On the Case for Free Trade

Vanderbilt's Robert Driskill takes free-trade supporters to task. The article is thought provoking, even if I end up unconvinced.

The essence of his argument:

Do economists know something, though, that Joe Sixpack doesn’t, and does this knowledge inform their thinking about free trade? What they know that Joe Sixpack doesn’t is a basic but not obvious result from economic analysis: The gains to winners from free trade are sufficiently large that a hypothetical redistribution of these gains from winners to losers could make everyone better off. Note that economic analysis doesn’t say that these compensations actually take place. In fact, everyday experience shows us they don’t, and economists know that there are practical problems that make it virtually impossible to carry out such redistribution schemes. Why, then, do economists support free trade?...

What if free trade is making a small percentage of the country much better off, but is hurting a much greater percentage (the “Joe Sixpacks”), as some argue is the case? Even if the total gains to the few winners are sufficiently large that they could hypothetically compensate the losers, why would it be obvious that “Americans as a group are net winners”?

I agree with Professor Driskill about one thing: Any normative statement goes beyond sheer economics and involves a degree of political philosophy. Economists' devotion to free trade is based not only on the positive conclusion that it leads to a bigger economic pie but also on a couple of related philosophical positions.

Some economists take the libertarian view that people should presumptively be allowed to engage in mutually advantageous trades, absent any externalities. Under this view, the restricted-trade equilibrium has no claim to moral superiority--indeed, just the opposite. The fact that some people lose when trade is opened up compared to a restricted-trade status quo is of little moral relevance.

Other economists take the utilitarian view that we should use society's resources to maximize total utility of everyone. Because of diminishing marginal utility, income redistribution from the rich to the poor is a key part of the utilitarian's plan. But a progressive tax and transfer system, rather than restricting international trade, is the most effective way of achieving that goal. Once again, the economic gain or loss compared to the restricted-trade equilibrium is no special relevance. Maybe it would be relevant if for some reason a progressive tax/transfer system were infeasible, but that is not at all the case.

As a theoretical exercise, we often examine the effects of trade by imagining the economy with and without trade. But the situation without trade is not a philosophically noteworthy benchmark under either libertarian or utilitarian perspectives. The libertarian wants maximum freedom; the utilitarian wants maximum social utility. Neither goal is best served by trade restrictions. The fact that some people lose when trade is opened up has no philosophical significance. (Whether it has political significance is another matter.)

Note that the arguments that Professor Driskill uses would also suggest that we economists should not be so hard on the Luddites. After all, there are sometimes losers from technological progress. And the original Luddites were precisely such losers. Yet I doubt that one would find many thoughtful libertarians or utilitarians (or economists of any other stripe) siding with the Luddite cause.