Saturday, May 28, 2011

Richard Epstein on Fair Trade and TAA

It's not too often that one of my law/policy idols writes on trade issues, so when Professor Epstein does, he gets his own blog post.  In his usual clear-and-brutal manner, Epstein dismantles the White House's Trade Adjustment Assistance demands and the case for "fair trade" more broadly.  Here's the best part, but the whole thing is definitely worth reading - twice:
So conduct this little thought experiment: what would be the state of play in the United States if every time a new firm opened up in one state it was required to fund trade assistance for workers at other firms who lost their jobs as a result? The need to compensate incumbent workers would drive out all new firms, and thus entrench inefficient firms in a near monopoly position. It is for that reason that the proper response is always to ignore these losses, and to deal with the question of unemployment through a generalized system of unemployment insurance that, of course, has massive difficulties of its own.

We have to take the same approach to international trade that we take to domestic trade. Those individuals who lose their jobs to foreign competitors are no better off than those who lose them to domestic competitors. These people should receive the same level of assistance, no more and no less.

In this universe of free trade, compensation takes place in a system-wide fashion, as the increased opportunities for labor help all workers alike, including those who have no jobs at all, those who lose their jobs, and those who hope to advance by finding better jobs for themselves. What is so tragically short-sighted in the Obama administration is that it is willing to sacrifice these systematic gains in favor of a tax-driven subsidy program that reduces all possibilities of gains from trade across the boards.

Given the Obama administration’s logic about trade assistance, it is fair to ask whether he and his union supporters are prepared to offer trade adjustment assistance to those nameless individuals whose own job prospects have been rendered bleaker by the president’s refusal to put these bilateral trade agreements to an up or down vote.

His answer would, of course, be in the negative, but for the worst of all possible reasons. Politicians don’t respond to real losses suffered by diffuse individuals who find themselves unable to organize interest-group pressure on their behalf. But these people should not be forgotten in the shuffle to hand out political goodies to the president’s allies.

Instead of getting lost in these political diversions, we should keep our gaze firmly on this central truth: the larger the expanse of the market, the greater the competitive forces everywhere within the system. More product, higher wages, and greater growth are the predictable consequences of a system that lets capital and labor flow to the areas of their higher use. As overall unemployment rates remain stubbornly high, I am hard pressed to think of any counterargument to free trade that is inconsistent with this fundamental insight: free trade leads to economic growth.
Man, that's just plain excellent.

(h/t Don Boudreaux)

1 comment:

Colin said...

Hey Scott, in case you missed it a new paper has been released on trade protectionism you may find of interest: