What's so Great about Free Trade? Lots
In a post yesterday, my former UCLA graduate student colleague David Glasner asks “What’s so Great about Free Trade?”
It’s a long, well-written piece and I can’t completely summarize it in a few sentences, but here goes. David argues that the usual way we show that free trade is good for a country (as opposed to the world, which he does not address) is by showing that the gains to domestic gainers, consumers, outweigh the losses to the domestic losers. David challenges the idea that this is a good way. He focuses on a subset of domestic losers, namely workers who lose their jobs. He argues that consumption is just not that important to most people compared to having a job. He hastens to add that he is not making a case for protectionism, but, rather, arguing that we economists have failed to confront the way non-economists typically think about trade. He says that there are some professional economists who are exceptions, that is, who do talk to the public in ways that show a connection with the concerns of the public, but he doesn’t name any of them.
One slice of his argument:
What people do is a far more important determinant of their overall estimation of how well-off they are than what they consume. When you meet someone, you are likely, if you are at all interested in finding out about the person, to ask him or her about what he or she does, not about what he or she consumes. Most of the waking hours of an adult person are spent in work-related activities. If people are miserable in their jobs, their estimation of their well-being is likely to be low and if they are happy or fulfilled or challenged in their jobs, their estimation of their well-being is likely to be high.
And maybe I’m clueless, but I find it hard to believe that what makes people happy or unhappy with their lives depends in a really significant way on how much they consume. It seems to me that what matters to most people is the nature of their relationships with their family and friends and the people they work with, and whether they get satisfaction from their jobs or from a sense that they are accomplishing or are on their way to accomplish some important life goals. Compared to the satisfaction derived from their close personal relationships and from a sense of personal accomplishment, levels of consumption don’t seem to matter all that much. (italics in original)
What is one to say?
A few things.
First, the argument that David Glasner makes applies to any change that causes people to lose jobs. Think of the introduction of the car. That spelled the end of many jobs for blacksmiths and buggy whip makers. Would David say “I find it hard to believe that what makes people happy or unhappy with their lives depends in a really significant way on whether they have access to a car?” I don’t know, but I think, for his argument about free trade to make sense, he would have to say that.
Second, in the very next sentence after the two I quoted above, David contradicts himself. He writes:
Moreover, insofar as people depend on being employed in order to finance their routine consumption purchases, they know that being employed is a necessary condition for maintaining their current standard of living.
But if peoples’ happiness doesn’t depend much on how much they consume, why worry? They could just cut their consumption.
Third, the argument I make when I teach about free trade, which is in every class I’m currently teaching, is not that there are not losers and is not that the losers’ loss from a particular introduction of free trade or a particular new low-cost import is small. The loss can be big. People could be employed for a number of years at wages as much as 20% lower than they were making. I point that out. But I also add that whereas they are losers from that particular trade, they are gainers from the price cuts on the thousands of other goods that they have more cheaply because of free trade. Over, say, 10 years, I point out, the number of net losers from free trade is a small percent, probably under 5 percent, of the number of gainers from free trade and the gainers also include tens of millions of other low-income Americans (ignoring the 100 million or so huge gainers in China.) I don’t know if this would satisfy David Glasner because he would probably say, “So what if people can get clothing, shoes, paper clips, and gasoline more cheaply because of free trade? Our happiness doesn’t depend much on those things.” But it does seem to satisfy most of my students, who come into the class with many of the same ideas that David, in his post, attributes to non-economists.