Econgirl on Compensation for Trade Losses
By David Henderson
Should some of my gains from In-N-Out Burger be Taxed Away to Compensate Taco Bell?
Jodi Beggs, aka Econgirl, at the “Economists Do It With Models” blog, raises the issue, which more economists seem to be talking about lately, of compensating “losers” from international trade. The basic idea is that since free trade on imports creates gains for domestic consumers that exceed losses for domestic producers, the consumers could have some of these gains taxed away so that the producers’ losses are lower or zero.
She briefly points out some of the problems with figuring out whether it really is trade that hurts producers in specific cases and some of the problems with designing a compensation system. She seems to come down on the side of exploring this further with the idea of actually designing a policy to tax these gains and subsidize losers.
But there’s a much more basic problem than the ones she points out.
It is this: Any argument you make about why gainers from trade across national borders should be forced to compensate losers applies equally to gainers and losers from trade across state borders. For that matter, any argument you use on compensation for trade across national borders applies equally to gainers and losers from trade within a state and even within a city. Recently an In-N-Out Burger establishment opened up in Seaside, California, near where I live. I have wanted one of those for years and we finally have one. I have gone there almost once a week (if I’m in town) since it opened. I’ve also noticed that I’ve gone to Taco Bell zero times since In-N-Out opened, whereas I used to go about once every 3 weeks. So producer Taco Bell lost some of my business to producer In-N-Out. Should I be taxed on some of those gains in my consumer surplus to compensate Taco Bell? I somehow think that Jodi Beggs would say no. But why?