6 ms·

Here's one thing I find funny though about this argument (Econ 101, yet correct, yet complicated): The argument for free trade is an efficiency argument (compa

by FabHK 8y ago

Here's one thing I find funny though about this argument (Econ 101, yet correct, yet complicated): The argument for free trade is an efficiency argument (comparative advantage, Ricardo, Hecksher-Ohlin yada yada) that it's unambiguously better, but it's predicated on redistribution: The reason that free trade is unambiguously better is that you can compensate all the "losers" of free trade so that they're as well off as before, and you still have extra income left (to distribute, in theory, as desired politically). Economics mostly shies away from inter-personal utility comparisons (they're hard to grapple with) and prefers the notion of "pareto improvements" (where at least someone is better off without anyone being worse of). Trade theory uses this device of redistribution to show that a free trade is a pareto improvement. But then, in the real world, many advocates of free trade suddenly forget about this part of the argument, and when some sectors of society profit handsomely and many (often workers) end up on the street, they suddenly remember their free-market credentials and argue that no, one cannot redistribute, the free market is optimal and fair and pays everyone their marginal product and yada yada yada. Funny, that amnesia in the middle.

hexane360 8y ago
This is because the strongest advocates of free trade don't treat economics as a useful model, they treat it as doctrine.
nroets 8y ago
Taxing and social services aren't the only way that redistribution occurs. When people are rich enough, they become lazy tourists. Then they travel to poor countries and spend money in restaurants, hotels etc. Similarly, hard working immigrants travel from poor countries to rich countries to do menial work that rich people can't be bothered with. They often send some money back home. If the US can sell their excess maize in poor countries, it lowers the cost of food for the poor people in those countries. (Especially true when the local harvest is poor)
zeroname 8y ago
I don't know where you got this idea, but the argument for comparative advantage has nothing to do with the redistribution of income, nor is there a claim of "fairness" towards each and every individual or interest group. To understand why comparative advantage is an advantage, you must consider the alternative: Economic protectionism. It results in inefficient allocation of labor, because everyone's job is protected. Everyone pays more for everyone else's labor, everyone is less productive. This affects the poor the most, because they spent the biggest share of their income on basic goods and services. Of course there are economic winners and losers, but by attempting to fully protect everyone, everyone becomes a loser, as evidenced by the countless failed attempts at socialism.
- webXL 8y ago
  Perhaps the parent missed something in the yada yada. I'm not sure why people fail to see the benefits of free trade and specialization in their own lives. Just imagine working all day long, out in field, just to put food on your own table! Why would it be a good idea for certain size groups and not others?
  - FabHK 8y ago
    Sorry, nobody is denying the benefits of free trade and specialisation, come on. However, there are people that suffer from the changes, and contrary to the ideal world of econ 101, they're not immediately redeployed in a more productive sector etc. Now the remarkable thing about free trade/specialisation is that we can help those people and still be better off overall. And I'm arguing that in some case we should actually do that. I'm really not sure what's so complicated about the argument: Economic analysis shows that with free trade a country as a whole can afford more than without (which is insufficient to state that everyone is better off, thus insufficient to state that the country is better off), and using the device of redistribution/compensation you can show that everyone in that country can be made better off.
    - webXL 8y ago
      > Sorry, nobody is denying the benefits of free trade and specialisation, come on. Then explain the current resurgence of protectionism right now. This redistribution argument has very little to do with trade, and actually undermines it. You don't have to go very far to see the impact automation has had and will have on certain segments of the population, so why are we muddying the waters with the downside of free trade here? Now I agree with you that those affected by trade (and technological advances), or who are vulnerable should be helped. Since there's always some other threat out there to our collective prosperity, there's really no reason why we can't talk about tax policy, UBI, education at the same time. But we can't kill these geese laying the golden eggs.
      - FabHK 8y ago

by FabHK 8y ago

hexane360 8y ago

This is because the strongest advocates of free trade don't treat economics as a useful model, they treat it as doctrine.

nroets 8y ago

Taxing and social services aren't the only way that redistribution occurs. When people are rich enough, they become lazy tourists. Then they travel to poor countries and spend money in restaurants, hotels etc. Similarly, hard working immigrants travel from poor countries to rich countries to do menial work that rich people can't be bothered with. They often send some money back home. If the US can sell their excess maize in poor countries, it lowers the cost of food for the poor people in those countries. (Especially true when the local harvest is poor)

zeroname 8y ago

I don't know where you got this idea, but the argument for comparative advantage has nothing to do with the redistribution of income, nor is there a claim of "fairness" towards each and every individual or interest group. To understand why comparative advantage is an advantage, you must consider the alternative: Economic protectionism. It results in inefficient allocation of labor, because everyone's job is protected. Everyone pays more for everyone else's labor, everyone is less productive. This affects the poor the most, because they spent the biggest share of their income on basic goods and services. Of course there are economic winners and losers, but by attempting to fully protect everyone, everyone becomes a loser, as evidenced by the countless failed attempts at socialism.

webXL 8y ago
Perhaps the parent missed something in the yada yada. I'm not sure why people fail to see the benefits of free trade and specialization in their own lives. Just imagine working all day long, out in field, just to put food on your own table! Why would it be a good idea for certain size groups and not others?
- FabHK 8y ago
  Sorry, nobody is denying the benefits of free trade and specialisation, come on. However, there are people that suffer from the changes, and contrary to the ideal world of econ 101, they're not immediately redeployed in a more productive sector etc. Now the remarkable thing about free trade/specialisation is that we can help those people and still be better off overall. And I'm arguing that in some case we should actually do that. I'm really not sure what's so complicated about the argument: Economic analysis shows that with free trade a country as a whole can afford more than without (which is insufficient to state that everyone is better off, thus insufficient to state that the country is better off), and using the device of redistribution/compensation you can show that everyone in that country can be made better off.
  - webXL 8y ago
    > Sorry, nobody is denying the benefits of free trade and specialisation, come on. Then explain the current resurgence of protectionism right now. This redistribution argument has very little to do with trade, and actually undermines it. You don't have to go very far to see the impact automation has had and will have on certain segments of the population, so why are we muddying the waters with the downside of free trade here? Now I agree with you that those affected by trade (and technological advances), or who are vulnerable should be helped. Since there's always some other threat out there to our collective prosperity, there's really no reason why we can't talk about tax policy, UBI, education at the same time. But we can't kill these geese laying the golden eggs.
    - FabHK 8y ago