Monday, March 2, 2009

A Case against Protectionism

This post relates to the following Keystone Economic Principles:
2. There ain’t no such thing as a free lunch.
4. Economic systems influence choices.
6. Do what you do best; trade for the rest.

and
8. Quantity and quality of available resources impact living standards.

While I know case for globalization is a familiar one for most readers of this blog; it never hurts to revisit the basics. And if it is in a well-written piece, it has additional value. (We can discuss marginal utility another time.)

This past weekend saw a very well-written, albeit somewhat lengthy piece in The Wall Street Journal. The author, Jeffrey Garten, is a professor at Yale, and has held economic and foreign policy posts under four presidents - two Republican and two Democratic in case you're wondering.

Garten's piece, The Dangers of Turning Inward, starts with a scenario that would be familiar to anyone who's read Friedman's The World is Flat, comparing what we could easily call "the two India's": one globalized and prosperous, the other isolated from the outside world and drastically poor. The difference in the quality of life that can be attributed to trade is significant. But the portion of the article that focusses on the differences is small. More time is spent discussing the concept on a wider scale. Garten uses data, some general, some specific to construct the argument that economists are familiar with, but that escapes others outside of the profession. He also discusses the institutional framework surrounding trade that has changed since the Great Depression. This information is important because of the constant repeated comparison between that period and this. More importantly, the comparison sets a background for the examples of rising protectionism that are beginning to creep into the policies of advanced economies - economies that should know better, but that are comprised of frightened consumers and producers who maintain that concepts like comparative advantage and gains from trade "work well in theory but don't represent reality." Our response needs to be, theories don't survive unless they represent reality. Trade theory does

I would strongly recommend the article to your attention. Whether or not you develop something from it for use with your students, I will leave to you. You know best your students' abilities and reading levels. But given the rising concerns about protectionism and the costs connected with that course, it's good to have a resource such as this at hand.

I look forward to your comments.

1 comment:

Mike Fladlien said...

i understand the emotion of protectionism so i buy locally as much as i can...on the other hand, i want to satisfy as many wants as possible so i shop for the cheapest prices...i believe that you can't fight market forces and an open economy will distribute goods and services...in the world is flat, mr. friedman makes the point that two countries who trade with each other will not go to war with each other...