economics courses will want to chime in "but trade makes everybody better off on average, because it allows economic participants to specialize at what they're already good at". But in the real world, when someone loses their job or small business due to big-industry consolidation/competition, they may no longer be able to get a job doing what they used to do, because now less people are needed to do that job, as it was made more efficient. So now they need retraining, or they go on social assistance - and the cost of that retraining or social assistance may not outweigh the economic benefits of consolidation. Perhaps the solution to an individual is to move, but that can cause a community to enter a death spiral if enough people leave and the cost-per-person of public services increase. The community needs investment so that a new industry can bring in money, but if all the small businesses died, there may not be local investors with capital to invest, and bigger investors may not see investment in a new industry in small community as optimal because there aren't enough people able to work in that industry - a chicken/egg problem. I'm not arguing that trade itself is bad, but it's not the unequivocal good that many perceive it to be. There are externalized costs and negative butterfly effects that can come from the type of consolidation that free trade enables - and those are harshest at the local level. Sure, widgets may be cheaper, and on average (mean) the economy improves (assuming the externalized costs are less than the improvement in efficiency - which they may not be). But that improvement means little if the resulting wealth/income go to a small number of people, with many more people losing their smaller amounts of wealth/income, all so people could save $0.20 on a widget.

eldavido 9y ago
I think this is a really fair and balanced way of looking at it. The key political question could perhaps be stated as, how do you balance the median vs. the mean? A society which focuses on maximum efficiency will almost certainly have higher inequality, but also higher average wealth. I think it's up to each region/nation to navigate this tradeoff. I do worry that the current political climate in the US really underweights the gains from trade, though. We've had 30-40 years of the most open trade regime in human history and it's raised the US standard of living immensely. I hear people all the time saying, well the median income isn't going up, but that ignores (a) how many things are free today (e.g. Gmail) and (b) how much healthcare prices have escalated (which is paid by firms, absorbing cash that might otherwise flow directly to employees as wages). I think people today actually have it quite good. I'm afraid we might take for granted what got us here and shoot ourselves in the foot with all this protectionist sentiment.
- opportune 9y ago
  I agree that there needs to be a balance. Free trade, consolidation, and competition are of course beneficial in many ways and circumstances. I do wonder if the disconnect between policy and many of the negative effects I outlined in my previous post is due to the fact that decision/policy makers are disproportionately likely to be the ones benefitting from this trend. And for us as developers, especially so in the US, we're the ones directly benefitting from an industry that naturally lends itself to extreme consolidation in certain cases (e.g. a team making software for thousands of people may not need to expand that much to serve millions or even billions of people. See: whatsapp) and living in the countries with a competitive advantage in this industry. And we also mostly live in large cities with multinational corporation headquarters, so we're insulated or even benefitting from what's happening to smaller communities. I grew up in a non-coastal city that is neither doing well nor poorly. It doesn't have a lot of wealthy people to "bootstrap" itself into success by means of capital, nor is it an attractive enough investment opportunity for outside investors (low education with brain-drain chicken/egg problem), but it has a few competitive industries and is somewhat of a local resource and business hub. But once you go into the smaller communities in the region around the city, you really see the phenomenon I'm talking about. A big way money enters most of these communities is through farming or other resource extraction (if they're fortunate enough to have these), but the main way is through social security payments. These places would be perfect for low-medium cost manufacturing because they have large numbers of unemployed, working class people who are down to earth enough to take pride in that kind of work. Those communities are often forgotten when it comes to policy, likely because they are individually small, not culturally important, have some opinions we would consider backwards, and most importantly because they have no wealthy/powerful people to vouch for them. But outside of big cities and regional hubs, where decision makers do reside, this is what a pretty large portion of America consists of.

eldavido 9y ago

I think this is a really fair and balanced way of looking at it. The key political question could perhaps be stated as, how do you balance the median vs. the mean? A society which focuses on maximum efficiency will almost certainly have higher inequality, but also higher average wealth. I think it's up to each region/nation to navigate this tradeoff. I do worry that the current political climate in the US really underweights the gains from trade, though. We've had 30-40 years of the most open trade regime in human history and it's raised the US standard of living immensely. I hear people all the time saying, well the median income isn't going up, but that ignores (a) how many things are free today (e.g. Gmail) and (b) how much healthcare prices have escalated (which is paid by firms, absorbing cash that might otherwise flow directly to employees as wages). I think people today actually have it quite good. I'm afraid we might take for granted what got us here and shoot ourselves in the foot with all this protectionist sentiment.

opportune 9y ago
I agree that there needs to be a balance. Free trade, consolidation, and competition are of course beneficial in many ways and circumstances. I do wonder if the disconnect between policy and many of the negative effects I outlined in my previous post is due to the fact that decision/policy makers are disproportionately likely to be the ones benefitting from this trend. And for us as developers, especially so in the US, we're the ones directly benefitting from an industry that naturally lends itself to extreme consolidation in certain cases (e.g. a team making software for thousands of people may not need to expand that much to serve millions or even billions of people. See: whatsapp) and living in the countries with a competitive advantage in this industry. And we also mostly live in large cities with multinational corporation headquarters, so we're insulated or even benefitting from what's happening to smaller communities. I grew up in a non-coastal city that is neither doing well nor poorly. It doesn't have a lot of wealthy people to "bootstrap" itself into success by means of capital, nor is it an attractive enough investment opportunity for outside investors (low education with brain-drain chicken/egg problem), but it has a few competitive industries and is somewhat of a local resource and business hub. But once you go into the smaller communities in the region around the city, you really see the phenomenon I'm talking about. A big way money enters most of these communities is through farming or other resource extraction (if they're fortunate enough to have these), but the main way is through social security payments. These places would be perfect for low-medium cost manufacturing because they have large numbers of unemployed, working class people who are down to earth enough to take pride in that kind of work. Those communities are often forgotten when it comes to policy, likely because they are individually small, not culturally important, have some opinions we would consider backwards, and most importantly because they have no wealthy/powerful people to vouch for them. But outside of big cities and regional hubs, where decision makers do reside, this is what a pretty large portion of America consists of.