The Free Lunch Machine

If you haven't come across Clive Crook's assessment of the failure of the Doha round, I urge you to take a look (via Tim Worstall). It's reminiscent of James Ingram's classic, and surely should be the basis of consensus (see Larry Elliot)? The greatest challenge facing development economist's is to bury the mercantile myths that continue to muddy the debate on trade. In recent posts (here and here) I argued that opposition to free trade seemed to rely on either

a mercatile view of economics (i.e. exports make a nation better off, imports harm them) and the infant-industry argument (governments can generate economic gains by supporting new firms in industries with high economies of scale)

I think that Quinn and Jim accepted this point, but Jim added a third factor - the awareness that tariffs can make some people better off, as well as making some people worse off, while sanctions are designed to inflict maximum hurt

I still don't understand this point since he applies tariffs to the actual effects, and sanctions with the intended effects - he's not comparing like with like. Surely the following statement is just as true: the awareness that sanctions can make some people better off, as well as making some people worse off, while tariffs are designed to inflict maximum hurt

The leader in this week's Economist underlines the mercantile folly behind trade talks:

The benefits from free trade come more from imports than from exports. Imports of cheaper or better goods give consumers more for their money and, through competition, raise domestic productivity. Multilateral liberalisation is a sort of jujitsu that uses exporters' determination to get into foreign markets to overwhelm domestic lobbies that would sooner keep home markets closed. The trade diplomat's incantation that to open his market is a “concession” granted in exchange for an opening somewhere else is economic nonsense spouted for domestic political purposes. But it is remarkably fruitful nonsense because, within the World Trade Organisation, any concession to one trade partner is automatically extended to all members. This trick has helped the world enjoy decades of prosperity.

Either way, we have at our disposal a policy that would lift millions out of poverty but are choosing not to use it because of concerns about who gets what. Surely the fairest thing would be to let the people themselves decide whether they want it? But giving them choice would be giving them freer trade. So to deny them liberalised trade is to deny them the choice of deciding who gets what. I'd prefer that consumers - rich and poor alike - decide who gets the gains from trade rather than bureaucrats in Switzerland. They've had long enough to come up with a solution - lets now put it in the hands of the consumers.

Who's the extremist in this debate? It's not a simple distinction between those who favour protection and those who favour free trade, since any of the intended results of protection (the preservation of domestic industries, the environmental benefits of localised trade, the community ethos of small cooperatives) are inherently part of a free trade system. The people arguing for the opposite of protection - deliberate mechanisms to destroy domestic production and force consumers to trade internationally - are not aguing for free trade and those of us who are dissasociate ourselves from them. I'd be interested in a sceptic of free trade using my own argument against minimum wages against me. Perhaps i'm being inconsistent on these two issues. The floor is open.

Comments

[Jim]

"but Jim added a third factor - the awareness that tariffs can make some people better off, as well as making some people worse off, while sanctions are designed to inflict maximum hurt"

God, not this again. One last time, then: if you accept that trade protection creates winners and losers across different sectors, that there are important differences of degree between selective tariff-based protection and total autarky, and that it is not beyond governments to make reasonable guesses as to the effects of protection policies, then you will probably think sanctions will be more likely to be harmful than tariffs. If you don't accept any of that, then you won't. But if you don't accept any of that, you're wrong.

"The greatest challenge facing development economist's is to bury the mercantile myths that continue to muddy the debate on trade."

Personally, I think a greater challenge is to make free-market fundamentalists more aware of reality. It'll be a long fight.

[AJE]

But that's the point - it's a difference of degree, and therefore I don't understand your distinction. Whether tariffs or sanctions are worse depends on the types of tariffs and the types of sanctions. Both create winners and losers, and both can be adopted to inflict "maximum hurt" (appropriately defined).

Even if you're correct, and even if it's not beyond government's to make reasonable guesses, you've assumed away the very problem that exists - adopting reasonable guesses rather than predation. i.e. you've assumed benevolence

Regardless, don't see this post as an attack on you. I was updating my previous argument by acknowledging your own point. And although I'm pointing out that I didn't quite understand it, other readers can make up their own minds.

Surely it's better I reproduce your criticism and add my comment rather than just ignore it?

So putting that issue aside why can't there be a consensus here? Why can't we ditch the idea that trade negotiations should be about "granting" access to one's own market rather than "wanting" it?

As for fundamentalism - on what basis do you say that? I'm all for becoming more aware of reality, but there's no point looking out the window without a good pair of spectacles.