Saturday, July 14, 2007

Trade is Beneficial, Imaginary Lines are Meaningless

This NY Times article suggests that the vast majority of economists advocate free trade, but recently economists like Dani Rodrik at Harvard have questioned the belief that "more markets and free trade are always good and government regulation is always bad." Rodrik has written extensively on the downside of globalization, which would imply that "wealth-creating" trade protectionism is sometimes preferable to "wealth-destroying" free trade.

Professor Don Boudreaux (chair of George Mason's Economics Dept.) responds:

"If it's true that theory and evidence in favor of protectionism are sufficiently strong to warrant economists abandoning their conclusion that free-trade policy is generally sound, then why shouldn't economists -- led by Dani Rodrik -- also start exploring the potential benefits of intra-national protectionism? Surely a scholar not benighted with the free-trade "faith" ought to take seriously the possibility that, say, Tennesseeans could be made wealthier if their government in Nashville restricts their ability to trade with people in Kentucky, Texas, and other states?

Indeed, such an objective scholar should be open also to the possibility that residents of Nashville can be made wealthier if their leaders restrict their ability to trade with people in Knoxville, Memphis, Chattanooga, and other locales in that state.

I suspect that if someone proposed to Dani Rodrik that he explore the wealth-creating potential of state-level protectionism, he would refuse. He would likely (and correctly) say that it's ridiculous on its face to suppose that such protectionism would make the people of Tennessee as a group wealthier over time. If my suspicion is correct, then to what would Rodrik himself attribute his out-of-hand dismissal of the notion that Tennessee tariffs might well make Tennesseeans richer? Would he realize to his chagrin that he is a benighted, faith-based non-scholar? Or would he instead understand that the case for an extensive, market-driven division of labor is so strong -- and that the political border that separates Tennessee from other states is so economically meaningless -- that it would be as pointless for a serious economist to explore the economic potential of Tennessee protectionism as it would be for a serious oncologist to try to cure a patient of cancer by bleeding that patient with leeches."

MP: National boundaries, like state borders, are just imaginary lines on a map, and "economically meaningless." As Don also points out, if we accept that trade between two individuals or firms on the same side of an imaginary line benefit from trade (Michiganders buying Florida oranges), then two individuals on different sides of an imaginary line should also benefit from trade (Michiganders buying Canadian lumber or taking a European vacation). Likewise, if trade protection at the national level can make people better off (tariffs on Canadian lumber), then tariffs at the state level should also make people better off (Michigan tariffs on Florida oranges).

Economists' support of "free trade" is really a support of voluntary win-win "trade" in general, regardless of whether the buyer and seller are on the same side, or different sides, of imaginary lines we call national, state, county and city borders.


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