Monday, 31 March 2008

The gains from trade .... redistributed (updated)

A recent piece at Free Exchange asks How do we ease the job-sucking? The point of the posting is that while there is a surplus of benefits from trade, not all sectors of the economy will gain, that is, some regions of the economy are likely to fare worse with trade than they would without trade. There is ample evidence that the gains from trade do outweigh the losses but the distribution of the gains is an issue. Economists need to devise ways to transfer some of the available gains to those adversely affected.

The politics of trade is about finding ways of ameliorating attendant job losses and other economic dislocations that some regions will face. But, as we see currently in the US, some politicians find it easier to be anti-free trade in the hope that will win them votes. What they don't tell the would be voters is that the problems associated with free trade are much more manageable than those associated with closed economic borders. Places like Cuba and North Korea don't trade much with the outside world and is their standard of living really one we want?

But the problem remains, many people see free trade as bad because they see the downside of it around them. Coming up with better ways of distributing trade's benefits would help counter these peoples objections.

Update: Tim Worstall comments on the Compensating the Losers from Trade at the Adam Smith Institute blog and argues against the idea. Steven E. Landsburg also argues against compensation in his essay, What to Expect When You’re Free Trading.

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